Avis Budget Group Inc (CAR) 2013 Q3 法說會逐字稿

Good morning and welcome to the Avis Budget Group third quarter earnings conference call.

(Operator Instructions).

At this time for opening remarks and introductions I would like to turn the meeting over to Mr. Neal Goldner, Vice President of Investor Relations.

Please go ahead, sir.

Thank you, Tanya.

Good morning everyone and thank you for joining us.

On the call with me are Ron Nelson, our Chairman and Chief Executive Officer and David Wyshner, our Senior Executive Vice President and Chief Financial Officer.

Before we discuss our third quarter results,

I would like to remind everyone that the Company will be making statements about its future results and expectations which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act.

Such statements are based on current expectations and the current economic environment, and are inherently subject to economic, competitive and other uncertainties and contingencies beyond the control of management.

You should be cautioned that these statements are not guarantees of future performance.

Actual results may differ from those expressed or implied in the forward-looking statements.

Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements are specified in our earnings release, which was issued last night, our Form 10-K, and other SEC filings.

If you did not receive a copy of our press release, it is available on our website at ir.avisbudgetgroup.com.

We've provided slides to accompany this morning's conference call, which can be accessed on our website as well.

The Company's comments today will focus on out results excluding certain items.

These non-GAAP financial measures results are reconciled to our GAAP numbers in our press release.

and in the earnings call presentation on our website.

Now I would like to turn the call over to Avis Budget Group's Chairman and Chief Executive Officer, Ron Nelson.

Thanks, Neal and good morning.

It is always to start these calls with the words we had a record quarter.

But it is particularly gratifying this quarter given that our results reflect continued progress on our strategic initiatives rather than a market driven anomaly.

For example, in North American we grew our rental volumes both on off airport while reporting our third consecutive quarter of increased year-over-year pricing excluding acquisitions.

In EMEA our initiative to expand the Budget brand drove exceptionally strong volume and pricing growth, which helped us achieve the strongest quarterly result in recent history.

At Zipcar we began the process of capturing unconstrained weakened demand by sharing fleet, initially in New York while at the same time harvesting the cost synergies we expected from this acquisition.

And along the way we initiated our share repurchase program we announced in August to repurchasing approximately 860,000 shares in the quarter.

The end result was the highest quarterly adjusted EBITDA in our history.

So let me spend a few minutes discussing each of these topics starting with our North American segment.

I particularly want to underscore how our third quarter results reflect some of our key long-term strategic initiatives and goals as these will continue to pay dividends as we go forward.

In North American the positive pricing trends we experienced in the first half of the year continued in the third quarter.

Pricing was up 40 basis points excluding acquisitions and up approximately 1% when you take out the effects of currency.

We did institute price increases over the course of the third quarter, and we continue to shift volume to more profitable segments and channels.

On the commercial pricing front we continued our aggressive posture regarding contracts negotiations.

This is having a positive effect.

Year-to-date we renewed more than 1,000 commercial contracts and have been able to hold or increase rates nearly 60% of the time, and the average rate change on renewals has improved as the year has progressed . We also held to the discipline of walking away from business on those occasions when we did not think it was possible to make money at the rates being demanded.

While this initiative will take several quarters to play out fully, our goal continues to be to get our average renewal rates to turn positive.

With respect to demand I know there has been concern among investors regarding on-airport demand weakness but frankly we are not seeing it.

Our airport volume increased 3% in the third quarter more than double the growth rate we experienced in the first half of the year, and we achieved this growth despite a decline in government business that reduced overall volume by a point and despite our intentional 25% plus reduction on take volumes.

Moreover, preliminary data would suggest we held our airport market share even while reducing our presence in less profitable booking channels.

Each of our brands contributed to the growth with Avis volume up 2.5% in the quarter and Budget volume up 5%.

Avis growth was driven primarily by contracted commercial business which increased 8%, while Budget's growth was driven by a similar increase in leisure volume.

Just to be clear, these comments exclude Zipcar and Payless, so it is a apples to apples comparison.

Total North American revenue grew 11% or 4% excluding Zipcar and Payless.

Our focus on more profitable segments is showing good results.

International inbound revenue increased 7%.

