Fleet, Growth Costs And Flat Volume Hit Budget In Q4

<B> Fleet, Growth Costs And Flat Volume Hit Budget In Q4</B>

By Lynn Woods

Budget Group announced a loss of $46.1 million for the fourth quarter of 1998, compared with a $2.4 million loss in the fourth quarter of 1997. Total revenues reached $689.3 million, up approximately $2.5 million over the year before, due primarily to the purchase of van and truck rental company Ryder TRS last summer.

Terming the results "disappointing," Budget chairman and CEO Sandy Miller attributed the fiscal difficulties in the car rental division to flat volume, higher-than-expected fleet costs, infrastructure improvements, such as the introduction of the new express rental service Fastbreak, and costs associated with opening new stores and acquiring licensees.

Revenues for corporate rentals in North America reached $268.3 million, up 8 percent over the year before. The average daily rate, combining both business and leisure rentals, was $40.99, up 3.9 percent over the previous year. Fleet growth was flat, with just under 9,000 vehicles, and the average length of rental was 3.9 days.

In a reversal of its strategy to acquire more corporate locations, Budget has refranchised five locations in secondary markets, Miller said. Budget's airport share for the quarter was 11.6 percent.

Despite the disappointing results, Miller said the company's performance had begun turning around in the beginning of this year and that the many investments Budget has made in new services and facility improvements are beginning to bear fruit. He and other executives also pointed to the recent implementation of a new yield management system as an important factor in increasing yield and saving costs, and cited recent changes in key management positions as yet another reason for expected improvements. In fact, just prior to the announcement of the fourth quarter results, Budget appointed Kenneth Gosnell, formerly an executive with Compaq Computer and PepsiCo, as the company's new vice president and chief financial officer and named Denise Cooper, formerly an executive at Gap, Inc., as vice president of human resources.

The launch of Fast Break and the Perfect Drive loyalty program, along with corporate ownership of many more locations and refurbishment of at least 100 locations, have been incentives in attracting more corporate accounts, Miller said. Budget already has received firm commitments for $35 million worth of new business in the corporate sector, representing almost half of its goal of $75 million worth of new corporate business for the year. The new accounts include a variety of small, medium and larger companies, he said. Fastbreak is operating in 130 locations, three dozen of which also offer renters a choice of vehicle. In 1998, more than 520,000 customers signed up for Perfect Drive.

Budget's car rental business in Europe has been hurt by the loss of revenues and royalty fees from Sixt, its former German licensee. It is currently in litigation with Sixt, which is disputing Budget's termination of their agreement last October. A ruling is expected in July. In the meantime, Budget is having all inbound reservations to Germany serviced by another car rental company. Once the Sixt dispute is settled, Miller said, Budget plans to establish a mixture of corporate-owned and Budget franchisee locations in the country.

Budget's volume elsewhere in Europe continued to grow in the quarter, with a 22 percent increase in the United Kingdom and 15 percent in France.