Industry vet David Kilduff argues that ground transportation suppliers mustn't be overlooked in relief packages.
There's a lot of talk about bailing out the airlines, which have been quite profitable since 2008. According to a Statista analysis, U.S. commercial carriers pocketed $28 billion in 2019, and in 2018 generated total operating revenue of almost $240 billion, making the U.S. one of the largest markets for the airline industry worldwide. Do they need a bailout? Yes, probably. And they are getting one as part of the CARES Act. After all, we need an airline industry.
But let's talk about what's getting overlooked in our transportation network as Covid-19 decimates the industry. In a March 22 press briefing, President Trump voiced concern about cruise lines. "We can't let the cruise lines go out of business," he said. He cited the number of jobs connected to cruise business, but for the life of me I don't see the urgent need to bail them out. First, most are not U.S.-based companies and, second, they are not critical to our transportation infrastructure, and in the end they were excluded from the CARES Act. The debate about whether they should get aid, however, is ongoing.
What is essential to our infrastructure is ground transportation, and if you ask me, we need more debate and conversation about that. Business travelers need to get to that airplane, and to most other locations, via ground transport. And it's not just travelers. As a society, we are giving up our cars and relying on ground transportation more than ever. Like air travel, ground travel is a multibillion-dollar industry, but for some reason, it is overlooked and taken for granted during economic downturns.
Maybe that's because the chauffeur driven industry has been saddled with the word "limousine" for a long time, which connotes non-essential transportation associated with special events or "rich people." That is far from reality. Chauffeured transport is heavily integrated with transportation logistics for many companies. These suppliers run company shuttles and buses, develop rideshare programs that reduce the carbon footprint, and they move athletes to sporting events—but not this year, thanks to Covid-19.
Chauffeured transport is also the safest way to travel because of its commitment to duty of care, which includes fingerprint background checks where available and drug and alcohol testing. In this new environment, they're also very diligently disinfecting their vehicles before and after rides to offer the safest and most virus-free way to travel with a driver.
Unlike the airline industry, ground transportation companies aren't bringing in $28 billion among five or six major companies. Instead, these are the little guys, and like a lot of American businesses they can be debt-heavy and are living off razor-thin margins because they have been competing with the venture capital-subsidized pricing of Uber and Lyft for the last 10 years. They are not set up to survive the current financial crisis.
Chauffeured transportation companies aren't the only ones operating with debt. Car rental companies like Hertz and Avis have a high debt-to-equity ratio, which still must be serviced working with revenues severely impacted by the coronavirus. Enterprise Holdings, which is private and does not have the negative debt to equity like the other two companies, has around 2 million vehicles. I have worked in and with the rental car industry for 35 years, Enterprise does not have facilities to park all those cars. They'll have to pay for parking. Most car rental company profitability also relies heavily on used car sales—those aren't happening right now.
Even for Uber and Lyft, which had a very difficult 2019, each losing more than $1 billion with disappointing initial public offerings, the Covid-19 catastrophe was the last thing they needed. The platforms themselves will likely survive, but how will the drivers make it? This is the same issue for the entire chauffeur-driven industry drivers. Lyft has partnered with Amazon to direct drivers to warehouse positions during the crisis, but even Amazon doesn't have that many jobs.
How Will Ground Transportation Survive?
Writing for Politico March 22, Michael Grunwald outlined the grim reality: "Two ugly truths about any epic economic crisis are that not all businesses will survive, and government interventions help determine which businesses will survive."
This is clearly true for ground transportation companies.
Thanks to the CARES Act, there are trillions of dollars being distributed to businesses and individuals. Frankly, though, I'm still particularly worried for the chauffeur-driven industry. Because they are small businesses, most are eligible to apply for aid from the $349 billion available from the Small Business Administration for payroll protection and disaster loans. I've heard from owners, however, that the SBA forms are hard to fill out, and I am concerned about how many of these small businesses can complete them without external advice (which they would have to pay for) or have the right information to qualify.
There's a big question about which companies can even qualify. More needs to be done.
"All of our affected industries need to stand united, competitors and rivals alike, as we are all in this together," said Matthew Daus, former NYC Taxi & Limousine commissioner and current transportation practice chair at law firm Windels Marx. "We need to band together to get Congress to return for a fourth round of recovery or stimulus aimed at all components of business travel, including passenger ground transportation and limousine services, with targeted special relief beyond payroll protection loans or disaster loans."
Even with additional stimulus, ground transportation suppliers won't come out of this disaster unchanged. There's no question that many will either not exist or will be unrecognizable. For now, however, the entire transportation network—air, ground, car rental, rail—needs to pull together and fight to be seen and supported. They need to understand how the whole system works together, including the essential role of "the little guys."