Hertz 2011 Annual Report Download - page 52

ITEM 1A. RISK FACTORS
In addition to the other information in this Annual Report, you should carefully consider each of the
following risks and uncertainties. Any of the following risks and uncertainties could materially and
adversely affect our business, financial condition, operating results or cash flow and we believe that the
following information identifies the material risks and uncertainties affecting our company; however, the
following risks and uncertainties are not the only risks and uncertainties facing us and it is possible that
other risks and uncertainties might significantly impact us. Additional risks and uncertainties not currently
known to us or those we currently view to be immaterial also may materially and adversely affect our
business, financial condition or results of operations, liquidity and cash flows.
Risks Related to Our Business
Our car rental business, which provides the majority of our revenues, is particularly sensitive to
reductions in the levels of airline passenger travel, and reductions in air travel could materially
adversely impact our financial condition, results of operations, liquidity and cash flows.
The car rental industry is particularly affected by reductions in business and leisure travel, especially with
respect to levels of airline passenger traffic. Reductions in levels of air travel, whether caused by general
economic conditions, airfare increases (such as due to capacity reductions or increases in fuel costs
borne by commercial airlines) or other events (such as work stoppages, military conflicts, terrorist
incidents, natural disasters, epidemic diseases, or the response of governments to any of these events)
could materially adversely affect us.
We face intense competition that may lead to downward pricing or an inability to increase prices.
The markets in which we operate are highly competitive. We believe that price is one of the primary
competitive factors in the car and equipment rental markets and that the Internet has enabled
cost-conscious customers, including business travelers, to more easily compare rates available from
rental companies. If we try to increase our pricing, our competitors, some of whom may have greater
resources and better access to capital than us, may seek to compete aggressively on the basis of
pricing. In addition, our competitors may reduce prices in order to attempt to gain a competitive
advantage or to compensate for declines in rental activity. To the extent we do not match or remain within
a reasonable competitive margin of our competitors’ pricing, our revenues and results of operations
could be materially adversely affected. If competitive pressures lead us to match any of our competitors’
downward pricing and we are not able to reduce our operating costs, then our margins, results of
operations and cash flows could be materially adversely impacted. Additionally, we could be further
affected if we are not able to adjust the size of our car rental fleet in response to changes in demand,
whether such changes are due to competition or otherwise. See ‘‘Item 1—Business—Worldwide Car
Rental—Competition’’ and ‘‘Item 1—Business—Worldwide Equipment Rental—Competition’’ in this
Annual Report.
Our business is highly seasonal and any occurrence that disrupts rental activity during our peak
periods could materially adversely affect our liquidity, cash flows and results of operations.
Certain significant components of our expenses are fixed in the short-term, including minimum
concession fees, real estate taxes, rent, insurance, utilities, maintenance and other facility-related
expenses, the costs of operating our information technology systems and minimum staffing costs.
Seasonal changes in our revenues do not alter those fixed expenses, typically resulting in higher
profitability in periods when our revenues are higher. The second and third quarters of the year have
historically been our strongest quarters due to their increased levels of leisure travel and construction
activity. Any occurrence that disrupts rental activity during the second or third quarters could have a
disproportionately material adverse effect on our liquidity, cash flows and results of operations.
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