Avis Budget Group for the second consecutive quarter reported a gain in commercial pricing, up 2 percent year over year in North America for the three months ending June 30. Management during a Tuesday conference call said positive pricing trends continued into the third quarter amid tight fleet levels, sturdy demand and increasingly sophisticated revenue management tools.
Striking a sanguine tone throughout the call, CEO Ron Nelson said, "I'm probably more enthusiastic about our business than I've ever been, and one of the reasons is the meaningful change in pricing that we've now seen play out over the past six quarters."
In North America, rental car revenue during the second quarter rose 12 percent year over year, lifted by a 5 percent rise in rental transactions and 4 percent increase in overall pricing. The company expects full-year North America pricing to grow 2 percent from 2013 levels with up to a 7 percent increase in transaction volume.
Avis Budget for 2013 reported its first overall gain in pricing in years, led by the leisure segment, and followed this year by commercial. "I've been loath to say one quarter or two quarters constitutes a trend, but I think six quarters does constitute a trend," Nelson said.
The 2 percent growth in overall commercial pricing for the quarter was "led by growth in the small business segment," Nelson said. Yet, as leisure pricing continues to make gains—up 6 percent year over year in the quarter—fewer contracted clients are "flipping" to such rates, helping to lift realized commercial pricing.
Even as Avis Budget in the first quarter this year reported its first net gain in the commercial segment, large commercial client pricing remained down. Yet, Nelson on Tuesday noted "modestly positive pricing gains" for the segment in July and August.
In addition to tight supply and solid demand, Nelson attributed pricing strength to new revenue management tools.
The company has implemented "the first phase" of a new yield management system in 100 markets, enabling it "to be more nimble in these markets by being able to shift prices multiple times in the day, based on competitive factors at the individual airport level," Nelson explained.
"We are equally excited about the next steps," he added, which include a second phase, to be launched later this year, that involves "integrating a sophisticated new demand-forecasting model with the yield manager."
The company then will make further tweaks to "optimize fleet and pricing decisions in a very granular manner.
"When fully operational next year," said Nelson, "this system will literally integrate billions of demand, fleet and pricing data points to help us better optimize our fleet, pricing and revenue management decisions to deliver maximum profitability."
The revenue management system upgrades are among numerous technology investments the company is making this year. Those include upgraded Avis and Budget mobile tools that will incorporate some Zipcar technologies, upgrades to its reservations system, new customer service programs—including the deployment of tablets to select on-airport staff to assist customers with rentals while they wait in line—and new websites in select foreign markets.
"We will invest more in IT this year than we ever have," said CFO David Wyshner. "Of our expected $200 million in capital expenditures this year, more than half will be spent on improving our technology platforms."
If there was a dark spot in executive commentary, the company addressed the impact of what Nelson called "record levels" of manufacturer vehicle recalls.
So far in 2014, "close to" 125,000 vehicles have been impacted—"roughly one-third of our peak fleet," said Nelson—compared with 70,000 for all of last year. That has impacted "labor costs, utilization and fleet," the company indicated.
The company for the quarter reported a $26 million profit, swinging from a $28 million net loss for the same period last year.