Avis Group’s 2003 full year profits plunged to €59.4 million from €122.3 million the year before. This sharp drop is partly a result of the Iraq conflict and generally weak demand in the car rental market. However, Avis has also seemingly underestimated the cost of integrating the Budget rental operation acquired in 2002, and the group may have to tighten its belt further this year.

Avis Europe, the continent’s biggest car rental group, has unveiled a 51% drop in 2003 profits, blaming pricing pressures within the car rental sector and the impact of the war in Iraq for the poor return. Demand from corporate and leisure travellers has fallen in the wake of the war and the SARS epidemic, both of which have dented public willingness to travel. The transatlantic market has been especially hard hit, exacerbated by the weakness of the dollar, reducing the number of US visitors to Europe. American visitors account for 15% of Avis Europe’s revenues.

Group revenues in 2003 were down 1.7% at €1.17 billion. Despite market demand showing signs of recovery in the last few weeks, the company has warned that profits this year are likely to be broadly flat, with restructuring costs and the turnaround of its Budget acquisition likely to diminish the group’s earnings. Shares in Avis, which have fallen sharply in the last 18 months, slipped another 4% following the company’s warning.

In January 2003, the group acquired the European operations of its rival Budget for £11 million to bolster its position as Europe’s biggest car rental company. The group has increased its share in the European car rental market to 20% and the deal allowed the group to position itself well in the budget focused business and leisure sector.

However, the full scale of Budget’s financial difficulties is only now becoming clear as Budget business saw operating losses of €5.3 million in 2003. In the coming year, the group will focus mainly on its core rental business to maintain its market share while continuing to control group finances rigorously, particularly in the Budget arm, to improve the return on its rental investments.

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