In our opinion, 2013 was one of the more interesting years in our coverage of the rental car industry.
Avis Budget led a flurry of mergers and acquisitions, Hertz began initial efforts to integrate Dollar Thrifty and fundamental factors drove operators to begin to manage a moderating used car market in addition to a demand environment impacted by curtailed government travel.
All of this considered, we view 2013 as a successful year for most in the rental industry, and we are optimistic that the industry is in a better place than it was just a few short years ago.
As we close the book on 2013, we wanted to provide the readers of Auto Rental News with a view of key items the investment community will likely be watching as it relates to industry trends in 2014.
WILL CONSUMER CONFIDENCE REBOUND IN 2014 AND ALLOW FOR A MORE PRONOUNCED PICKUP IN DEMAND?
Leading indicators appear positive, and we note a number of airlines, after curtailing capacity in recent years, are leaning toward increasing capacity. Additionally, fuel prices have declined year-over-year, which could help discretionary spending trends and lift the spirits of leisure travelers.
This noted, we also highlight that comparisons should be easier as the industry will not likely experience the same headwinds year-over-year — ones created by the government sequestration and the fall shutdown.
CAR COSTS AND RENTAL RATES — ARE THEY RELATED?
We spend a tremendous amount of time discussing the used car market and rental rates with investors. Oftentimes, investors will develop views related to the future trajectory of each of these metrics independent of one another.
While fleet costs are ultimately something the used car market drives and operators manage, we believe it is unreasonable for investors to analyze fleet costs without contemplating utilization and pricing.
As we look to 2014, we expect industry capacity to contract a bit, primarily a function of Hertz working through fleet realignments with Dollar Thrifty as well as Avis Budget integrating the Payless operations.
Additionally, we believe that profitability per-car per-month is an important measure for many operators. If input cost (car costs) increase, output pricing should move higher as well.