A Tale of Two Supply Shifts

I’ve still been riding the high of watching my alma mater (Sam Houston State) win the FCS National Championship last weekend. I’ve bought my shirts, a coffee mug, and even a flag! Strangely, I almost didn’t even book the flight because of travel costs. The semi-final game was on Saturday, May 8th. A win would mean they would play in the championship game the next week, on Sunday, May 16th. I bought my tickets the night before the semi-final matchup just in case I needed to cancel the tickets and get my money back. Thankfully, I didn’t cancel them!

The main headache, though, came with scheduling when and where to go. Dallas has two large airports: DFW International Airport and Dallas Love Field. My initial instinct was to fly to DFW since it was the larger of the two, but when I searched National/Enterprise for a rental car, they were all out. Penn State faculty get a steep discount with National, so that’s why I searched there first. There were cars available through other companies, but the rental price for 4 days came to $450! That was more than the round-trip flight to and from Dallas! That was also enough to make me reconsider the whole trip.

It took me a couple of hours to realize that Southwest also flew there, but that their flights don’t show up on Google Flights. The Southwest flight was roughly the same price as flying to DFW on Delta, so I ended up booking a flight to Love Field. Part of the reason I did it was that National had cars available at Love Field and those cars were half the price. If I had seen the same prices at Love Field, I probably wouldn’t have booked my ticket. I almost would have watched my team from my basement cost all because of a pandemic-induced shortage of rental cars.

The two prices I experienced were drastically different compared to my expectations. Let’s start with the flight first. I booked a round-trip flight from Baltimore to Dallas one week in advance. I feel like that flight should have been much more expensive, but I paid about $350. There were some flights on Delta to DFW for a little less, but that’s a pretty standard fare and much less than I should have paid for booking a flight 7 days in advance. I was honestly pretty shocked at how affordable that flight was given the circumstances. Prices have fallen a lot for flights over the past year, and those prices are at their lowest point since 2004.

Commercial travel plummetted last Spring as pandemic-induced lockdowns swept across the US. While a lot of planes were flying empty, analysts estimate that about a third of all routes were lost during the pandemic, mostly international ones. As Americans began feeling more comfortable traveling again, airlines have started to add routes. Travel hasn’t fully reached pre-pandemic levels, but it’s been steadily increasing this year. TSA tracks the number of people crossing through checkpoints each day, and I’ve visualized that data based on the average number of people traveling each day based on the week they’re traveling:

As people become more comfortable traveling, airlines are taking their planes out of storage, which means more open seats for all that pent-up demand. Airlines have unparked about half of their fleet from the peak of the pandemic and those open seats increase the supply of flights. The marginal cost of filling a seat is fairly low, so I was able to get a decent price on my flight to Dallas despite the timing. While I was surprised to see such a low price for my flight, it sort of made sense once I thought about it. Rental car prices, however, were shocking.

I initially believed rental car prices would also be relatively cheap. I knew people weren’t flying as much, which led me to believe that people weren’t renting cars at airports as much either. I knew that RV rentals boomed during the pandemic, but surely a Toyota Camry wasn’t in hot demand for travelers. It turns out the rental car industry was facing a supply issue as well, but a much different one from that of airlines.

During the pandemic, airlines parked their jets while travelers avoided flights, but Hertz, Avis, and Enterprise decided to sell a significant portion of their fleet. At the time, it likely made good economic sense. Sell the cars in the summer of 2020 to infuse cash into the business while travel was halted. Demand would eventually pick back up, and they likely thought they could just order newer cares when they needed them. What they didn’t know then was that car manufacturers are currently facing a shortage of semiconductor chips, which means that rental car companies can’t meet the suddenly increased demand.

This rental car shortage doesn’t seem to be an issue that will go away soon, as many analysts expect it to last throughout the summer. This may be one of the few times there is an actual shortage of the headline item. Often when shortages make headlines (like chicken wings, flowers, or aluminum cans), there aren’t really empty shelves around. The items may be more expensive than normal, but there isn’t an actual shortage occurring. For rental cars, however, many would-be buyers are getting notices that cars aren’t available for their selected dates. To solve the problem of a shortage, prices need to be increased, and they have at many airports:

Many travelers had grown used to renting a car for $39 a day or less before the pandemic. A quick price scan suggests how much has changed. The cheapest price at Hertz, National or Avis for a one-day rental for Friday at Chicago O’Hare Airport, priced a week in advance on Kayak, was $117 for a Ford Fiesta economy car.

There are a lot of suggestions for how to prepare for the shortage of rental cars available, but a lot of the suggestions simply increase the cost of finding a car, like booking early or booking at neighborhood rental locations instead of airports. Speaking of increased costs, imagine trying to return a rental car a couple of weeks ago as the southeastern US was scrambling to fill up gas tanks following the cyberattack on the Colonial Pipeline! I left Baltimore right as that was happening, but there were long lines all over the city.

  • On April 13, 2020, only 87,534 total passengers flew throughout the US [Transportation Security Administration]

  • The longest commercial flight takes 18 hours and 30 minutes and flies from Newark, New Jersey to Singapore [Insider]

  • Major rental car operators sold more than 770,000 cars last summer [Washington Post]

  • It currently costs an average of $259 per day to rent a car in Bozeman, Montana, the most expensive city in the US to rent a car [Kayak]

Week 20 of the year is done and I have made it to the halfway point of my yearly challenge, checking in 26 books. I finished The Vanishing Half after my flight back from Texas and really enjoyed it. I’ve always really liked books that have alternating narrators. I have a couple of other books I’m almost done with so next week may be a bigger check-in. I normally read in batches, so I tend to finish multiple books at once. Despite the craziness of the past year, I’m still ahead of schedule!

I don’t usually read much in the Fall because I teach my big classes and I travel around the area to visit stadiums. On the trip down to Texas, I was able to add six new ones to my growing list.

I want to thank you for taking the time to read today’s post. If you have any comments/feedback, I’d love it if you shared them with me! Please feel free to leave a comment below. If you are enjoying what you’ve read, share Monday Morning Economist with others. —Jadrian

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