Avis Budget Group's rental business in the U.S. was unexpectedly weak in early 2016. The good news is that a European car rental resurgence seems to be in the offing for the company.
Diminished international demand for car rentals in the U.S., due to the strong U.S. dollar, hurt Avis Budget Group’s earnings in the first quarter of 2016.
January and February were especially weak months, despite the company’s efforts to ensure its car rental fleet was correctly sized in its top markets. Pricing was down five percent year-over-year, but the company’s soft results are being viewed as “anomalous” by Avis Budget Group leadership.
“We believe that currency exchange rates simply made it cost-prohibitive for many Canadians and Latin Americans to travel to the United States and our operations team worked all quarter to get our fleet in Florida and Arizona right-sized to demand,” said David Wysher, Avis Budget Group’s president and CFO, on the company’s latest earnings call. “To be clear though, while Florida and Arizona exacerbated the challenges we faced, pricing was tough throughout North America. In this environment, we pushed for higher pricing where and when we could… I think everything is a little bit softer than we had anticipated in January and February.”
Wysher also said the company is well-positioned to capitalize on an improved economy in Europe, and expects to see strong results from Europe in coming months. Italy, France, Portugal, Spain and the UK all saw double-digit growth in the first quarter of 2016, with Europe up 14 percent overall for the company.
As Avis Budget Group looks to make its rental car business more efficient, it is continuing to grow its Zipcar car sharing service. Zipcar is expected to reach one million users in 2016, and Avis has developed a more streamlined sign up process for flyers to enroll after landing at their destination.
When asked by analyst about heated competition in the car sharing space, Avis Budget Group CEO Larry De Shon said that the company is leveraging its experience managing rental cars to ensure it is more competitive than new entrants to the field.
“I think that as you take a look at the logistics that are involved in managing car share and car rental are extremely complicated, and we have 15 years of experience on the Zipcar side of managing car share, and we have 70 years of experience on the rental car side of managing this,” said De Shon. “I mean there’s a whole infrastructure and talent skill set that’s required; people, systems, equipment. And it’s quite complicated. There have been a number of people that have gotten into car share globally, and many have left. There are some that are in car share globally and aren’t making any money. We continue to grow Zipcar.”
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Photo credit: A woman scanning her card on a Zipcar Toyota Prius. Zipcar