For many holidaymakers, there is a ritual when you reach your holiday destination airport, after retrieving your luggage and emerging from the arrivals lounge, you go to pick up your hire car. This can be a tortuous process that involves a shuttle bus to a nearby industrial area where you then queue for what seems like hours to finally get to the hiring company’s desk where they try and sell extra crash damage insurance which almost doubles the cost of renting the car for a week.

The hire company will tell you that if you don’t buy the insurance any slight ‘knock’ to your car could cost you up to $1000. The new twist to holiday car hire is that the price of hiring a vehicle in Europe has doubled over the last two years. Data based on the average of car rental businesses in six European destinations had increased from $407 to $810 from April 2019 to April 2022.

A key reason for the rise in car hire prices in Europe is the increase In the price of new cars. When the pandemic hit in March 2020 the car hire business collapsed at the same time travel and tourism market ground to a halt. With no travellers, there was nobody to hire cars too. As a result of this, car hire firms sold off a large proportion of their fleets. When the demand for car hire returned as the European travel market opened up, car hire companies were forced to pay heavily inflated prices for new cars. The price of new cars has been forced up by the world’s shortage of semiconductors.

Car hire firms also face the huge challenge of vehicle electrification. This means hire companies having to switch their fleets to EVs and install vehicle charging points. This represents a significant investment for car hire firms which is being paid for through higher rental costs now.

There are some interesting consequences of the increase in the price of car hire. It is certainly good for taxi drivers who gain customers at the airport who would otherwise have hired a car. But not so good for insurance companies who sell lucrative cash damage insurance. A new market has also developed in the car hire market to challenge the existing care hire model. It comes in the form of an Airbnb for cars where individual people can rent out their own cars through an app from the US company Turo. This offers a cheaper alternative to conventional car hire and is new competition in the vehicle hire market.

Possible points for discussion with a class:

1. Why has the price of car hire increased?
2. What is the possible impact of the increase in the price of car hire on different stakeholders in the market?
3. What are the barriers to entry into the car hire market?
4. How might the entrance of individual people renting their cars through the Turo app affect the profits of car hire businesses?