Avis 2008 Annual Report Download - page 24

fleet may be limited. In addition, if our ability to sell vehicles in the used vehicle marketplace were to become severely limited at a time when
required collateral levels were rising, principal under our asset-backed financing facilities may be required to be repaid sooner than anticipated
with vehicle disposition proceeds and lease payments we make to our vehicle program subsidiaries. If that were to occur, the holders of our
asset-backed debt may have the ability to exercise their right to direct the trustee to foreclose on and sell vehicles to generate proceeds sufficient
to repay such debt.
To the extent auto manufacturers significantly curtail production in response to current economic conditions or determine to curtail sales to the
vehicle rental industry for any reason, we may not be able to obtain a sufficient number of vehicles to operate our business without significantly
increasing our fleet costs.
We have been adversely impacted by the downturn in the U.S. economy and weakness in travel demand and the housing market and may be
further adversely impacted.
The U.S. economy appears to have been in recession throughout 2008, and such conditions are likely to persist into at least 2009. Historically,
our results of operations have declined during periods of general economic weakness. The effects of the current recession have contributed to the
significant year-over-
year decline in the results of our car and truck rental operations, including declines in volume and pricing particularly in the
second half of 2008 in both our car and truck rental businesses. If economic conditions in the United States and worldwide do not improve or
worsen, our financial condition and results of operations could be materially and adversely impacted in 2009 and beyond.
For example, the economic downturn has led to reduced travel demand, with many U.S. airlines having implemented capacity reductions and
many companies curtailing business travel. In 2008, we generated approximately 80% of our domestic car rental revenue from our on-airport
locations; therefore, a decline in airline travel will typically have a direct adverse impact on our results of operations. Air travel could also be
further affected by work stoppages, military conflicts, terrorist incidents or threats, pandemic diseases, natural disasters or the response of
governments to any of these events.
Our truck rental operations generated negative EBITDA for 2008 in part because the housing market, a key driver of both local rentals and one-
way truck rentals, is also experiencing a severe downturn. If adverse conditions in the housing market persist or worsen, we may see a further
decline in truck rental transactions, which could have a further adverse impact on our business.
We are dependent on third party distribution channels, and the success of our business depends in significant part on these relationships.
We generate approximately 45% of our domestic car rental reservations through third party distribution channels, which include (i) traditional
and online travel agencies, airlines and hotel companies, marketing partners such as credit card companies and membership organizations, and
other entities that help us attract customers and (ii) global distribution systems (“GDS”) that connect travel agents, travel service providers
and corporations to our reservations systems. In 2008, 19% and 2% of our domestic car rental reservations came through our largest GDS source
and our largest non-GDS third party source of reservations, respectively. The operators of third party distribution channels generally can cancel
or modify their agreements with us upon relatively short notice. Changes in our pricing agreements, commission schedules or arrangements with
third party distribution channels, the termination of any of our relationships or a reduction in the transaction volume of such channels, or a
GDS’s (Amadeus, Galileo, Sabre or Worldspan) inability to process and communicate reservations to us could have an adverse impact on our
business, financial condition and results of operations.
Our business is seasonal, and a disruption in rental activity during our peak season could materially adversely affect our results of
operations.
In our business, the third quarter of the year has historically been our strongest quarter due to the increased level of leisure travel and household
moving activity. In 2008, the third quarter accounted for approximately 28% of
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