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Earlier this year, major public car rental companies showed that they aren’t going quietly into the night as ridesharing and other mobility services continue their ascent worldwide. Revenue bounced upwards after years of weak pricing and fleets that had swelled far above demand.
That optimism, though, may prove to be short-lived for Avis Budget Group, which missed its earnings target in the third quarter of 2018 following difficulties driving business across Europe this summer, the company reported this week. Its net income dropped 13 percent year-over-year, with revenue rising just 1 percent.
The company blamed its shortcomings on travelers staying home to watch the World Cup and to avoid various heatwaves, along with increased travel by Europeans to North Africa and the Middle East instead of other European countries. Better fundamentals in the U.S. were dragged down by mismanagement abroad.
“As we go into the fourth quarter, it’s… a very strong pricing environment, probably one of the best environments I’ve ever seen,” said Larry De Shon, CEO of Avis Budget Group. “So right now, we see in both improvement in fleet cost and also an improvement in pricing going forward. Internationally, we’re not seeing the pricing improvement. Too many cars there.”
There was some good news for Avis, though. Its Zipcar division is performing well, and the company’s corporate business is starting to pick up again. Yet investments in fleet management solutions and other types of mobility products for customers aren’t paying off financially yet. The bread-and-butter for car rental remains vacationers and business travelers.
“Commercial pricing has been a challenge here for some time,” said DeShon. “What I’m encouraged by is that volumes are turning positive now in commercial. So we’re seeing positive volume now for a few months and we are now starting to see some positive pricing come through in specific months as well. Maybe too early to call that a trend, but I’m excited as we had seen that environment for some time.”
Competitor Hertz Global Holdings exceeded expectations for the third quarter, which it reported Friday, having better managed its international operations, which saw a slight uptick in revenue last quarter. Avis’ international vehicle utilization sat at 74.5 percent, while Hertz’s totaled 80 percent.
Avis had 51,000 more cars available on average internationally over the summer than Hertz, which dragged on its business. Hertz is also seeing the same uptick in corporate business and is looking to increase pricing going forward as demand increases.
“As we’ve improved our fleet, our service and the value we’re delivering out into the corporate space, that has a great impact on our ability to have our fair share in that space as well as to get price for the value we’re creating,” said Kathryn V. Marinello, CEO and president of Hertz Global Holdings. “So when you put out a great fleet and great service and great reliability and consistency for the business traveler, it has the positive impact, both in our ability to hold price, to grow our share that business as well as to attract more on the retail space.”
As Hertz and Avis look to the future, there will be a point when investments in fleet management, car sharing, self-driving cars, and ridesharing options will have to pay off. This is a few years off, perhaps even a decade away, yet the battle for future success is happening in the background as both companies muddle forward.
“What I’m focused on in that regard is being the very best at managing a fleet,” said Marinello. “So we are looking at everything we do in our fleet management technology and capabilities…. the best way to win in the autonomous world is to win with partners is to be they have the skills and capabilities that they need to be successful in managing an autonomous fleet as well as our manage an autonomous fleet.