Revenue from our higher margin specialty and premium vehicles increased more than 11%.

And revenue from associations increased 9%, primarily due to our expanded exclusive agreement with AARP which we announced in August.

We also saw continued growth in our local market operations.

Off airport revenue increased 6%, as our strategy to focus our local market operations on general used rentals and capture more of our commercial customers total rental spend continues to pay dividends.

We enounced the acquisition of Payless in July giving us a position in the faster growing deep value segment of the car rental market.

Payless had a good summer, but perhaps more importantly we have already cascaded more than 2,000 Avis Budget cars to Payless driving incremental fleet efficiencies across our North American operations.

We anticipate by the end of 2013 nearly 50% of the Payless fleet will be cars that were formally in the Avis Budget fleet.

In fact going forward we envision buying relatively few if any new cars Payless, and expect to satisfy virtually all their needs by cascading fleet . This enables us to hold these cars longer and average down the cost the entire cycle of ownership.

Moving to our International segment.

Our European operations had its best single quarter since at least 2008, with volume increasing 7% year-over-year and every country contributing to the gain.

Budget's volume increased 40% in the third quarter while Avis grew 2%.

But if you factor out our decision to walk away from certain nonprofitable replacement business, primarily in the U.K., Avis volume was up 5%, with growth well balanced between commercial and leisure rental days.

Our reported pricing was a 3% in time and mileage revenue per day in constant currency, but thatdoesn't tell the real story.

In certain markets we began to charge customers separately for airport surcharges.

These have been previously included in our base T&M rates, so breaking them out reduced our reported T&M per day around 3 points and boosted our non T&M revenue significantly.

Particularly since we are now better able to collect airport surcharges on our ancillary products and services.

The best way to get an accurate picture of the revenue environment is to look at the total revenue per rental day which in constant currency actually increase 3% in EMEA.

This growth included a 1.5% increase in price at Avis, more than a 7% increase in price at Budget and a 13% increase in other revenue per rental day across both brands.

A combination of increased revenue per rental day, a 4 point improvement in utilization and synergies from our integration efforts helped produce a 20% jump in adjusted EBITDA from EMEA and the best single quarter for our Europe business in recent history.

We could not be more pleased with how our strategies to expand the Budget brand, grow ancillary revenues and integrate our European operations are contributing to our results.

In our Latin America Asia-Pacific region rental volumes increased 10% year-over-year, primarily due to the acquisition of Apex.

Pricing remains soft declining 5% in local currency excluding Apex for the reasons we discussed in August; competitive pricing, demand pressures related to government spending and general economic weakness in Australia.

In addition, residual values softened somewhat during the quarter, leading the industry to be even more over fleeted, so the inevitable result was soft pricing.

Our management team has been moving aggressively to offset these challenges by trimming the fleet, cutting costs and aggressively promoting price increases.

We remain hopeful that despite these pressures our results in Australia and in the region as a whole will be within spending distance of the 2013 targets we establish at the beginning of the year.

As we announced in August, we agreed to invest roughly $50 million to acquire 50% ownership stake in our Avis and Budget licensee in Brazil.

The majority of the capital went into the Company to fund fleet increases which will allow us to increase the presence of our brands in the Brazilian car rental market and capture a larger share of Brazil's domestic international inbound and outbound vehicle rental spend.

We also expect this investment to enable us to capture higher percentage of our global corporate customer rental car spend in Brazil especially since the largest player in the Brazil domestic car rental market does not have a global presence.

At Zipcar we took a number of steps to satisfy more of our members summer rental needs as well as strides to capture the synergies we expect to achieve within the next two years.

We added over 1,000 vehicles to Zipcar's summer fleet across key markets increasing car availability per member by almost 10%.

Ultimately we expect the increased availability to not only to generate increased revenue, but also to lead to reduced member churn.

We made Zipcars available to members at certain Avis and Budget urban locations adding to the number of places where they can find a vehicle.

We have opened additional airport location including Boston, Logan in September bringing the total number of airports where zipsters can find cars to 22 world wide with further expansions planned.

We have replenished 20% of our Zipcar fleet with a younger more diversed fleet offering and providing members with a better experience and satisfying more of their needs while doing so at a lower cost.

