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Avis Budget Group in the coming months will work to finalize a deal to acquire Dollar Thrifty Automotive Group. If consummated, the transaction would follow a lengthy bidding war with Hertz, which effectively ended on Sept. 30 when Dollar Thrifty shareholders rejected the Hertz acquisition agreement. Avis Budget chairman and CEO Ronald Nelson recently spoke with Management.travelabout his company's proposed acquisition, his outlook for 2011, progress in introducing no-show feesfor U.S. car rental customers and discounts for pre-paid rentals.
Where do you stand on getting antitrust approval for the Dollar Thrifty deal, and what's the next step after that?
We've spent the last three months providing information and support. We're nearing the end of providing all the information [U.S. federal regulators] have requested, providing all the support we can for the position. We effectively told them that to certify compliance, at least with respect to our agreement with [regulators], they would have to make a decision by March or April. Technically, we don't have a deal with Dollar Thrifty. Assuming we get clearance, we still have to do a proxy. In the best of circumstances, we won't be able to get it done until after the second quarter.
What are the key benefits both to you and the industry from this deal?
From our perspective, it's about corporate opportunity. There's a fair amount of cost takeout. If you think of the day-of-the-week use of the fleet, Avis peaks during the week and Dollar Thrifty peaks at the end of the week. This allows you to optimize the fleet and generate much better utilization. Obviously, [we] don't need to have as much fleet, so that's the big cost benefit. There's also the commonality of systems, such as IT, when you merge. Hertz put a number--and this is their number, not ours--of $175 million for cost efficiencies. It's a big number. In terms of what the industry gets out of this, if you look at what's happened over the past 10 to 20 years, every time there's been a consolidation, there's a positive impact on pricing. This is a business where you continually have to balance being the lowest-cost provider with the best customer service experience provider.
Has the industry made progress in improving its cost structure during the past few years?
All of us have embarked on cost-reduction programs and efficiency programs for our cost structure. Obviously what motivated it was that revenue was down $800 million to $900 million in 2009, so there's been a lot of rethinking on how you approach the business. We've taken out about $170 million in costs. Fleet costs have been stable in the last couple of years, as the used car market's been very strong. We're poised pretty well as business travel is coming back and leisure seems to have turned around. As you recover some or all of that $900 million of revenue, the future looks positive, though it's still early.
One fleet management tactic Avis Budget has discussed in the past has been introducing no-show fees. Is that something you still are pursuing?
We're still looking at it. Our customers all have the systems in place to do it, but we've slowed it down. There hasn't been industry acceptance of it yet. It's limited. What we've done, as Hertz has done, is look at pre-pay as the positive side of a no-show fee. If somebody pre-pays for a rental, they're unlikely not to show up. If you go to our website, you'll see that pre-paying discounts the rental rate from 5 percent to 15 percent. For us, this has never been about getting more revenue. It's been about managing our fleet. This is same issue, looking through the prism from the other side. We have pre-pay in a lot of markets. We have no-show fees around certain cars, specialty cars and certain events, such as the Super Bowl or large conventions.
What's your strategy for 2011?
We're investing for growth. We're in the early part of the cycle, and we have had two good years of growth back to back, so we've got a number of initiatives. We're going to be investing in marketing for both brands. We're redoubling our efforts in certain segments of the market. This will be an interesting year for us.
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