Car Rentals for a Song

The bombshell fell in early 2000 when the jet-setting son of a Greek shipping tycoon and founder of discount airline Easyjet, Stelios Haji-Ioannou, launched an auto rental business called Easycar in Britain. The concept was simple: low prices and no-frills service.

Much like the low-cost airline the 36-year-old set up in 1995, Stelios’ new brainchild opened up never-before-imagined mobile possibilities to price-conscious travelers. Customers could rent a car over the Internet or book one by phone but pay extra for the privilege. Prices depended on demand and included 100 free kilometers. Customers paid extra if they drove beyond that limit and paid the equivalent of €16 if they brought the car back dirty.

Stelios’ mantra of providing cheap travel for the masses ensured the massive success of Easycar. The company's operations have expanded to France, Spain and Switzerland.

Galvanizing the German competition

Last year, the company’s announcement it would open shop in Germany sent shockwaves through the more established German auto rental companies such as Sixt. The company's shares dove by 10 percent upon hearing the news from London.

Easycar has since shelved its plans to expand into Germany, but the idea of a British discounter wooing away its customers with inexpensive rentals served as a wake-up call for German companies.

One of the first to react was Berlin-based Navicar, a subsidiary of a construction services company. In autumn 2002, Navicar attracted customers by renting out Smart cars for €9. Success followed quickly and the company built up a network of outlets across Germany.

Six months later market leader Sixt also entered the discount rental market with the creation of its Sixti subsidiary -- a move that sparked a price war when the company began offering the Smart for just €5. While Navicar has stuck to the German market and opened a modest 25 outlets there, Sixt has taken on a larger swath of the European low-cost auto rental market, opening outlets in a total of six European countries. In Britain and France, it is competing head on against Easycar. And this year it plans to expand into the Italian market.

Sixti on top

The degree to which competition among rental agencies is driving down costs was illustrated this week by a Sixti promotion that gives customers a free car (insurance and mileage included) -- at least for a day -- when they book a Cologne-Berlin ticket on the budget airline German Wings.

Sixti says its business has been growing steadily since it opened shop several months ago. The company says it had 10,000 bookings in the first four weeks alone and expects a turnover of €10 million next year. Sixti CEO Lars Eric Peters says the company has tapped into a niche. "With Sixti we’ve reached exactly the customer group we want to: people who still haven’t satisfied their temporary need for mobility through rental cars," he says.

The heat is on

Sixti’s latest public relations coup may have given it an edge in the low-cost car rental market, but the battle to offer the better deal now has bigger high-cost pedigreed players scrambling to get a slice of the pie.

World leader Hertz has announced it no longer rules out the establishment of its own discount label, and even European leader Avis plans to reorganize its Budget unit to have a discount rental line. Europcar, a subsidiary of Volkswagen, has already revived its old label Interrent and is attempting to lure price-conscious customers in Berlin and Cologne to start with.

While the battle for European skies may be blazing, the one for the roads only just seem to be heating up.