Asean’s economic prosperity coupled with the rise of intra-Asean tourism is likely to help give a boost to the car rental business and the very few companies that have the capital to tap into the business on a regional scale.
Although the industry has been a fragmented one, most firms have enhanced their fleet sizes and increased their levels of profitability. Over the course of the next few years, the Asean car rental market is expected to experience accelerated growth values each year.
The rental car industry is booming in Asean. As a way of ensuring profitability, besides seeking market share and stability, most companies throughout the chain have a common goal: they want to reduce their dependence on the airline industry and business travellers renting cars at airports, and move toward the broader leisure segment.
The best days of the car rental industry are yet to come, many in the industry believe. As the level of profitability increases, most of the industry leaders will be bound by the economic and competitive barriers of mobility of their strategic groups, and newcomers such as Sixt will have a better chance of infiltrating and realising success in Asean’s car rental industry.
Unlike other mature service industries, the rental car industry in Asean is highly consolidated which naturally puts potential newcomers at a cost disadvantage since they face high input costs with a reduced possibility of economies of scale.
The key success factors for any company in this business are high capacity utilisation, efficient distribution, and integration of technology. Through technology, for instance, car rental companies create ways to meet consumer demand by making renting a car a very agreeable process, adding the convenience of online booking and payment among other alternatives.
Although the sector is fragmented and barriers to entry may be visible from the outside, it is a moderately concentrated sector, and there is a clear hierarchy. From an economic standpoint, disparities exist in a number of dimensions including revenue, fleet size and the market size each company holds in the marketplace.
As a way of reducing uncertainty, most companies are gradually reducing the level of dependency on the airline industry and instead concentrating on the emerging leisure market.
Entering Asean’s car rental industry puts newcomers at a serious disadvantage. Over the past few years following the economic downturns of 1997-98 in Asia and 2008-09 in the West and elsewhere, most major rental companies started increasing their market shares in the vacation sector as a way of ensuring stability and reducing reliance on business travellers.
The smaller players are unable to meet the demands of the market because there are many factors that drive competition within the industry. Over the past few years, broadening fleet sizes and increasing profitability has been the focus of most companies. Some also create value and provide a range of amenities from technological devices to even free rentals to satisfy customers, or employ sophisticated yield management software to manage its fleets.
For any local or international car rental company to be successful in Asean, it must be able to have an abundant number of rental locations, and strategic and tactical approaches to insure proper distribution throughout the industry across the region.
Sixt AG, the Germany-based car rental company that has started to expand into Thailand, has settled on a strategy to penetrate the Asean markets with a comprehensive premium selection of rental and limousine services. Its medium-term goal is to achieve a significant market share with integrated mobility concepts in an important tourist destination.
The involvement of Sixt with a Thai partner is a testament to the potential of the Thai and Asean tourism sector, transport and logistics industries. The Asean region has one of the highest economic growth rates in the world, and boasts many tourist attractions that will lure travellers from around the world.
Sukolkarn Thamchuanviriya is the executive director of Master Group Corporation (Asia) Co Ltd or MGC, the parent company of Sixt Thailand.