Business Review
Business description
The Group is an international vehicle rental services company and a market leader in Europe. Under the Avis and Budget brands, the Group operates more than 3,800 corporate and licensee locations throughout Europe, Africa, the Middle East and Asia, which completed over eight million rental transactions in 2007 across the network. During the year, the Group's corporately-owned locations employed some 6,100 staff (based on average full-time equivalent headcount) and had an average fleet of 118,000 vehicles.
The Group enjoys close commercial ties with Avis Budget Group, Inc., which owns the global rights to the two brands, as well as the Wizard rental and reservation system. Long-term agreements with Avis Budget Group, Inc. give Avis Europe the rights to use the Avis and Budget names, brands and operating systems through master licensing agreements until 2036, whilst cross-marketing and joint promotional agreements are in place to provide customers with access to a global network.
| Avis Europe | Avis Budget Group, Inc. | ||||||
| Avis | Budget | Avis | Budget | ||||
| Territories: | Europe, Africa, Middle East and Asia | Europe, Africa and Middle East | Americas and Australasia | Americas, Australasia and Asia | |||
| Corporate Countries | 13 | 4 | 8 | 5 | |||
| Corporate Locations | 1,664 | 150 | 1,335 | 817 | |||
| Licensee Countries | 96 | 64 | 53 | 54 | |||
| Licensee Locations | 1,262 | 751 | 849 | 1,099 | |||
The Avis Europe network comprises a combination of countries in Western Europe (the corporate countries), which operate their own directly-owned locations and also appoint local agencies and licensees, plus a wider network of national licensee operations across the rest of Europe, Africa, the Middle East and Asia. The Group also has a joint venture in China and minority interests in operations in India and Malaysia.
Corporate locations are directly owned by the Group and employ Avis Europe's staff, premises and fleet. Agency operations are owned and operated by third parties who rent Avis Europe's vehicles, but employ their own staff and premises. Agency revenue is accounted for as Group revenue, with the agent receiving a percentage of revenue as commission. Licensed locations are owned and operated by licensees who pay royalties in return for the use of the brand and operating system. In the latter case, the Group only includes the licensee fee receivable in its revenue.
In 2007, revenues from the Avis brand represented 96% of the Group's overall revenue, and the Avis corporate countries accounted for approximately 93% of the Group's overall revenue.
The Budget business in Europe, Asia and the Middle East serves customers through over 900 rental locations in 68 countries. Corporate countries comprise Austria, France, Switzerland and the United Kingdom. In 2007, the Budget business represented 4% of the Group's overall revenue.
A description of the performance of the Group for the year ended 31 December 2007, and significant developments which occurred during the year, is set out in the Chairman's Statement and in this Business Review.
Strategy
An initial review of the business strategy has been undertaken following the appointment of Pascal Bazin as the new Group Chief Executive on 1 January 2008. The Group will continue to evolve the strategy to deliver a turnaround in results and will now be placing more emphasis on the areas outlined below, which are intended to build on the strategic progress made in recent years. In addition, a stronger operational approach will be adopted, with more emphasis on delivery, accountability and implementation, as well as on accelerating benefits from recent investment in initiatives.
The areas of strategic focus are as follows:
Brand differentiation
The Group continues to implement customer service initiatives to improve speed, transparency and choice in order to differentiate the brands in what is an increasingly commoditising market. Building on the launch of the new rental agreement and "meet and greet" vehicle return service over the last two years, the loyalty programme, Avis Preferred was re-launched in 2007, substantially increasing the number of active Avis Preferred members. In addition, a new speed of service initiative, the "3-minute promise" for Avis Preferred customers, is now successfully operating across six countries in over 390 locations and contributing to improved customer satisfaction ratings.
Strong focus on sales
The Group's significantly enhanced new websites are easy to use, provide customers with clearer information in selecting the rental car of their choice and are designed to work more effectively with internet search engines. This development should, over time, lead to an increase in the number of customers that book directly through the on-line channel. The new website also allows customers to amend their personal details on-line and to sign up for the Avis Preferred loyalty programme. Internet reservations for continuing operations again increased, ending the year at 32.5% (2006: 30.8%).
We are seeking to maximise the benefits arising from these enhanced websites and have been successful in targeting an increase in direct business during the year.
Furthermore, we are increasing our sales of ancillary products, such as GPS and DVD's, thereby improving customer product choice and overall revenues.
Cost efficiency
Significant cost pressures continue to face the industry, specifically from fleet suppliers, but also more generally from inflationary increases in areas such as staff costs. Therefore cost reduction remains a focus of management. Areas currently being progressed include: insurance costs; damage costs; fleet costs - in particular through improved utilisation driven by the revenue management investment; and limiting new operational (non-fleet) capital expenditure.
Business flexibility
The Group continues to seek opportunities to improve business flexibility. In 2007 a number of network actions were completed to improve overall returns and leverage costs. These included the disposal and licensing of the Group's business in Greece (primarily a long-term rental business) and the operations in the Canary Islands (seasonal and operationally complex). The Group also acquired its largest licensee in Germany, along with a number of licensees in Holland, thereby strengthening the Group's position in these markets.
