Avis 2006 Annual Report Download - page 12

Table of Contents
Our international Avis and Budget operations maintain close relationships with the travel industry through participation in several non-U.S.
based airline frequent traveler programs, such as those operated by Air Canada and Qantas Airways Limited, as well as participation in Avis
Europe’s programs with British Airways Plc, Deutsche Lufthansa AG and other carriers.
Franchising
Of the approximately 2,100 Avis and approximately 1,900 Budget car rental locations we operated and/or franchised at December 31, 2006,
approximately 40% and 60%, respectively, were owned and operated by franchisees. Revenue derived from our car rental franchisees in 2006
totaled approximately $36 million. Franchised locations range from large operations at major airport locations to franchise territories
encompassing an entire country to relatively small operations in suburban locations. Fleets of our franchisees range from fleets in excess of
3,000 vehicles to fleets of fewer than 50 vehicles. Franchises provide us with a source of high margin revenue as there are relatively limited
additional fixed costs associated with fees paid by franchisees to us. Although franchises represent approximately half of the locations that we
own and franchise, they represent only approximately 7% of total domestic revenue generated by the Avis and Budget Systems, as the average
franchise operation is significantly smaller than the average owned location.
We enjoy good relationships with our franchisees and meet regularly with them at regional, national and international meetings. Our
relationships with Avis and/or Budget franchisees are governed by franchise agreements that grant the franchisees the right to operate Avis
and/or Budget vehicle rental businesses in certain exclusive territories. These franchise agreements impose obligations on the franchisee
regarding the operations of each franchise and restrict the franchisee’s ability to transfer its franchise agreement and the franchisee’s capital
stock. Each franchisee is required to adhere to our system standards for each brand as updated and supplemented by our policy bulletins, brand
manuals and service programs. We maintain the right to monitor the operations of franchisees and, when applicable, can declare a franchise to
be in default under its franchise agreements, which may or may not be curable. We can terminate these franchise agreements for certain
defaults, including failure to pay franchise fees and failure to adhere to our operational standards.
In general, the franchise agreements grant the franchisees the exclusive right to operate an Avis and/or Budget car and truck rental business in a
particular geographic area. Under agreements that predate our ownership of Avis or Budget, a limited number of franchisees in the United
States are also separately franchised exclusively to sell used cars under the Avis and/or Budget brand. Our current franchise agreements
provide for a 20-year term. Certain existing franchise agreements provide for renewal terms for no additional fee so long as the franchisee is
not in default. Upon renewal, the terms and conditions of the franchise agreement may generally be amended from those contained in the
expiring franchise agreements, while language in certain older franchise agreements may limit our ability to do so. The car rental royalty fee
payable to us under franchise agreements is generally 5% to 7.5% of gross rental revenue but certain franchisees of each brand, both
internationally and domestically, have franchise agreements with different royalty fee structures.
Pursuant to their franchise agreements, some franchisees must meet certain requirements relating to the number of rental offices in their
franchised territory, the number of vehicles available for rental and the amount of their advertising and promotional expenditures. In general,
each franchise agreement provides that the franchisee must not engage in any other vehicle rental business within the franchised territory
during the term of such agreement and, in the Budget franchise agreement, for 12 months thereafter. Upon termination of a franchise, the
franchisee is also prohibited from using the Avis or Budget name and related marks in any business.
Other revenue
In addition to revenue from vehicle rentals and franchisee royalties, we generate revenue from Avis and Budget customers through the sale
and/or rental of optional products and services such as supplemental equipment (for example, child seats and ski racks), loss damage waivers,
additional/supplemental liability insurance, personal accident/effects insurance, fuel service options, fuel service charges, and products and
services as described
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