How Island Car Rentals keeps business humming
Published:Friday | September 10, 2010 | 12:00 AM
Avia Collinder, Business Writer
Car-rental businesses the world over are challenged by slow markets and high-operating costs. Local rental outfit, Island Car Rentals, has been thrown a lifeline of sorts through a deal with its international counterpart, Alamo National Enterprise, the merged operation that runs North America's leading rent-a-car business, National.
Chairman and managing director of Island Car Rentals, Michael Campbell, told the Financial Gleaner that the deal, the value of which he declined to disclose, boosted sales from December 2009 to April this year by between 20 and 25 per cent over the similar period a year before.
The structure of the deal, Campbell said, includes a com-mission paid to Alamo National for every referral Island receives from that company, and a payment to Island by the US firm, for referrals by Island.
Eighty per cent of the business that flows to Island is from tourists to the country with foreign embassies here, international companies with workers in Jamaica and local clients accoun-ting for the remainder of its clientele.
While the deal, by Campbell's account, took some 11 months to stitch together, it is said to have made all the difference during the four months to April when the arrival of visitors to the country was said to have been at lower levels than normal for those months.
But the reprieve came at the same time that Island Car Rentals discounted rates by between 10 and 15 per cent, which Campbell said has been the situation since the start of the year.
Sales improvement
The improvement in sales should continue into the winter season this year, he said. Beyond that, Island will be increasing its current fleet of approximately 800 cars by between 10 and 15 per cent next year.
"If we do not shoot ourselves in the foot, it will happen," Campbell said, referring to what he described as a tendency toward local disturbances that keep tourists away from Jamaica.
He said his company had to shell out significantly more than normal in marketing spend following the west Kingston episode in May.
"It cost us a fortune in advertising," he noted.
Alamo, Campbell said, does 46 per cent of global rentals and Island books Jamaicans travelling abroad for the US firm.
Alamo has major partnerships with the airline industry, travel destinations, travel agents and tour operators worldwide. The company serves customers in the United States, Canada, Mexico, the Caribbean, Latin America, Asia and the Pacific Rim and is a global strategic partner with Europcar.
In 2007, Alamo Rent-A-Car and its sister company, National Car Rentals, were acquired by the American owners of Enterprise Rent-A-Car.
Island Car Rentals, with locations at Jamaica's two international airports and in New Kingston, plus garages in Kingston and Montego Bay, is owned by Campbell and Derek DeMercado.
The company, started in 1973, was valued at US$80 million in 2008. The company offers rentals of vehicles ranging from compacts to luxury cars and provides other services such as chauffeurs, bus transfers and tours.
In 2009, the company received the inaugural Jamaica Tourist Board's Excellence in Service award.
Campbell said the owners of Island are finding it challenging to operate in Jamaica, with the capital-intensive nature of the business in which cars need to be replaced every three years to four years. The company does not, he pointed out, have the option of leasing and replacing its fleet every year in deals with car manu-facturers, as is done in other countries.
The Island managing director added that the cost of doing his kind of business in Jamaica includes planning for an average accident rate of 90 per month, which, he noted, is three times the average in the United States.
The company maintains garages to do its own repairs, adding another J$10 million per month to its operating costs.
Its staff complement is more than 100, but staff costs were not disclosed. Deals have been struck with petrol companies to cut fuel costs.
Meanwhile, Island's fleet is said to be financed to the tune of $750 million by several bank loans backed by company-owned real estate and other collateral.
"They are owned by the banks," said Campbell, referring to the vehicles.
"Every two or three years we sell them to pay down our debt."
When trying to offload the cars, the company competes in a used-car market which Campbell describes as saturated.
With its fleet so highly leveraged, how does Island Car Rentals manage its loan-servicing burden?
"We pay our debts," said Campbell. "We continued to pay, even during the recession."