As we wait for Hertz to post its first quarter financial results (after also delaying and restating its fourth quarter and full-year 2013 results), we are left to scour the first quarter earnings call of Avis Budget Group for clues as to how the overall market is shaping up.
On the face of it, things look pretty good.
The biggest positive takeaway is Avis Budget Group’s growth in pricing. Avis reported that rates are up across the board — for leisure and commercial rentals as well as on- and off-airport, despite the comparison to a strong first quarter of 2013. Strong leisure pricing is helping commercial pricing, as commercial travelers are less prone to “flipping” to a lower leisure rate.
These pricing gains are also reflected in our six-city rate survey.
Getting increases on large corporate contracts (a quarter to a third of commercial business) continues to be difficult, thus Avis has concentrated on mid-market and small business accounts and has seen nice gains there.
Avis said its boost in pricing did not result in eroding market share. Volume, revenue and pricing — and profits — are all up, tempered somewhat by a 7% rise in per-unit fleet costs.
Avis reported a mix shift to higher-margin specialty and premium vehicles. If Avis is successful in putting renters in nicer vehicles, this bodes well for rental market strength.
Avis saw revenue gains in international inbound traffic and from associations such as AAA. Ancillary sales are healthy, driven by factory-installed XM radios on some 200,000 cars that can be activated at the counter.
We know that margins in the insurance replacement rental business are thin. Avis says it is de-emphasizing the replacement market and saw higher local market margins as a result.
European business has stabilized and is growing again, though with some notable economic sore spots, specifically Germany. Latin America and the Asia Pacific region are healthy and growing, while Australia is a sore spot in that region.
In a recent blog on fourth quarter 2013 and full-year 2013 results, I noted that Zipcar had lost revenue last year compared to 2012 yet grew its membership base. You’d think more members would equal higher revenues. Was this revenue dip due to new market expansion or integration expenses? We may never know. But the latest results speak for themselves — this first quarter of 2014 was Zipcar’s most profitable in its history.
Avis put Zipcars in 30 airports and thinks the car-share service can work in 20 more. And yes, Avis does pay concession fees on Zipcar’s airport rentals.
Avis reiterated its motivation for “tuck-in” acquisitions and mentioned it had reacquired franchise operations for Budget in Edmonton and in Portugal, while it expanded the recently acquired deep-value brand Apex Car Rentals in New Zealand. Yet don’t expect Avis to go big this year, as it says it won’t spend more than $100 million total in 2014 on acquisitions.
Avis described the used car market as “stable and healthy” with prices “slightly above expectations,” which is an encouraging outlook for this year. Avis continues to push alternative disposition channels such as its retail partnership with AutoNation.
In terms of outlook, Avis expects volume to increase 4% to 6% in North America and overall pricing to increase at least 1%, including commercial business and Payless, which drags rates down as a discount brand. Avis expects fleet costs in North America to be flat or up 3% compared to 2013, or $300 to $310 per unit per month.
Let’s never forget that it’s incumbent upon a public company to put a positive spin on its future, and with that, let’s not put too much stock in just one company’s positive outlook. But cautiously, the takeaways look very good right now.