Hertz Continues to Outshine Avis With Tech Investments for Operations

Car rental companies are quickly expanding into a variety of different services, from package delivery to ridehailing, as the rise of startups like Uber and Lyft increases competition.

So far, for Hertz, these new endeavors are paying off. The car rental company posted solid results for the third quarter of 2019, building on its revenue growth from last quarter with a carefully managed investment strategy. This is in sharp contrast to Avis, which saw a drop in net income, due to poor fleet management, increasing competition in the corporate sector, and rising costs from its newest investments. Both companies reported results in the past two weeks.

Both, however, struggled internationally, where the uncertainty surrounding Brexit, along with other geopolitical issues, led to lower demand in Europe. But while Hertz was able to recover from this, Avis was simply dragged down further.

Revenue increased 3 percent to $2.8 billion for Hertz versus the same quarter a year prior, with revenue per day increasing slightly. Avis, meanwhile, saw revenue flatline at $2.8 billion in the third quarter.

Low Prices and Poor Fleet Management

One of the biggest issues Avis faced this quarter was lower pricing in the U.S. In part, the company said, this was due to slack in its fleet, as the car rental service experienced fewer extreme weather events, and fewer overall recalls than expected, leaving them with excess vehicles.

“When it comes to the pricing on just the core rental car business in the quarter, there was probably a bit too much fleet. We just didn’t see the tightness in the quarter that we had hoped to see,” said Avis CEO Larry DeShon.

DeShon explained the company is continuing to invest in its data analytics team, which oversees fleet operations, but that this was was yet one more cost. The company is also investing in its ridehailing and delivery partnerships, which also dragged down revenue.

On top of this, the company has been facing tough competition for corporate clients, especially among mid- to large- businesses, which kept pricing low in its core rental business. This is something that was aggravated by the fleet excess, as well. While corporate volume was up, pressure from competitors as well as a slack fleet kept average rate per day down.

According to DeShon, the company is continuing to try to up prices in this area, but there is only so much they can do:

“The mid-market and large commercials continues to be extremely competitive when those get renewed,” DeShon said. “So I’m hoping, at some point, we can turn the corner on pricing on those contracts.”

Hertz Reaps the Benefits

Meanwhile, Hertz had a very different experience this quarter. The company saw prices actually uptick in the U.S., as demand across its services grew. Like Avis, the company has been investing heavily in tech, ridehailing, and delivery, but despite these investments, it was able to keep costs down.

Hertz CEO Kathryn Marinello attributed this to better efficiency and productivity, in part due to advances in the company’s technology, which the car rental company recently upgraded. She added that Hertz’s vehicles were lasting longer, thanks to strategic fleet management, bringing overall costs down.

Plus, Hertz has seen these new services grow rapidly. Strong demand in its core rental business, along with its ridehailing and last-minute delivery service all drove the increase in revenue.

Last-minute delivery is the company’s newest venture, and according to Marinello, it is doing extremelky well. The company partners with Amazon and Hertz uses its fleet of vans to help deliver packages on the last leg of their journey.

“We’ve signed hundreds of contracts with the Amazon demand-side platform providers,” she said. “And frankly, we can’t get enough vans. We fleeted up towards the end of the third quarter for this business, we continue to get great demand, we get good margins from it. And we just think it’s a natural adjunct to what we’ve been doing in our [ridehailing] space as well as corporate fleet management, leveraging great assets in the rental car space.”

This tighter management extended to its fleet operations. The company continued to praise its fleet management company, which it said has kept its fleet tight, leveraging prices in Hertz’s favor.

All of this leaves Hertz with more money to continue to invest in more alternative services, something which will define which car rental companies survive, and which do not, in the mobile age.