In This Article:
Avis Budget Group, Inc. CAR is gaining from the recovery of global tourism to its pre-pandemic level. Strategic fleet management enables the company to mitigate the effects of supply-chain disruptions. Meanwhile, rising fleet costs affect the bottom line and low liquidity is a red flag for investors.
CAR’s revenues are anticipated to increase 1.5% and 2% year over year in fiscal 2025 and 2026, respectively. Earnings are estimated to surge more than 100% in fiscal 2025 and 63.7% in fiscal 2026.
Factors That Auger Well for Avis Budget’s Success
The car rental industry, particularly in North America, has been experiencing strong demand, driven by changes in consumer behavior, including an inclination on short-term vehicle access rather than ownership. Per Statista, the car rental market in North America is expected to reach $37 billion in 2025. Avis Budget’s strong market share positions it to capitalize on these trends.
According to UN Tourism, the global tourism sector recovered 98% of the pre-covid levels in the first nine months of 2024. As global travel continues to rebound from the pandemic blues, Avis Budget Group will benefit from this rebound and witness an increase in demand for car rentals, both in leisure and business travel, boosting its top line.
Avis Budget's strategic fleet management, including vehicle acquisition at favorable prices and swift adjustment of fleet size based on demand, has improved the company’s operations. This flexibility has allowed CAR to mitigate the effects of supply-chain disruptions, particularly those involving vehicle shortages.
Strong international inbound and inter-European cross-border leisure travel, generating higher margin business while exiting lower price volume, drove the leisure business. This resulted in an increment in the overall revenues per day. Furthermore, a fully operational demand fleet pricing system in CAR’s European business improved the contribution margin by raising vehicle utilization and enhancing revenues per day.
Risks Faced by CAR
About 90% of Avis Budget’s fleet in 2024 is risk vehicles, making the company highly susceptible to fluctuations in the used car market. The company’s presence within the used car market makes it unstable, resulting in difficulty in predicting vehicles’ resale value. CAR’s reliance on risk vehicles and the used car market increases fleet costs, thereby affecting its profitability.
In 2023, fleet costs represented nearly 17% of total expenses, which increased to 21% in 2024. In 2024, total expenses increased 42.8%, hinting at a massive surge in fleet costs, which insinuates that the company might face difficulty in navigating within the risk vehicle and used car market.