Avis Budget CEO Ronald Nelson last May said the rental
company would "have some spine" when negotiating for rate increases with
commercial clients. For the fourth quarter, the company once again reported
year-over-year pricing declines in the segment, but continues to report
progress on new contracts, modest gains in pricing so far this year and
optimism about pushing rates upward as contracts renew.
"We have not lost heart
or initiative," Nelson said Thursday
during a conference call with analysts. "We're going to continue to push
because [the commercial segment] certainly declined in terms of profitability
contribution and our revenue mix."
Overall fourth-quarter rental
pricing in North America was "unchanged" from the prior-year period,
Nelson said, with U.S. leisure pricing up by roughly 1 percent year over year and
commercial pricing down 1 percent. Fourth-quarter commercial volume rose 1
percent.
He chalked up the year-end
softness to an unnamed competitor that was "overfleeted" during the
quarter and also cited challenging comparisons to the prior-year period, when
Hurricane Sandy helped keep market supply tight.
He pointed to some success in
nudging commercial rates upward. "Over the course of the year, we renewed
almost 1,400 commercial contracts and were able to hold or increase rates
roughly 60 percent of the time," said Nelson.
Yet, he pointed to an "average
decline on renewals in the second half of the year. We are succeeding in
stemming the rate of decline as we work our way through the renewal book.
Needless to say, we're still not satisfied, and our goal continues to be to
move our average renewal rate to positive territory."
The effort could take years
to play out, as "not all contracts renew over the course of a year"
and some even extend for up to four years, he said.
Nelson said "the most
immediate impact" on lifting overall commercial pricing would be achieved
by shifting ABG's business mix, with the company being "more aggressive on
midmarket and more aggressive on small business, both of which have higher"
average rates per day.
When looking at all rental
segments, Nelson said 2013 represented "the first full-year increase in
our pricing in North America since 2009." The company expected further
gains in pricing for full-year 2014.
For the first six weeks of
2014, "Our realized pricing has been up 2 percent, excluding Payless, with
gains in both commercial and leisure rates," said Nelson.
Executives also discussed the
implementation of a new yield-management system that enables the company to
more quickly adjust pricing in response to market changes.
Meanwhile, Nelson said the
company has "begun to offer Zipcar to Avis and Budget commercial
customers." He noted the company also has launched a pilot of one-way
Zipcar rentals, with plans to expand "more broadly" this year.