The UAE's booming tourism industry is reigniting the car leasing sector.
A revived economy and increased tourism in-flows have signalled a rosy thumbs-up for the UAE's car rental market.
Following a period of recession that was shadowed by a damp real estate market, slashed salaries and debt woes, the UAE's car rental market is poised for a bright future, said experts.
"It was a difficult time for us in the year 2009 as we lost a lot of corporate clients since they were scaling down the cars they wanted to rent due to the recession. But things began to change around 2011," said Neil Munro, sales and marketing manager at Hertz UAE.
Sam Eltibi, executive director of the Dollar Thrifty group (pictured above) agreed: "The car rental market post-recession has been showing better numbers than the pre-recession levels. Between 2009 and 2012, we experienced a low and now it has risen again to exceed 15 per cent more than in 2008," said Sam Eltibi, executive director of the Dollar Thrifty group.
According to a research report by Trimetric, an independent research firm, the UAE's car rental industry is predicted to grow continually until 2017 with sales forecasts to record a CAGR of 4.88 per cent reaching Dhs 99.2 million in 2016.
The report attributes the country's relatively small size and reliance on road-based transport infrastructure
for high car rental demand. However, the car rental companies believe that
it is also a case of cultural attitude
and convenience.
"The trend currently is that people who come in for one or two years will rent a car and not buy one as they might own a car back in their home countries as well. Also, renting a car also means not bothering to get it serviced and registered as that is done by the car rental companies," said Mohammed Omar, supervisor at Avis UAE in Sharjah and Northern Emirates.
The corporate client base of the car rental companies also follows a similar principle when deciding to outsource their vehicle fleet.
"When companies own vehicles, their cost involvement is very high as they need extra staff to manage the administration and maintenance of the vehicle. Renting the vehicles means that they don't have to bother about these costs," said K. Mohandas, sales manager at Dollar Rent A Car.
Tapping tourists
Mohandas said that though his client base mainly consists of corporates, Dollar Rent A Car is increasingly tapping into the tourist flow to the UAE through partnerships with travel agents.
"We are an international name and this usually works in our favour as the tourists will be aware of us," he said.
With Dubai's Vision 2020 aiming to treble the tourist sector's contribution to the economy by welcoming 20 million visitors from 2020 onwards, the car rental industry has registered a huge shift in its client base.
"Ten years ago, our business
model catered to 90 per cent corporate clients and 10 per cent tourist clients but, today, we cater to 50-50 per
cent corporate and tourist clients,"
said Eltibi.
Major car rental firms are banking on the their brand popularity to attract customers, especially through their offices in the airport terminals.
The companies will face even tougher competition once the proposed bidding for the Dubai airport terminal is finalised. The bid will authorise only
six car rental companies to operate
from Dubai Airport Terminal 3 from January 2014.
"Competition is slightly high as most of the car companies have locations across the airport terminals, so naturally the market is split with multiple players," said Mohandas.
Hertz's Munro was confident about winning the bid to be one of the car rentals present in the airport.
"Dubai airport is a big tourist destination and a way to capture the market. We will definitely be there as we don't want to miss such an opportunity," he said.
But tapping into the tourist client base does not have to be solely about airport counters as Eltibi explained.
"We are opening in the malls as we expect the tourists to visit there and we can gain access to them," he said.
The report also estimated a rise in domestic tourism, which has impacted the car rental market positively.
"Long-term residents have family visiting them over the year and it can be impossible to fit everyone into one vehicle if you own a sedan. So automatically you turn towards the
car rentals for a bigger vehicle for a road trip on the weekend or otherwise," said Mohandas.
Eltibi added that car rental companies could be a feasible option when the residents have family visiting them.
"You need you car for work, so the best option would be to hire another car for them," he said.
Eltibi maintained that the arrival of metro and other complementary transportation services has not reduced the demand for rented cars.
"Each sector of transport has its own customers and needs. Some people need to go to places where the metro does not reach and people are likely to hire a car than take a cab," he said.
Cheap competitors
"The biggest challenge in the car rental industry is smaller companies offering cars at lower prices," explained Munro.
"They compromise the quality of their service. A car needs to be maintained, serviced and registered properly. All these incur some costs and that cannot be compromised by us because of our reputation," he said.
Omar agreed saying that the differentiating factor that could give a car rental company an edge over the others amid today's competition is the quality of the service provided. "The fleet is just money but it's about whether you can handle it the right way. For us, everyone is a potential customer here," he said.
© Gulf Business 2013
