Analysis: Zipcar to expand to airports and embrace business travel under Avis Budget ownership
San Francisco is one of Zipcar's 20 metropolitan areas, and the Avis Budget deal means more parking spaces in new North America locations in 2013. / Zipcar
With the deal, Zipcar will have some big bucks backing its expansion as Avis Budget takes car-sharing more into the mainstream.
Avis Budget Group plans to expand Zipcar availability at airports during peak-demand periods, and will also offer one-way Zipcar service to and from airports. It’s a graduation of sorts for Zipcar, which offers car-sharing services on more than 300 college campuses, and 20 metropolitan areas in North America and Europe.
Following news of Avis Budget’s $500 million deal to acquire car-sharing service Zipcar, these are among the plans detailed by officials from both companies during a conference call and in an investor presentation.
Avis Budget took in about 74% of its $4.3 billion in rental time and mileage revenue in 2011 from airport locations, and hopes to use the Zipcar fleet to fill in at airports when Avis Budget is running out of cars.
Avis Budget CEO Ron Nelson, who conceded he is a car-sharing convert after earlier being dismissive of its potential, said Avis Budget and Zipcar will be complementary in addressing one another’s demand issues.
Avis Budget will offer Zipcar the use of 5,000-7,000 vehicles toward the latter part of the week, including weekends, when it has been difficult for Zipcar to meet demand, Nelson said, adding:
Those are cars that can be multi-purpose. They can work at the airport during the first part of the week and they can work in the local markets fulfilling Zipcar’s demand towards the end of the week. You should expect to see us install some of their technology in our cars but with a fleet of nearly 500,000 vehicles, I think we’re not talking about a huge portion of our fleet having to be equipped to handle the sort-of unmet demand that Zip has.
Zipcar’s fleet will be available to Avis Budget at airports on weekdays when the car-rental company can’t meet high demand, Nelson said.
The vast majority of Zipcar’s $78.2 million in third quarter revenue was generated from its North America operations, and officials said in 2013 Avis Budget would focus on expanding Zipcar to additional North America cities.
Pending regulatory approval, Avis Budget intends to take an “aggressive” look at European expansion for Zipcar, as well.
Zipcar, which executed an IPO in April 2011 and has seen its market cap plummet from around $1.2 billion at that juncture to around $330 million before the deal was announced, currently operates in 20 metropolitan areas in the U.S., Canada, UK, Spain and Austria. Its service is available at more than 300 college campuses.
It turned a profit of $4.3 million during the third quarter.
In addition to expanding Zipcar’s product offerings and global footprint, Avis Budget hopes Zipcar increase its presence in the business travel market as another way to ramp up revenue.
Avis Budget, of course, has a foothold in business travel, and it hopes to leverage those relationships to increase Zipcar’s corporate travel base.
Beyond North America and Europe, Nelson said he hopes to use Avis Budget and Zipcar in combination to win business in China.
Officials estimated that the acquisition would produce $40 million to $50 million in cost savings annually, by lowering costs in fleet acquisition and financing, as well as maintenance.
Founded in 2000, Zipcar has grown organically and through acquisitions, having acquired Flexcar (U.S.) in 2007, Streetcar (UK) in 2010, and Denzel Mobility CarSharing (Austria) in 2012.
Zipcar competes with car-sharing service Hertz on Demand, which was launched in 2008.
During the conference call today, Zipcar CEO Scott Griffith indicated the company “ran a robust process” in exploring its strategic alternatives, and hinted there may have been other bidders besides Avis Budget.
That robust process seems to have benefitted Zipcar’s venture capital investors, including Steve Case’s Revolution Living, Benchmark Capital Partners, Smedvig Capital and Greylock Partners.
Zipcar raised around $67 million during its first 10 years, and early investors will ride away with $130 million in profits, according to CNN Money.
Score one for the sharing economy.
Here’s the letter Zipcar sent to employees about the deal: