After attending Hertz's management presentations at the O'Hare rental facility, Avondale Partners found themselves impressed with the year-old "Lighthouse" program's early success. 

"Lighthouse" is a Lean Six Sigma airport operations efficiency program that uses best practices drawn from across its operational footprint to boost customer and employee satisfaction, and deliver improved location profitability through revenue and cost enhancements. The program is designed to be replicable and sustainable, and no other rental car company has embarked on a similarly robust program to drive improved profitability at such a granular level, reports Fred Lowrance, senior analyst at Avondale Partners.

Even though the program is still in the early phases of being rolled-out to Hertz's largest airport locations, Avondale Partners views it as an opportunity for Hertz to increase earnings in the coming years, according to Lowrance. As a result, the firm repeated their Market Outperform rating and the $17 price target on Hertz shares.

Hertz is looking to implement the "Lighthouse" program across 65 of its largest U.S. airport locations, roughly 85 percent of its U.S. airport volume, and 50 of its largest European airport locations, which account for over 50 percent of its European airport volume, Lowrance reports.

By the end of 2010, Hertz plans to have "Lighthouse" implemented at 15 U.S. and 6 European airport locations. By the end of 2011, these numbers should grow to 50 and 20, respectively, according to Lowrance. "This program obviously has plenty of room to grow, as do the benefits associated with these efforts."

Among Hertz's 65 major U.S. airport locations, O'Hare had historically been a money-loser and one of the 10 worst performing locations, Lowrance adds. Now, with a full-year of "Lighthouse" initiatives being implemented, O'Hare is anticipated to be a profitable, top-10 performing location this year.

At its most basic level, the "Lighthouse" program establishes goals for each operating unit on a daily basis-such as shuttle bus operations, maintenance, and customer sales/service-and then measures success daily. Customers and employees at O'Hare have responded well to "Lighthouse", and results have followed suit, according to Lowrence.

Some of the improvements in Hertz's year-to-date numbers at O'Hare:

  • Customer satisfaction (as measured by Net Promoter Score) is up 116% year over year
  • Employee satisfaction is up 71% year over year
  • Airport market share is up nearly 3 points year over year
  • Revenues are up 4% y/y, with high-margin ancillary revenues up 58% year over year
  • Pretax income is up 255% year over year
  • Margins have improved 8.5%

To view Avondale Partners complete report on Hertz's "Lighthouse" program, click here.

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