Avis 2012 Annual Report Download - page 14

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associated with fees paid by licensees to us. Licensed locations represented approximately 53% of our Avis and Budget car
rental locations worldwide. Locations operated by Avis and Budget licensees represented approximately 34% of total revenue
generated by the Avis and Budget Systems in 2012. We facilitate one-way car rentals between Company-operated and
licensed locations, which enables us to offer an integrated network of locations to our customers.
We generally enjoy good relationships with our licensees and meet regularly with them at regional, national and international
meetings. Our relationships with our licensees are governed by license agreements that grant the licensee the right to operate
independently operated Avis or Budget car and/or truck rental businesses in certain territories. Our license agreements
generally provide our licensees with the exclusive right to operate in their assigned territory. These agreements impose
obligations on the licensee regarding its operations and most agreements restrict the licensee’s ability to transfer its license
agreement and capital stock. Licensees are generally required to adhere to our system standards for each brand as updated
and supplemented by our policy bulletins, brand manuals and service programs.
Our license agreements typically have terms ranging from five to 20 years. The car rental royalty fee payable to us under our
license agreements is generally 5% to 8% of gross rental revenue, but certain licensees of each brand, both in North America
and internationally, have license agreements with different royalty fee structures. We maintain the right to monitor the
operations of licensees and, when applicable, can declare a licensee to be in default under its license agreement. We perform
targeted audits as part of our program to assure licensee compliance with brand quality standards and contract provisions. We
generally can terminate license agreements for certain defaults, including failure to pay royalties and failure to adhere to our
operational standards. Upon termination of a license agreement, the licensee is prohibited from using the Avis or Budget
name and related marks in any business. In the United States, these license relationships constitute “franchises” under most
federal and state laws regulating the offer and sale of franchises and the relationship of the parties to a franchise agreement.
Other Revenue
In addition to revenue from vehicle rentals and licensee royalties, we generate revenue from Avis and Budget customers
through the sale and/or rental of optional ancillary products and services. Our employees offer products to customers that will
enhance their rental experience, including collision and loss damage waivers, insurance products such as
additional/supplemental liability insurance or personal accident/effects insurance, products for driving convenience such as
portable GPS navigation units, optional roadside assistance services, fuel service options, electronic toll collection and other
ancillary products and services, such as rentals of satellite radio units and child safety seats. In 2012, approximately 5% of
our vehicle rental operations revenue was generated by the sale of collision and 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, that we pay in
exchange for the right to operate at airports and other locations.
The Wizard System
We own the Wizard system, our worldwide reservation, rental, data processing and information management system. The
Wizard system enables us to process millions of incoming customer inquiries each day, providing our customers with
accurate and timely information about our locations, rental rates and vehicle availability, as well as the ability to place or
modify reservations. Additionally, the Wizard system is linked to all major travel distribution networks worldwide and
provides real-time processing for travel agents, travel industry partners (such as airlines and online travel sites), corporate
travel departments and individual consumers through our websites or contact centers. The Wizard system also provides
personal profile information to our reservation and rental agents to help us better serve our customers.
We also use data supplied from the Wizard system and airline reservation systems in certain proprietary information
management systems to maintain centralized control of major business processes such as fleet acquisition and logistics, sales
to corporate accounts and determination of rental rates. The principal components of the systems we employ include:
 Fleet planning model. We have created a comprehensive decision tool to develop fleet plans and schedules for the
acquisition and disposition of our fleet, along with fleet age, mix, mileage and cost reports based upon these plans
and schedules. This tool allows management to monitor and change fleet volume and composition on a daily basis
and to optimize our fleet plan based on estimated business levels and available repurchase and guaranteed
depreciation programs. We also use third-party software to further optimize our fleet acquisition, rotation and
disposition activities.
 Yield management. We have created a yield management system which is designed to enhance profits by providing