Avis 2014 Annual Report Download - page 21

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14
from large operations at major airport locations and territories encompassing entire countries to relatively small
operations in suburban locations. Our licensees generally maintain separate independently owned and operated
fleets. Royalties generated from licensing provide us with a source of high-margin revenue because there are
relatively limited additional fixed costs associated with fees paid by licensees to us. Locations operated by
licensees represented approximately 53% of our Avis and Budget car rental locations worldwide and
approximately 29% of total revenue generated by the Avis and Budget Systems in 2014. 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, Budget or Payless 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 program.
Our license agreements typically have terms ranging from five to 20 years. The royalty fees payable to us under
our license agreements in North America and internationally vary based upon brand and location and generally
range between 2% to 8% of the licensee’s gross rental revenue. 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 audits as part of our program to assure licensee compliance with brand quality standards and contract
provisions. Generally, we 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 our brand names 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 our vehicle rentals and licensee royalties, we generate revenue from our 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 access to satellite radio and
child safety seats. We also supplement our daily truck rental revenue by offering customers automobile towing
equipment and other moving accessories such as hand trucks, furniture pads and moving supplies.
In 2014, approximately 5% of our 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 payment 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.