Olympic Rent-A-Car U.S.: Customer Loyalty Battles Custom Case Solution & Analysis

Case Extraction: Evidence Brief

Agent: Business Case Data Researcher

Financial Metrics

• Industry-wide frequent-flier program costs: Estimated at 100 million USD to 150 million USD annually across the car rental sector.
• Per-rental cost: Olympic pays between 0.50 USD and 1.00 USD per rental to airline partners for mileage credits.
• Market Share: Hertz leads with approximately 25 percent; Avis follows at 22 percent; Olympic maintains a 15 percent share in the airport segment.
• Profitability: Industry margins have compressed by 3 percent over the last 36 months due to price wars and rising distribution fees.
• Frequent-Flier Miles (FFM) Participation: Over 60 percent of business travelers at Olympic request airline miles.

Operational Facts

• Distribution Channels: 80 percent of Olympic bookings originate through Global Distribution Systems (GDS) used by travel agents.
• Fleet Utilization: Average utilization sits at 72 percent, which is 4 percent below the industry leader.
• Geographic Footprint: Olympic operates at 140 major US airports and 300 off-airport locations.
• The Hertz Move: Hertz recently announced a 0.50 USD daily surcharge for customers who choose to earn frequent-flier miles on their rentals.

Stakeholder Positions

• CEO of Olympic: Concerned about the long-term sustainability of paying for competitor loyalty (airline miles).
• VP of Marketing: Fears that eliminating or charging for miles will drive business travelers to Avis or National.
• Airline Partners: View the car rental companies as a significant revenue stream and are resistant to fee reductions.
• Corporate Travel Managers: Prioritize low base rates but are pressured by employees who want to accumulate miles for personal use.

Information Gaps

• Specific retention rates for Olympic customers who do not participate in FFM programs.
• Detailed cost-benefit analysis of the proposed proprietary Medalist loyalty program versus the current FFM costs.
• Exact contract expiration dates with major airline partners.

Strategic Analysis: The Loyalty Pivot

Agent: Market Strategy Consultant

Core Strategic Question

• Should Olympic follow the market leader by imposing a surcharge on airline miles to reclaim margins, or use this moment to gain market share by maintaining the status quo?
• How can Olympic decouple its value proposition from airline rewards without alienating the high-frequency business traveler?

Structural Analysis

The car rental industry faces high supplier power from airlines and intense rivalry among the top four players. The FFM programs have become a commodity trap where rental firms pay for loyalty that resides with the airline, not the car brand. The value chain is currently skewed; rental companies bear the cost while airlines reap the data and retention benefits. Porter’s Five Forces indicates that the threat of substitutes (off-airport brands like Enterprise) is rising as airport fees increase.

Strategic Options

Preliminary Recommendation

Olympic must implement the Hybrid Migration. By matching the 0.50 USD surcharge immediately, Olympic stops the margin erosion. Simultaneously, by waiving this fee for members of its own Medalist program, Olympic creates a powerful incentive for customers to switch their loyalty from the airline to the car rental brand. This path accepts a short-term risk of friction for a long-term gain in customer ownership.

Implementation Roadmap: Executing the Medalist Transition

Agent: Operations and Implementation Planner

Critical Path

• Phase 1 (Days 1-30): Update GDS and web reservation engines to include the FFM surcharge notification. Train counter staff on handling customer objections regarding the new fee.
• Phase 2 (Days 31-60): Soft launch of the Medalist program. Enrollment must be possible in under 60 seconds via mobile or at the counter to minimize transaction time.
• Phase 3 (Days 61-90): Nationwide marketing campaign focusing on the benefits of direct rewards (free days) versus diluted airline miles.

Key Constraints

• Counter Transaction Time: Explaining the surcharge and the Medalist waiver could add 2 minutes per rental, threatening throughput during peak Monday morning rushes.
• IT Legacy Systems: Integrating the Medalist database with the existing real-time fleet management system is the primary technical bottleneck.

Risk-Adjusted Implementation Strategy

To mitigate the risk of customer churn, the surcharge should be introduced as a pass-through fee from the airlines. If Avis does not follow the surcharge within 90 days, Olympic must be prepared to offer double Medalist points to offset the perceived price increase. Contingency involves a temporary suspension of the fee in highly competitive markets like Orlando or Las Vegas if volume drops by more than 8 percent in month one.

Executive Review: Senior Partner Verdict

Agent: Senior Partner and Executive Reviewer

BLUF

Olympic must immediately implement a fifty-cent daily surcharge for airline miles to match the market leader and protect margins. The company cannot continue to subsidize airline loyalty programs that provide no defensive moat. The primary objective is to transition the top 20 percent of business travelers into the proprietary Medalist program. This move shifts the cost of miles to the consumer while providing a clear, fee-free alternative through direct brand engagement. Speed is essential; Olympic must act before Avis captures the narrative as the only fee-free major carrier.

Dangerous Assumption

The analysis assumes that business travelers have the autonomy to choose their rental provider based on loyalty points. In reality, corporate travel mandates often dictate the vendor based on negotiated base rates, regardless of FFM surcharges. If travel managers block Olympic due to the total cost of the rental increasing, the Medalist program will fail to gain traction.

Unaddressed Risks

• Competitor Non-Compliance: If Avis and National choose to absorb the FFM costs to gain share, Olympic faces a structural price disadvantage that the Medalist program cannot quickly overcome. Probability: High. Consequence: Severe volume loss.
• Airline Retaliation: Major airlines may de-prioritize Olympic in their own marketing bundles or increase the cost per mile in response to the surcharge. Probability: Moderate. Consequence: Increased acquisition costs.

Unconsidered Alternative

Olympic should consider a total exit from FFM partnerships. Instead of a surcharge, the company could reallocate the 100 million USD spent on miles into a guaranteed 5 percent price discount for all direct bookings. This simplifies the value proposition and attacks the market on price transparency, which is the primary driver for the growing off-airport segment.

MECE Analysis of Strategic Position

• Financial: Neutralize airline fees; shift costs to the end-user; reinvest savings in proprietary assets.
• Operational: Streamline counter enrollment; automate surcharge collection; monitor fleet utilization.
• Strategic: Own the customer data; differentiate from airline-dependent competitors; secure corporate contracts.

Verdict: APPROVED FOR LEADERSHIP REVIEW