Avis 2008 Annual Report Download - page 43

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our Consolidated Financial Statements and accompanying Notes thereto included
elsewhere herein. Unless otherwise noted, all dollar amounts in tables are in millions and those relating to our results of operations are
presented before taxes.
We operate two of the most recognized brands in the global vehicle rental industry through Avis Rent A Car System, LLC and Budget Rent A
Car System, Inc. We provide car and truck rentals and ancillary services to businesses and consumers in the United States and internationally.
We operate in the following business segments:
Our revenues are derived principally from car and truck rentals in our Company-owned operations and include (i) time and mileage (“T&M”)
fees charged to our customers for vehicle rentals, (ii) 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, and (iii) sales of loss damage waivers and insurance and rentals of navigation units and other items in conjunction with vehicle rentals.
We also earn royalty revenue from our franchisees in conjunction with their vehicle rental transactions.
Car rental volumes are closely associated with the travel industry, particularly airline passenger volumes, or enplanements. Because we operate
primarily in the United States and generate a significant portion of our revenue from our on-airport operations, we expect that our ability to
generate revenue growth will be somewhat dependent on increases in domestic enplanements. We have also experienced significant per-unit
fleet cost increases over the last four years, which have negatively impacted our margins. Accordingly, our ability to achieve profit margins
consistent with prior periods remains dependent on our ability to successfully manage our fleet costs and to implement corresponding changes in
our pricing programs. Our vehicle rental operations are seasonal. Historically, the third quarter of the year has been our strongest quarter due to
the increased level of leisure travel and household moving activity. Any circumstance or occurrence that disrupts rental activity during the third
quarter could have a disproportionate adverse effect on our results of operations. We have a partially variable cost structure and routinely adjust
the size and, therefore, the cost of our rental fleet in response to fluctuations in demand. However, certain expenses, such as rent, are fixed and
cannot be reduced in response to seasonal fluctuations in our operations.
We believe that the following trends, among others, may affect and/or have impacted our financial condition and results of operations:
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•
Domestic Car Rental
—
provides car rentals and ancillary products and services in the United States.
•
International Car Rental
—provides vehicle rentals and ancillary products and services primarily in Argentina, Australia, Canada,
New Zealand, Puerto Rico and the U.S. Virgin Islands.
•
Truck Rental
—
provides truck rentals and related services to consumers and light commercial users in the United States.
• Domestic enplanements, which declined in 2008 compared to 2007 and, based on airlines’ announced projected capacity reductions,
are expected to decline again in 2009;
•
Rising per
-
unit car fleet cost and changes in conditions in the used vehicle marketplace;
•
Changes in the financial condition of vehicle manufacturers;
•
Difficulty in achieving sustained pricing increases;