It would be all so easy if you had a map to the Maze.
If the same old routines worked.
If they’d just stop moving “The Cheese.”
But things keep changing…

So wrote Dr. Spencer Johnson in the seminal business parable “Who Moved My Cheese?” Spencer’s lesson is simple: Change happens. Anticipate change. Monitor change. Adapt to change quickly. Change. Yet it’s not so easy to follow.

If it’s not already abundantly clear, the cheese has moved. In the wake of the COVID-19 pandemic, businesses are being forced to adapt the lesson in the most extenuating circumstances they’ve ever faced.

Avis Budget Group outlined pandemic lessons learned during its investor’s presentation to report its fourth quarter and full-year 2020 results, along with insights into present conditions. The presentation provided extraordinary insight into how a car rental company can proactively manage resources in a crisis to meet demand in a dramatically changed environment.

The topline good news — Avis achieved positive adjusted EBITDA in the fourth quarter for the second quarter in a row since the pandemic began. But the company, like every corner of travel, was on a rollercoaster to get there.

Avis Budget Group CEO Joe Ferraro spun the tail: At the end of the third quarter, the country had started to gradually open back up. Travel returned to the point that fleet utilization was holding steady at 60%, peaking at 70% (though on a U.S. fleet size down nearly 30%). October was the best month for Avis year-over-year since the pandemic began, down “only” 28% in revenues year-over-year. Thanksgiving was looking good for bookings and rate.

And then the second coronavirus wave hit — with a vengeance. With increased virus transmissions and new travel restrictions, Avis saw a “dramatic spike” in reservation cancellations and no-shows. The severe travel reductions were most felt in the Western states, with rental days off more than 50%.

Ferraro reported that the company had more vehicles on rent during the Saturday of Columbus Day weekend than it did on the Saturday of Thanksgiving weekend, a first for the company. Christmas fared only a bit better.

Moving into the new year, the semiconductor chip shortage hit.

Ferraro said the shortage will impact fleet deliveries and availability. But he gave an analogy on how the industry, or at least Avis, would manage. The automotive industry was beset by record high recalls in 2014 and then 2017, when fully one third of Avis’s fleet was grounded in the third quarter. Avis had to quickly improve its logistics sophistication to cope and is reaping the benefit today.

Avis can look to fleet diversity (100 makes and models) and a strong relationship with manufacturers as hedges against disruptions due to the shortage. “As it stands right now, I'm comfortable with our fleet levels to both sell if we need to or maximize our volume as it comes,” Ferraro said.

In so many ways, the pandemic moved the cheese. The bigger questions are to where? And how is Avis chasing it?

The biggest opportunities right now are in the local market. Avis finished the year with 46% of its revenue coming from non-airport activity, an increase from 30% in 2019.

The off-airport volume is a mix of commercial and leisure, though leisure bookings on weekends and holidays are taking most of the volume. On the leisure side too, Zipcar had a good year as urbanites avoided public transportation and fled the city on weekends.

Business travel is recovering slower than leisure. Commercial business will come back in greater volume, Ferraro said, when workers migrate from home back to the office. He admitted, however, that “a good deal” of the company’s commercial accounts “are not there yet.”

Commercial business in the traditional sense — corporate travelers getting off planes and into rental cars for sales calls, meetings, and tradeshows — may take until 2025 to return. (Or perhaps travel patterns will shift permanently for a portion of business that will be conducted virtually. The jury is still out.)

But there are some bright spots on the commercial side if you follow the cheese. Avis is seeing commercial growth in the areas of defense contracting, logistics and distribution, aerospace, and some healthcare.

Renting to the ride-hail market, great business for Hertz, has doubled year-over-year for Avis. (Those cars are more likely going to Postmates drivers than Uber at this point.)

The societal shift to e-commerce shows no signs of slowing down, and Avis has increased its package delivery fleet with Budget Truck to take advantage.

Commercial clients are keeping the cars substantially longer — in the fourth quarter, 80% longer than in the fourth quarter of 2019. The benefit is reduced variable costs from fewer touchpoints for washing, refueling, and customer interaction.

The pandemic has forced operational adjustments on every business that should — we hope — drive efficiencies that will stick around for the better days ahead.

Contactless rentals are improving the rental car process. Avis Preferred customers can now select a specific car on their phone, proceed directly to their vehicle, and then exit the facility using a QR code. Non-Avis Preferred members can check in on the company’s sites, which reduce line waits and that seemingly endless counter agent keyboard tapping.

Booking windows have changed. Renters are booking much more closely to their pickup date. That’s deterred cancellations — a good thing — but it puts pressure on making sure cars are in the right places at the right times.

On the remarketing side, sales are accelerating away from physical auctions to digital and direct-to-consumer sales, which recoups a higher return per vehicle, saves money in fees, and decreases time to sale.

And so, Avis booked its lowest fourth quarter revenue total ever, with revenues down 33%. Yet in the Americas, its biggest market, Avis achieved its highest fourth quarter margins in history.

“It goes without saying that 2020 was the most difficult year in our company's history,” Ferraro said. “However, I believe that 2020, while challenging, will also prove to be one of Avis Budget Group's most formative years.”

“The quicker you let go of old cheese, the sooner you find new cheese,” wrote Johnson. There is plenty of it out there for providers of personal transportation, for those who know where to look and commit to going after it.