Last week, a car rental operator in New England reported seven reservations total for the first weekend in May, which would normally produce 75 to 100 reservations. Mother’s Day weekend — which usually commands 90% utilization — was at 30%, at least an improvement from the week previous. Yet that still doesn’t account for his lower fleet size.
At the same time, a Ft. Lauderdale operator said he broke 10% utilization for the first time in a month. Florida will be tough for a while without leisure travel from the Northeast, but more importantly lacking the high-margin international traveler for at least the rest of the year.
Another large operator in the South saw a “marked pick up” in local business in the first week of May, “but the rates were so low they might as well not be on rent,” he said.
Is this the darkest hour? Maybe, who knows anymore. Ask Winston Churchill.
In general, airport operators, particularly those just outside of the airports, have seen an increase in business in the last few weeks from locals looking for good deals. But not all this business is good business.
The latest issue for car rental — forget 3,000 units burning in a field — is rampant theft. Some car rental companies are relaxing rules to get cars on the road, and low-low rates are enticing renters who shouldn’t be in those cars. Units are getting stolen and trashed.
Some question the survival of franchise operations, which don’t have the same financial resources to whether the storm as the majors. Franchise and independent rental companies contacted in a random (albeit small) sample report that they’ve received government PPP and EIDL funds.
Survival will likely depend on accessing future rounds of funding, which still won’t be enough to prevent some attrition.
Darkest hour indeed. At the majors, here’s what we know:
Enterprise Holdings, the largest global car rental company, has dismissed 2,000 employees in the company’s headquarter state of Missouri alone, according to public records. As a privately held company, Enterprise’s global workforce situation is opaque.
Avis laid off or furloughed 70% of its workforce globally, some 21,000 employees. Hertz furloughed 16,000 North American employees — 12,000 of them are permanent, according to the company.
What does this look like for the immediate future?
Avis believes it has adequate liquidity for the balance of 2020 and into 2021. The company anticipates revenues being approximately 80% lower in May compared to last year, with “a gradual recovery in June and improving thereafter.”
Enterprise seems best poised to ride out the storm. It remains investment grade and has the lion’s share of neighborhood stores and non-airport business. Hertz can no longer rely on its rentals to the ride-hailing market for the foreseeable future.
Addressing the elephant in the room — a Hertz bankruptcy — what’s the likelihood it’ll happen?
In a “normal” environment, this would be the path. While there are hundreds of thousands of Hertz and Dollar Thrifty cars sitting all over the country, and a fire sale is in no one’s interest, a devalued fleet is only one piece of Hertz's problem. Billions of unsecured credit is what Hertz needs shed. A Hertz bankruptcy is more likely to happen than not. We'll see what happens in nine days when its forbearance extension comes due.
Those cars may not even find physical auction lanes at all this year. While smaller auctions are planning some form of in-person bidding, Manheim and Adesa are considering virtual-only sales through to 2021. Without a rush to flood the lanes, this at least would keep wholesale values from a precipitous drop.
In the words of Hertz CEO Kathy Marinello on yesterday’s quarterly call: “As a responsible management team, we have to be pragmatic about the timing of an economic rebound including the possibility of a second wave of the virus in the fall. No business is built for zero revenue. There’s only so long that company’s reserves will carry them.”
When demand returns, there will be cars waiting for renters, but the larger issue is personnel. Onboarding furloughed staff can’t be exactly aligned with demand, so some business will be left on the table.
With its permanent layoffs, Hertz will be handing that demand to other companies.
Unlike the franchises and independents, the majors still haven’t received a federal bailout. The airlines and airports have, which has recently produced a silver lining for car rental: Airports are starting to give relief on minimum guaranteed payments, from three to six months.
What does this all look like post-pandemic? Yesterday’s prognostications will be different from tomorrow. We seem to all be suffering from “speculation fatigue.”
Looking at travel overall may put it in context: From mid-March until end of April, rideshare was down 91%, airlines down 88%, hotels down 92%, though car rentals was “only” down 83%. Of any in that group, car rental seems best poised to shift to new demand pockets.
When travel returns — we’re talking post vaccination — there may be a percentage shift away from certain types of travel in favor of virtual meetings and events. Europeans will return to Florida beaches, conventions will happen, and families will take road trips. People will travel, and they’ll need clean personal transportation.
Will another travel mode muscle car rental out of the way to put airline travelers into cars at airports? I don’t think a ride-hailing company, carsharing system, or peer-to-peer rental company is in a better position than car rental to take over the on-airport infrastructure from car rental.
Many operators have said their starts to this year were one of their best ever. The fundamentals have not shifted, they've only been interrupted.
For green shoots, let’s look to China. Ctrip, China’s largest online travel agency, reported that car rental in China has already recovered 70% of its business compared to last year. Leo Cai, executive VP of EHI Car Services, the second largest car rental company in China, said in an email his total number of bookings has already exceeded last year, though “price is not 100% there," he wrote. "For the May Day holiday, our total revenue pretty much matched last year.”
Consider this the “3 a.m.” of the pandemic. Dawn is coming. Car rental will survive its darkest hour.
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