Avis Budget Group,
Enterprise Holdings and Hertz Global Holdings—the three major U.S.-based rental
car holding companies—each increased year-over-year revenues during their most
recent fiscal years, as the industry benefited from solid demand, supplier consolidation
and increasingly diversified business lines.
Combined, total revenues
among the three players for their most recent respective fiscal years rose 10
percent year over year to $35.1 billion, based on their reported revenue
metrics.
The largest of those
companies, privately held Enterprise Holdings, which includes its Enterprise
Fleet Management affiliate, reported $16.4 billion in revenue for the year
ending July 31, 2013, up 6.5 percent, or $1 billion, from its prior fiscal
year.
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Meanwhile, Avis Budget
Group reported $7.9 billion in revenue for the 12 months ending Dec. 31, up 8
percent from the prior year, while Hertz Global Holdings' revenue rose 20
percent to $10.8 billion from $9 billion in 2012. Hertz's outsized gains were
driven in part by the November 2012 acquisition of Dollar Thrifty.
While Enterprise does
not disclose profit or loss figures, publicly held Hertz and Avis Budget
finished 2013 with net income of $346.2 million and $256 million, respectively.
Hertz's profit rose 45 percent for its year ending Dec. 31, 2013, while Avis
Budget's fell 12 percent from the prior year.
Demand Stronger Than Pricing
Revenue growth in the
rental segment largely has resulted from growing transaction volumes, as
pricing growth has remained sluggish.
Rental car demand last
year, as measured by transaction days, rose for Avis Budget and Hertz. While
year-over-year volume comparisons at Hertz were skewed by the acquisition of
Dollar Thrifty, transaction days rose 26 percent in 2013 from the prior year.
Meanwhile, Avis Budget rental days rose 4 percent from 2012 levels.
Increasing volume has
proven to be an easier task for rental car firms than raising rates, especially
when it comes to the commercial sector. Even so, pricing on the whole among
rental car companies last year experienced some gains.
While Hertz reported
that its average fourth-quarter U.S. rental rate per day fell 1.4 percent year
over year to $44.91, average daily rate for the full year rose 1.4 percent to
$47.
Meanwhile, driven by
growth in leisure rates, Avis Budget CEO Ronald Nelson earlier this year touted
2013 as the "first full-year increase in our pricing in North America
since 2009."
Operators in the sector
have found less success in raising pricing levels among commercial clients,
although signs of improvement are beginning to show.
Avis Budget has been
particularly active in its efforts to extract higher pricing from large
commercial accounts, and the company has expressed a willingness to walk away
from business that does not drive profitability.
For the first time in
years, the company reported a rise "in our realized commercial pricing"
for the first quarter of this year, up 2 percent from the prior-year period.
That gain came "through
rate increases to our existing book of business or through our initiative to
shift our mix to more profitable customers and channels," Nelson told
investors in May 2014. The realized rate gain came in part from efforts to grow
in the small-business sector, a client base that generally pays higher rates
than large clients. Small-business revenue during the first three months of
2014 rose 8 percent year over year, Nelson said. At press time, Hertz had yet
to disclose first-quarter pricing trends.
Following Avis Budget's
pronouncement on commercial gains, MKM Partners rental car analyst Christopher
Agnew indicated he was "cautious on commercial rates," as the "reasons
for commercial strength" at Avis Budget in the first quarter "may not
last all year." Commercial travelers, he noted, stopped "opting for
lower leisure rates instead of commercial rates" during the quarter. Even
so, citing management, Agnew in May noted that 65 percent of Avis Budget
commercial accounts had renewed "at flat or increased rates," and, as
the company works through commercial accounts with "longer-dated renewals,
fewer large accounts are being repriced lower."
Indeed, Avis Budget
management noted that it is expecting a 1 percent gain in commercial pricing
for full-year 2014 from 2013 levels.
Diversifying The Business
The three major rental
companies have to some degree lessened their revenue reliance from their core
strongholds, as each has entered new rental segments, launched new business
lines and expanded geographically.
"This industry,
which was pretty benign and conservative from a growth standpoint, has really
picked up its game in expanding the reach of the brands," said Abrams
Consulting Group president Neil Abrams. "What they've learned is you can't
be good at one thing. You've got to serve diverse markets, with product and
service offerings that differentiate themselves."
The diversification
trend has been in the works for some time, but as it continues, the large firms
increasingly engage in a game of "you come into our turf, we're going to
go into yours," said Abrams.
For example: Long a
leader in the off-airport segment in the United States, Enterprise has made
significant headway into the on-airport space.
"Enterprise really
had been known, going back 10 years, as being an off-airport operator with a
strong focus on the insurance replacement business," said Abrams. "They
now have really reached out, and cover all bases from on-airport and
off-airport to corporate and leisure."
Abrams noted that
Enterprise during the past seven years "almost doubled its market share"
by rental revenue at the top 50 U.S. airports, as measured by Abrams
Consulting. "That's just the Enterprise brand, not including National and
Alamo," he said. "At the same time, Hertz and Avis have been making
inroads in the off-airport space."
Furthermore, each of the
three largest operators has become multibrand holding companies that tackle
specific market segments with different brands. Both of Avis Budget Group's
core brands target different segments, as does its Payless brand. Hertz also
stepped into the multi-brand approach when it acquired the more economy-minded
Dollar and Thrifty as a supplement to its namesake premium brand. The company
last year expanded into select U.S. markets its Firefly brand, which has a
stronger presence in Europe. Hertz calls Firefly its "deep value brand for
price-conscious leisure travelers."
Additionally, each of
the major companies has expanded into the car-sharing business, and each has
made a series of acquisitions in the space, including Avis Budget's purchase
last year of Zipcar.
While its competitors
build up the portfolios within their companies, Hertz this year announced plans
to spin off its equipment rental business as a separate company, the Hertz
Equipment Rental Corp. The company expects the separation of the businesses to
close by early next year.
This report originally appeared in the May 26,
2014, edition of Business Travel News.