On the cost side, we started sharing fleet with several hundred cars moving to the Avis Budget fleet during the week to Zipcar on the weekend to better satisfy member needs.

And we expect to be offering one-way rentals to members in select markets in the not so distant future a benefit Zipcar currently does not offer its members.

All of these efforts are enabling us to maintain our leadership position in the car sharing category as well as the broader market for affordable mobility.

We continue to expect that Zipcar will contribute $25 million or so to adjusted EBITDA this year.

In addition, we still anticipate the synergies associated with the acquisition to total $50 million to $70 million, but we now expect to reach this run rate by the end of 2015 rather than earlier that year.

David will discuss the timing of these synergies in more detail in a few moments, but in general the required sophistication of the fleet sharing model is going to take additional systems of work before we are ready to fully implement one-way rentals for zipster.

And while we did share cars between Avis and Budget and Zipcar during the summer in certain markets, we do think it is going to take a little more time to execute on this on a broad scale to ensure we optimize the member experience.

But to be clear, this only impacts the timing of these synergies not their ultimate impact.

Lastly before turning to our outlook, I want to discuss our truck rental segment.

As you know we announced a restructuring program in late 2012 to right size the business and position it for substantially higher profitability and over the longer run reduce earnings volatility.

Since then, we have aggressively optimized our fleet, right sized our footprint and increased pricing to grow profitability.

Specifically we reduced our average fleet by more than 4,000 trucks, closed approximately 400 marginal locations, eliminated certain high mileage low profitability accounts and moved a higher percentage of our trucks to areas where we generate higher profit.

In many ways, what we have done in our Budget truck business is similar to the aggressive steps we took a few years to substantially improve the margins of our car rental segment; focusing on the most profitable segments and channels to profitable accelerate our growth.

The impact is becoming evident.

Revenue in the third quarter was even with last year despite a 15% decline in average fleet.

This pricing increased 9%, utilization was up 4 points, margins improved nearly 500 basis points and earning increased by $5 million excluding certain items.

At the same time we will be cycling new trucks into the fleet to improve the customer experience.

These new truck will enable us to lower the average age of the fleet, incrementally lower maintenance while still leaving our total truck rental fleet more than 20% smaller than it was just a few years ago.

Looking at the balance of the year, we remain optimistic about how our business is performing both strategically and operationally.

In North American we expect volume growth in the fourth quarter to be at the high end of the 1% to 3% range we have seen all year despite a 1 point hit from reduced government demand.

Like others in the travel industry, we saw the sequester and partial government shutdown pressure our volumes, but we have been able to manage through it by focusing on our faster growing more profitable segments and channels and making sure we have cars in the right locations at the right time to capture the available demand.

We do expect a modest tailwind from airline capacity which would appear to be trending up in the 1% and 2% range in the fourth quarter.

As a reminder last year's fourth quarter was impacted by Hurricane Sandy, which negatively impacted our volume for about a week as airports up and down the east coast were shut down.

On the other side however for most of November and December we benefited from strong FEMA and Red Cross volume which tends to be longer length rentals but at lower average price.

Nevertheless, we still expect volume gains at the high end of the 1% to 3% range.

On the pricing side, we expect that despite the ins and outs from Sandy we will again have 1% price growth in the quarter excluding any effects from Payless or currency.

October was up about 1 point a reservations we have in hand for November are up as well leading us to believe the December quarter will mark our fourth consecutive quarter of year-over-year pricing.

As a reminder, last December was the first month that showed a year-over-year increase in pricing, so we will be facing a somewhat tougher comp beginning then.

What you should expect from us though is a continuation of our aggressive push to improve our realized rate through a combination of price increases where possible and shifting our mix.

And on the cost side, our year-over-year fleet cost comparisons should finally fall back down to a single digital increase in Q4.

In our International segment, we expect volume and pricing in our Latin American Asia-Pacific region to remain under pressure for the remaindered of the year due to the economic conditions and competitive pricing particularly in Australia.

However as we enter Australia's peak summer period, pricing comparisons have improved from the third quarter but are still down about 2% in local currency on a year-over-year basis.

