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Avis Budget Group (NYSE: CAR) is the largest publicly-traded car rental company in the U.S. It manages a fleet of approximately 350,000 cars and trucks through 6,500 locations and two highly recognized brands, Avis and Budget. In 2009, Avis Budget generated over 81% of its revenue from airport locations.[1] Its Avis and Budget brands combined have a significant market share in the airport car rental business when compared to competitors such as Hertz. However, privately-held Enterprise Rent-a-car is more than twice as large as runner-up Avis Budget by market share. Enterprise generates most of its revenue from local, off-airport locations.

The Avis brand represented about 61% of 2009 revenues, followed by Budget's 32%, and finally 7% by Budget Trucks.[1] In 2009, the company completed over 23 million vehicle rental transactions, and earned $4.0 billion in total car rental revenue.

With so much of its business at airports, the company is highly dependent on the airline travel industry. Things that hurt air travel - including terrorism, recessions and increased oil prices - can dramatically affect demand for rental cars. Furthermore, because the company purchases the vast majority of its fleet under special repurchase or guaranteed depreciation programs (whereby they can sell vehicles back to the manufacturers at a certain price) with Ford Motor Company (F) and General Motors (GM), they are subject to risks related to these manufacturers financial troubles.

Business Overview

Avis Budget rents its approximately 350,000 cars and trucks through 6,500 locations, drawing most of its revenue (81% in 2009) from airport locations. The company's two brands, Avis and Budget, target different segments of the market, with Avis primarily a business/upscale leisure option and Budget a value-oriented brand targeted toward more cost-conscious consumers. Combined, they hold a substantial share of the airport car rental market.

The company also services the residential hauling and moving market with its local or one-way Budget rental trucks operated from its 2,400 dealers nationwide. The company also licenses the Avis and Budget trademarks to licensees in areas in which it does not operate. For instance, these include Europe, Africa, the Middle East, and parts of Asia.[1]

Financial Performance

Business Financials

During 2009, Avis Budget Group posted a net loss of $47 million, a $1.1 billion improvement from its 2008 net loss of $1.1 billion.[2] They were able to accomplish this despite its total revenues declining $853 million in 2009, principally due to a 15% decrease in time and mileage revenue in its car rental operations resulting from a 20% decrease in domestic and international car rental days.[3] More importantly, in 2009 Avis avoided a $1.2 billion impairment charge, which caused its large net loss the previous year.

Business Segments

Avis Budget Group breaks its operations into three segments: i) Domestic Car Rental, ii) International Car Rental, and iii) Truck Rental.

Domestic Car Rental (77.3% of 2009 Revenues)[3]

Domestic Car Rental provides car rentals and ancillary products and services in the United States. In 2009, this segment earned $4.0 billion in total sales.[3]

International Car Rental (15.8%)[3]

The International Car Rental segment provides vehicle rentals and ancillary products and services primarily in Argentina, Australia, Canada, New Zealand, Puerto Rico and the U.S. Virgin Islands. In 2009, this segment earned $808 million in total revenues.[3]

In October AVIS Budget will integrate Avis Europe becoming the world wide leader.

Truck Rental (6.9%)[3]

The Truck Rental segment provides truck rentals and related services to consumers and light commercial users in the United States. In 2009, this segment posted total revenues of $354 million.[3]

Business strategy

There are two segments and two main drivers

Tourist segment just look best price, is very cyclical and main part of demand is concentrated in some months. The low cost companies are leaders in that segment (dollar or thrifty). Those companies have better prices thanks to their low structure costs

Business segment: Clients need better services and a national coverage even in that areas where is not profitable to have a offices. Those companies fight with higher prices and better services.

Strategy: • Tourist segment: Reduce Price cutting structure costs of bigger companies reducing less profitable offices using alliances with local renters and better fleet cots. • Business segment: Global fleet solutions providing renting, leasing and rent car services. Renting and leasing is a new flexible product more attractive that traditional finance renting.

Trends and Forces

Airline Travel

Over 81% of the company's car rental business in 2009 came from travelers who rented vehicles upon reaching their airport destination. Indeed, the Avis and Budget brands combined enjoy the largest market share and substantial brand recognition at airports. During periods of heavy traveling and vacationing, the company benefits from the tailwinds of increased traffic at its airport locations. Conversely, disruptions to travel, including terrorist attacks, natural disasters, or recessions (during which consumers and businesses cut spending on non-essential travel and vacation) adversely affect the company's bread-and-butter car rental business. Presumably, the Avis brand is more resilient than the Budget brand during times of recession and generally poor travel as it targets both businesses with more regular travel needs and a generally higher-income customer.

The company is subject to problems associated with domestic auto manufacturers

The majority of the company's rental vehicles are purchased from Ford or GM. CAR enters into repurchase or guaranteed depreciation programs, in which they can sell vehicles back to the manufacturers at a certain price for the car after a certain period of use. The arrangements mitigate the risk that the value of the cars falls below expected levels after the company is through using them (i.e. "residual risk"). But the continuation and success of these arrangements depends on the ability of the manufacturers to pay their obligations when the company wishes to sell back vehicles. They also depend on the ability of the manufacturers to be financial willing and able to offer vehicles on terms with low residual risk. Because these companies have been struggling with credit problems and operating deterioration, Avis Budget faces the trickle-down risk of these firms' continued troubles.

Demand for asset-backed securities largely determines the attractiveness of financing available for the company's fleet

Like most car rental companies, Avis Budget finances its fleet of vehicles with substantial debt, often packaging and securitizing debt in the form of an asset-backed security using the financed cars as collateral. If Wall Street's appetite for these securities dissipated or if interest rates rose due to factors such as rating agency downgrades, collateral impairments, or credit insurer financial deterioration, Avis's ability to raise capital on good terms can be adversely affected. Over $5 billion of Avis' $7 billion+ indebtedness is asset-backed debt. This heavy leverage places the company at greater risk of failing to meet debt covenants and greater risk of not being able to raise more capital on favorable terms.


The auto rental industry is highly competitive. The company's main car rental competitors are Hertz Global Holdings (HTZ), Dollar Thrifty Automotive Group (DTG), Vanguard Brands, and Enterprise Rent-a-Car. Generally, the company competes primarily with Hertz and Dollar Thrifty for airline-related rental business. Enterprise, which is privately held, has a U.S. market share nearly double that of Avis Budget and sports a larger car fleet and higher revenues. The company focuses on off-airport business, including "loaners" and other travel.


  1. 1.0 1.1 1.2 CAR 10-K 2009 Item 1 Pg. 1
  2. CAR 10-K 2009 Item 7 Pg. 40
  3. 3.0 3.1 3.2 3.3 3.4 3.5 3.6 CAR 10-K 2009 Item 7 Pg. 41
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