Avis Budget CEO Maps Vision for Challenging Uber and Lyft

Avis Budget’s CEO Larry De Shon told analysts on Wednesday that his car rental company is in the car-sharing business as he mapped his vision for using mobile, self-service rentals to challenge ride-hailing apps like Uber and Lyft at their own game.

The company’s rally cry that on-demand ride-hailing apps haven’t impacted their business and that rental volumes increased year-over-year for the fourth quarter, coupled with record high revenue for full-year 2015, sets up major changes for how its cars are rented around the world. For example, Avis has been testing self-service car rentals through its mobile app in a few markets and plans to expand into more in 2016 and De Shon outlined how self-service works during the company’s fourth quarter 2015 earnings call on Wednesday.

Travelers will use the Avis app to book a car and when their flight lands their phone will tell them the location of their car and show photos of other vehicles they can choose from. They’ll use their phone to unlock the car door and when they return the car at the end of their trip they’ll walk away and receive a receipt instantly on their phone without interacting with an Avis employee.

“Knowing the customer has arrived and is coming for the car allows us to manage our inventory in real-time, significantly eliminating unused assets,” said De Shon. “And this technology isn’t a long way off…while connected cars exist today, this technology and others will clearly become more pervasive in the years to come.”

“But we’re not sitting around waiting for that time. The combination of connected cars and self-service rentals and ultimately autonomous vehicles opens up tangible opportunities to enhance customer service, lower operating costs, improve fleet utilization and more.”

No Impact from Uber on Short-Length Rentals

Avis Budget’s CFO David Wyshner, also speaking during the call, said the company’s short-length rentals, such as those rented for one day, are most susceptible to Uber and Lyft’s expansion but volumes for these rental types increased year-over-year for 2015. Volumes for low-mileage rentals, those with trips fewer than 50, 75 or 100 miles, were unchanged year-over-year for 2015.

Wyshner said one-day rentals represent only three percent of rental volumes for trips fewer than 50 miles. Avis says its rental day volumes increased two percent year-over-year in cities such as New York City, Boston, Washington, D.C., Chicago, and San Francisco where mobile ride-hailing is most popular.

“Another way of looking at this is that 97 percent of our renters drive our cars more than 50 miles over the course of a transaction, making substitution with a ride-hailing service prohibitively expensive,” said Wyshner. “The net result is that the data simply don’t support the argument that the growth in ride-hailing is coming at the expense of car rental.”

“The reality is that the use cases for car rental and ride-hailing are very different. Our average renter drives our cars more than 450 miles over the course of four days. That’s an average of more than 110 miles per rental day. When you look at shorter-length rentals such as one-day or two-day transactions, the mileage per day actually increases. These are clearly not trips where ride-hailing, often at a cost of around $4 a mile, is going to be economic.”

To that end, Avis remains focused on Zipcar, which it acquired in 2013, to help drive growth as it anticipates the service surpassing one million members in 2016.

“We see car-sharing and ride-hailing as occasionally competing with each other, but they generally represent complementary solutions for people in cities and on [college campuses] who don’t own their own car,” said Wyshner. “We see Zipcar evolving from historically offering only round trip transactions to providing round trips, booked-in-advance one-way transactions and eventually unreserved floating availability.”

Corporate Travel Rentals Weaken as Leisure Stays Strong

The company saw softening of corporate car rentals in the fourth quarter as it also experienced in the third quarter. Commercial volumes declined three percent year-over-year for the fourth quarter with a two percent drop in the U.S.

Avis renewed about 70 percent of its corporate contracts in 2015 which De Shon said is consistent with 2014 renewals, and that 70 percent of those renewals were flat-rate or higher. Leisure volumes increased seven percent year-over-year for the quarter and the company expects that upward trend to continue through this year.