ECONOMY

Avis/US car rentals: supply squeezes mean tourists pay up

While waiting in an interminable line at the rental car counter to pay a sky-high price for a high-mileage vehicle, Avis Budget would like you to know that you are getting a bargain. Amid a travel boom in America, holiday-makers now confront car shortages and eye-popping daily rates. Avis shares have rallied from about $10 in early 2020 to $90 earlier this month, one of this year’s best performers.

Avis claims that over the previous decade, rental car rates have remained flat while hotels and airfare costs have exploded. But this is not why demand is soaring. Car rental companies are benefiting from the vagaries of the auto industry. Supply chain problems have limited new car production while used car prices have jumped sharply. The question for Avis and its peers is what demand will look like when the marketplace returns to normal.

Existing demand requires some scrutiny. In the first quarter of 2021, Avis generated average daily revenue of $60 per car in the Americas region, up 12 per cent year over year. At the same time, however, the number of “rental days” fell by nearly a quarter. This was partly the result of reduction in customer requests. But Avis also reduced its fleet by nearly a third, down to just under 300,000 cars in the US. As a result, vehicle utilisation rose to nearly 70 per cent, up a tenth.

There is a careful balance between having too many and too few cars on lots, and that affects the implied rates that can be charged. In the past, the industry tended to be lax about such discipline. Companies chased market share over returns. For now, demand is expected to remain elevated. It will perhaps take several months, if not years, for travel disruptions to be resolved. Still, the steep run up in Avis’ valuation and remarkable bidding war for the bankrupt Hertz both suggest that any bargains in car rental shares no longer exist.

Our popular newsletter for premium subscribers Best of Lex is published twice weekly. Please sign up here.

Most Related Links :
todayuknews Governmental News Finance News

Source link

Back to top button
Native News Post