Avis 2007 Annual Report Download - page 13

Table of Contents
exclusive territories. These franchise agreements impose obligations on the franchisee regarding the operations of each franchise and most
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.
Our franchise agreements grant the franchisees the exclusive right to operate an Avis and/or Budget car and/or 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 locations 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, electronic toll
collection and other ancillary products and services as described above, such as rentals of Where2 GPS navigation units which in 2007
contributed more than $35 million to pretax income. In 2007, approximately 4% of our vehicle rental operations revenue was generated by the
sale of loss damage waivers under which we agree to relieve a customer from financial responsibility arising from vehicle damage incurred
during the rental period if the customer has not breached the rental agreement. In addition, we receive reimbursement from our customers for
certain operating expenses we incur, including gasoline and vehicle licensing fees, as well as airport concession fees, which we pay in
exchange for the right to operate at airports and other locations.
Websites
Avis and Budget have strong brand presence on the Internet through their websites, avis.com and budget.com, as well as third party websites.
In 2007, the number of Avis and Budget vehicle rental customers who obtained rate, location and fleet information and then reserved their
rentals directly on these websites increased. Direct bookings via our websites incur less cost per transaction than bookings made through our
voice reservation agents or through third party distribution systems. Therefore, an increase in Internet bookings generates cost savings for us. In
addition, both Avis and Budget have agreements to promote their car rental services with major Internet portals and have a strong advertising
presence on various search engines. Bookings over the Internet accounted for 52% of Budget’s 2007 domestic reservations, with 32% of
reservations derived from bookings on budget.com. Bookings over the Internet accounted for 32% of Avis’ domestic reservations, with 25%
derived from bookings on avis.com. In 2007, avis.com reservations grew by 16% and budget.com reservations grew by 10% over the prior
year.
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