Looking Forward
Continued improvement in the overall economy, combined with ongoing recovery in the credit markets and sustained high pricing in the used vehicle markets are expected to result in low-single-digit growth in transaction days and moderate price increases in revenue per day in 2010.
Fleets will remain tight, which should help pricing. However, some purchase normalization is occurring. Through the first two months of 2010, rental fleet sales have rebounded from an abysmal 2009 comparison, though sales are still only about 65 percent from two years previous.
In its earnings call, Avis Budget said it expects rental transactions in the first quarter to be lower than in the year-ago period. The company, however, expects year-over-year pricing comparisons and rental volumes to trend positive moving forward in the year.
Avis Budget sees per-unit fleet costs declining 4 percent to 6 percent year-over-year.
Dollar Thrifty said demand for value-oriented leisure brands and continued industry pricing discipline will push its 2010 vehicle rental revenue up 2 percent to 4 percent.
Hertz will invest in its infrastructure by revamping its top U.S. airport locations this year with interior and exterior enhancements, as well as opening 150 new off-airport locations.
Hertz has been pleased with Advantage’s growth since acquiring the discount brand last spring. Hertz’s goal is to open 25 more airport locations in 2010. The Simply Wheelz experiment has been folded into Advantage.
RACs seem to have processed the Toyota recall with little impact on profits, though the impact, if any, on a potential drop in resale values of those affected models has yet to be felt.
The View from Wall Street
“We believe the stocks are at the start of a multi-year recovery in earnings that is not wholly reliant on a recovery in travel volumes,” writes financial analyst Christopher Agnew of MKM Partners.
Agnew and fellow analyst John Healy of Northcoast Research Partners note that airline and hotel industry conference calls have forecasted improvements in travel volumes (particularly corporate), which will benefit car rental as well.
“[Northcoast Research Partners notes] that 12 months ago, the outlook for car rental industry fundamentals was very bleak and industry participants have made great progress in curtailing industry capacity, pushing price increases and maximizing vehicle holding costs,” writes Healy. “We are optimistic that rental operators can continue to build on this momentum in 2010.”
Agnew designates Avis Budget, Dollar Thrifty and Hertz as stock “buys.”
Healy maintains “neutral” ratings on Avis Budget and Hertz and a “buy” on Dollar Thrifty.
A neutral rating indicates the stock is forecasted to perform in line with the S&P 500 index. Buy and sell ratings indicate the stock will outperform or underperform the S&P 500.
Sidebar: Avis Budget Statement on No-show Fees
“… We’ve asked our booking partners to make sure their systems can support steps for us to require a credit card for reservations as well as collect a non-cancellation fee. No-shows have always been a problem of varying degrees for the industry, and we’ve seen industry participants take small steps to address this in recent months.
Our counterparts in Europe, Avis Europe and Budget Europe, have each moved forward with a credit card requirement and non-cancellation fees, primarily in the leisure space. Other competitors have built into their channels the option to provide a credit card at the time of reservation in return for a discount. In our case, if you wanted to reserve a specialty vehicle like a passenger van at a major vacation destination this past summer, our call center would ask you for a credit card to hold the reservation.
All of these would seem to naturally lead in the direction of a non-cancellation fee. We’ve been pleased with the results of the various initiatives undertaken this past summer, and our plan is to expand the implementation of non-cancellation fees albeit carefully and prudently.”
From Avis Budget Group Q4 2009 Earnings Call. Transcript courtesy of www.seekingalpha.com.