The three public car rental companies, Hertz Corporation, Avis Budget Group and Dollar Thrifty Automotive Group, hold their annual earnings calls in late winter.

While the P&L scorecards grab the headlines, underneath the financial big picture, each company presents an operations analysis on what's new, what's working and what we might expect in the near future. Aggregated, this information is a good indicator of where the industry is headed.

The Merger

As of this writing, nothing has been announced. Both Dollar Thrifty and Avis Budget expect to have greater clarity around the FTC's official position "in the near future."  Based on statutory requirements dictated by the FTC and when both companies individually submitted their "certifications of substantial compliance" with the FTC's Second Request, the companies had expected feedback at the end of March and the first week in April.

Dollar Thrifty made it clear that there is no written or verbal agreement with Avis Budget at this time. If the companies sign a definitive agreement within the 12-month period from the announcement of the original Hertz deal, then a termination fee would be due Hertz. On Dollar Thrifty's call, CFO Cliff Buster said he believes the deal "runs off October 1."

Look to Avis, not Dollar Thrifty, as the point on all regulatory discussions.

No-show Fees to Prepaid Rentals

Avis Budget went public recently to say the company is shifting its efforts from instituting a no-show fee to enhancing its prepaid rentals model. Budget launched a prepaid option on its Web site in late 2009, followed by Avis in November of last year. Avis said it booked more than 20,000 prepaid reservations in January, its first full month of deployment. According to its earnings call, the company has begun offering prepay rates in its voice channel, one notoriously plagued by no-shows.

Avis Budget says its prepay revenue will "increase significantly in 2011," while its "no-show experience has improved remarkably" and the company is "realizing the cost savings in utilization..."

Hertz has had a prepaid product in place for a year and a half domestically that has generated $100 million in gross revenues for the company. Prepaid is more than 60 percent of Hertz's European revenues, and that includes direct consumer bookings as well as online agents and brokers. The model will be rolled out in 20 new countries during this quarter.

Hertz Corporation Chairman and CEO Mark Frissora called it "one of the important elements of our growth strategy" and he expects double-digit growth this year.

Dollar Thrifty is content to stay on the sidelines right now. "We are clearly the smallest of the big four players in the industry, and we certainly will follow the industry," said Scott Thompson, president and CEO. "But I think some of the other larger players have to lead on that particular issue."

A Growth in Franchising

Hertz is expanding its franchisee network "to accelerate growth in certain key U.S. car rental markets, which, we believe, can happen faster under entrepreneurial, local ownership," said Frissora in a recent statement.

Hertz franchisees currently operate from 278 locations in the U.S., including 47 airports. Initially, Hertz will transition select corporate markets to franchisee operations, which will convert $100 million in corporate revenue to franchise revenue. Frissora wouldn't predict an upside on additional revenues "until we really get more intelligence around that and continue to experiment with that concept."

Dollar Thrifty sees its franchise revenue growing by double digits in 2011 as it works to expand franchise opportunities overseas. However, franchises don't represent instant revenue, as they take time to implement and gain traction, the company maintains.

Thompson said the opening up of the credit markets will have a positive effect on entrepreneurs getting financing for a franchise operation, which is preferable to the company itself providing its own capital to franchise startups.[PAGEBREAK]

Where Opportunity Knocks

Hertz is not slowing down with Advantage. The discount brand gained 21 locations in 2010 for a total of 46 locations and 14 affiliates worldwide. Revenue increased by $90 million. Off airport, Hertz opened 230 incremental locations in the U.S. in 2010, bringing its year-end total to 1,928. Revenues grew 13 percent.

Dollar Thrifty says it sees its biggest long-term growth opportunity internationally.

Avis Budget contends it is "under-penetrated" in international inbound sales and is investing marketing efforts in Europe and then Latin America and Asia.

Avis Budget is experimenting with co-branded locations off airport. Co-branding realizes the benefits of lower costs for the shared infrastructure and better location sightings for the brand that moved. Some locations with the space also have truck rental.

Avis Budget committed considerable resources in 2010 to reaching renters in the small business segment and grew its small business volume by 9 percent last year. The margins are high, with further upside in 2011.

Avis Budget is not necessarily ready to jump into car sharing, but the company is looking at using car sharing technology in the local market. The goal is to remove the sales agent and the storefront. The company says it has a large commercial customer piloting this technology on one of its corporate campuses, with several others planned for this year. Larry De Shon of Avis Budget Group explained this initiative further at the Car Rental Show.

Avis Budget has been gaining efficiencies in its shuttle trips by better estimating demand per shuttle, reducing shuttle idle time, standardizing shuttle routes and using GPS to track shuttle crews.

 In the area of preventive maintenance, Avis Budget now compares the efficiency of in-house technicians to third-party vendors, which led the company to revamp its approval process for outsourced maintenance work and allowed it to prune its vendor ranks.

Avis introduced portable XM radio last year, though its big ancillary revenue items are still GPS, upsells and insurance.

More Sales through Alternative Channels

Hertz is committed to buying more used cars this year (20,000 to 25,000 units, up from 2,000) to be used off airport and to stock Advantage.

Hertz is also looking to up the percentage of its risk fleet to 80 percent, from 65 percent in 2010. This will allow the company to further diversify its resale channels from auction and direct to dealers as well as direct to consumers through Rent2Buy. The company says these "offshore" channels will represent 65 percent of the company's sales in 2011, up from 42 percent in 2010.

Hertz's depreciation per vehicle for next year is expected to be $294 per unit per month.

At Dollar Thrifty, Thompson said that while used cars are a part of the company's strategy, "It's difficult to implement that strategy in a big way when the used car market is the best in the history of the used car industry."

Dollar Thrifty is working on capturing the $2,000 to $3,000 price differential between the wholesale and retail used car channels, though that does not mean pressing further into the retail space. Dollar Thrifty is running 95 percent risk. Its fleet depreciation per unit in the fourth quarter of 2010 totaled $308 per month.

Subsequent to the earnings call, the company lowered its estimate for vehicle depreciation per unit to $240 to $250 per month for 2011 on a still-improving outlook in the used car market.

At Avis Budget, online dealer auctions and direct dealer sales now account for more than 30 percent of its dispositions. The company said it will be expanding its retail sales program through a national car chain.

Avis Budget is disposing of cars on average at 12 to 14 months, Dollar Thrifty 18 to 20 months.

One Offs

● Thompson said that Dollar Thrifty is not in the market to acquire any smaller, independent rental car companies, neither on the premium or value brand side.

●  Thompson does not see a price war emerging with Advantage or other value brands such as Fox. "When I look at the numbers from Advantage, they have been relatively disciplined in their pricing in the Spartan brand," he said. "So I don't see any signs of some unhealthy price war down there as I currently look at the numbers."

● Avis Budget will be "reinforcing and reinvigorating" its multi-brand strategy it adopted when the companies merged in 2002.

● Frissora said higher fuel prices have had a very small impact on rentals and does not think it will affect rentals much moving forward.

● Frissora was asked if the seismic shift shaking up the world of online travel agencies, GDSs and the airlines presented an opportunity for car rental to reduce distribution costs. Frissora said the company's relationships with its OTAs and airline partners are "really good." But he said that Hertz is working on gaining revenues directly through by enhancing functionality on the Web site to attract new customers. The company is also working with airline partners such as JetBlue and Delta to get the rental reservation further "upstream" in the airline booking process.