There is still a lot of business to be done there, but similar to what we have been doing in North American for more than a year we intend to be proactive to improve our realized rates as part of our efforts to restore the margins there.

In Europe our sense is that the overall economy has bottomed with some countries showing signs of improvement particularly Germany and the U.K. I expect that our strategic efforts to grow Budget and integrate our operations in Europe will allow EMEA to make an increased contribution in the fourth quarter that more than offsets any possible negative impacts from the difficult environment in Australia.

Much more generally, I am excited about our evolution this year to having a portfolio of powerful differentiated brands that allows us to utilize a range of business models to meet a wide variety of customer needs.

There are roughly 20 of the largest countries in the world in which we operate at least one or more of the Avis, Budget, Payless, Apex and Zipcar brands directly.

And there are more than 160 countries in which we have a brand presence through a licensee including our joint venture licensees in Brazil, China, India and Thailand.

As a consequence increasing our brand presence across this network of 180 countries represents a big opportunity.

The portfolio also permits us to leverage our operations capabilities, our systems and our people generating significant efficiencies.

This is evident through the synergies we are realizing as we integrate administrative and other functions across geographies and brands.

The opportunity for us to accelerate our growth and improve our margins at the same time is one of the two key benefits of this work.

The other is that our Company is much better positioned to meet various customers needs up and down the value chain on a global basis, which is critical as our industry continues to evolve and consolidate.

With that, let me turn the call over to David.

Thanks, Ron, and good morning, everyone.

Today, I'd like to discuss our third quarter results, our fleet costs and our integration of Zipcar, as well as our balance sheet and outlook.

As Neal mentioned, my comments will focus on our results excluding certain items.

The third quarter marked our highest ever quarterly earnings, principally as a result of higher volume and improved year-over-year pricing in North America, record results in Europe and strong cost controls, as well as the acquisitions of Zipcar and Payless.

Adjusted EBITDA grew 2% year-over-year to an all-time high of $383 million in the third quarter, and trailing 12-month adjusted EBITDA now stands at $732 million.

For those analysts who calculate EBITDA before deferred financing fees and stock-based compensation, our trailing 12-month adjusted EBITDA would be $41 million higher or $773 million.

Our diluted EPS came in at $1.48 for the quarter with our year-to-date tax rate being at above trend 39.2%.

Somewhat ironically, our third quarter EPS was negatively impacted by the 1 point corporate tax rate reduction that occurred in the U.K. because we have a sizable deferred tax asset in that country.

The impact of revaluing that asset through income tax expense was negative $0.03 a share.

In our North America segment, revenue grew 11% in the quarter and was up 4%, excluding the acquisitions of Zipcar and Payless.

Volume increased 5% in Q3 while pricing was flat.

Payless and currency effects each reduced reported pricing by roughly 0.5 point, meaning that our pricing was up 1% on a constant currency basis, excluding Payless.

As a reminder, our revenue drivers, which are reported in table three of our earnings release, excludes Zipcar.

Leisure volume increased 4% in the quarter, and leisure pricing grew 2% excluding Payless.

Commercial volume was up 3% in the quarter, despite a negative 2 point impact from reduced government demand, while commercial pricing decline 1%.

Adjusted EBITDA in North America declined 3% year-over-year, primarily due to 15% higher per-unit fleet costs, which created a $43 million headwind for us.

When we look at our third quarter earnings in North America and adjust fleet cost inflation down to run rate levels and exclude Zipcar and Payless, we calculate organic growth of around 7% in adjusted EBITDA from third quarter 2012.

And this includes recalls of approximately 10,000 vehicles over the course of this year's third quarter, which negatively impacted our results by approximately $10 million.

As a result, our 7% organic EBITDA increase is why we feel well positioned to return to earnings growth in North America as year-over-year fleet cost comparisons return to normal levels in Q4.

Revenue in our International segment grew 10% in the third quarter, primarily due to higher rental volumes and ancillary revenues, including the 3% constant currency increase in total revenue per rental day in Europe that Ron discussed.

Our October 2012 acquisition of Apex Car Rentals in New Zealand contributed $9 million of revenue in the quarter.

