Avis Europe recorded an improvement in overall sales in H1 but a decline in total profit due to increased losses from its Budget operations as well as one-off charges. As the market continues to recover, Avis Europe is likely to benefit from higher rental volumes, although price increases will be limited.

The rental industry is one of the most competitive sectors within the automotive industry, resulting in slim margins and little scope for increasing rates. The high competition levels have led to significant consolidation in the sector with a few large competitors operating in the European market joined by several players in key local markets.

The cyclical nature of the industry dictates significant peaks and troughs during each year with a heavy reliance on both business and leisure travel clients. More recently, however, rental firms have faced challenging times with repercussions from both the 9-11 disaster and the war in Iraq affecting trade throughout the tourism sector.

The industry is now beginning to recover with both business and leisure travel on the rise again, but prices still remain low. Avis Europe recorded growth in overall sales for the first six months of 2004, reaching €549.7 million, 3.9% ahead of the same period the previous year. The number of billed days increased by 3.8%.

Profits at both Avis Europe and Budget suffered over the period, however, resulting in total pre-tax profits for the company declining 14.1% to €39.6 million. The company has reported seeing some increases in corporate and replacement business during the first half of the year whilst the market for leisure has seen an increase in revenue per day, though a decline in terms of volume.

The industry looks set to see growth in rental volume as demand levels continue to recover. Prices, however, are set to remain low as competition remains fierce. While Avis Europe is in a strong position to capitalise on this growth, any further gains in margins are likely to come from efficiency gains and cost cutting rather than price growth.

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