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March 5, 2003

COMMENT: Avis: feeling the pinch of a corporate freeze

Avis Europe, one of the best-known brands in car rental, has seen pre-tax profits fall by 15% in 2002, citing the fall in business travel as a key factor. This year will continue to be tough for rental companies, and performance will only pick up when economic stability returns.

By bcusack

Avis Europe , one of the best-known brands in car rental, has seen pre-tax profits fall by 15% in 2002, citing the fall in business travel as a key factor. This year will continue to be tough for rental companies, and performance will only pick up when economic stability returns.

The economic downturn is having a considerable effect on numerous companies; resulting in recruitment freezes and budget cuts that have strongly impacted business travel. Avis , a key operator in the business car rental market, has felt the squeeze as expenditure on business travel has declined. However, there may be harder times ahead.

Avis ‘ pre-tax profits fell by 15.2% to GBP77.3 million in the year ending 31 December 2002. The company has indicated that in the first few weeks of 2003, the decline in corporate spending has been offset by growth in its leisure rentals.

Leisure revenues accounted for nearly 40% of Avis ‘ revenues in 2002 – a proportion expected to increase further in 2003. Domestic leisure revenues rose 2% over the year, with the UK and France putting in particularly strong performances thanks to promotional activity.

The future however does not look too bright in the short-term. The economic downturn has shown little sign of abating in 2003, and companies are expected to continue downsizing and cutting costs to remain afloat. In addition, with a war in the Gulf looming, leisure travel may also be heavily impacted with travellers playing it safe and staying at home.

Despite the economic conditions and geopolitical tensions, Avis has continued to invest through the acquisition of rival firm Budget and the agreement of an Avis -branded joint venture in China with Shanghai Automotive Industry. It has also agreed a number of partnerships with airlines.

Overall, 2003 is expected to remain a challenging year for most rental companies, but towards the end of the year, there is likely to be a more buoyant and stable economy, bringing with it greater optimism and in turn more travel customers.

SOURCE: DATAMONITOR COMMENTWIRE (c) 2003 Datamonitor. All rights reserved. Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.

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