International adjusted EBITDA increased 10% year-over-year in Q3 due to strong demand and higher revenues in Europe that made this one of the most profitable quarters ever for our European operations.

In our Latin America Asia-Pacific region, the difficult environment in Australia that we discussed on our August call continue throughout the third quarter with declining rates offsetting volume growth.

As Ron mentioned, our European operations had a strong summer, and we've seen some signs of economic stability and even a modest recovery there.

We remain excited about the progress we've made in our European business to lower costs, improve processes, consolidate facilities, drive growth in the Budget brand and capture new commercial contracts.

Accordingly, we're confident that the business we acquired just two years ago has the potential to earn substantially higher profits once the European economy does recover.

Switching gears, our Zipcar operations contributed $82 million of revenue and $8 million of adjusted EBITDA in the third quarter.

We continue to make good progress in realizing cost synergies and are increasingly focusing our efforts toward achieving utilization and revenue benefits from sharing fleet and leveraging our scale to drive profitable growth.

We've taken almost all the actions necessary to realize the $20 million to $25 million of cost synergies we outlined early in the year.

We've lowered Zipcar's depreciation, insurance, interest, maintenance and overhead costs while also achieving higher net selling prices for the Zipcar fleet.

At the same time, we've tried to be highly protective of the outstanding customer service and member experience that Zipcar has always provided.

As Ron mentioned, this, realistically, will mean our ramp-up to $50 million to $70 million in annual synergies will run well into 2015, rather than being done by March of that year.

As the management team, we're usually big fans of speed, particularly in merger integration, but we're also willing to adjust our game plan when the situation merits doing so.

Separately, I should note that lowering Zipcar's costs is enabling us to enter new markets that a stand-alone Zipcar would not have been able to open economically.

In fact, since the acquisition, we brought Zipcar to 5 new cities, including Sacramento and Dallas, with more expansions planned.

Next, I'd like to take a few moments to talk about fleet costs.

We saw a stable, healthy used car market throughout the third quarter, enabling us to dispose nearly 40,000 risk cars at prices in line with our expectations.

At this point, we're down to fewer than 4,000 risk cars dispositions remaining this year, and we remain comfortable with our 2013 North American fleet costs guidance of approximately $300 per unit per month.

We've been actively managing our fleet to maximize residual values.

We continue to have about one-third of our North America vehicles be cars that are subject to manufacturer programs, which provides both cost predictability and de-fleeting flexibility.

We are using alternative disposition channels for risk cars with nearly 50% of sales in Q3 being made to online wholesale buyers.

Our direct-to-dealer and Autonation Direct highlights are also generating encouraging results, and we've started testing some additional selling methods.

Our average vehicle hold period continues to be in the 12- to 14-month range.

The average age of our vehicles is 7 months, and more than 85% of our fleet has fewer than 25,000 miles.

Keeping our average mileage in the right range allows us to maintain high residual values for our cars while preserving the customer experience we offer.

Looking ahead, while we're still in the middle of our 2014 plan process, I do want to give you a sense of the trends impacting North America fleet costs next year.

We've completed the majority of our model year 2014 negotiations, and they've gone reasonably well.

We have seen only inflationary increases in risk car purchase prices, and we expect program-car holding costs to decline a few points.

Risk cars are expected to comprise close to two-third of our fleet, generally consistent with our 2013 average.

We do expect the increased supply of late-model off-lease vehicles will have some impact on residual values in 2014 and have been developing plans to try and offset much of the resulting cost increase.

These plans include greater use of our fleet optimization system, enabling us to make even better decisions, such as when and where to take vehicle deliveries, as well as when to dispose of certain vehicles; cascading cars from Avis and Budget to Payless and increasing our use of alternative disposition channels by expanding our direct-to-dealer and direct-to-consumer programs.

And lastly, we expect to see some impact from having a richer mix of cars in 2014 as we continue to increase our non core and signature fleet to drive more profitable and growth.

We'll continue to refine our 2014 fleet cost estimates as we finalize our plan over the next 2 months.

Turning to the balance sheet.

Our liquidity position remained strong with $3.7 billion of available liquidity worldwide.

We ended the quarter with $589 million in cash, no borrowings under our corporate revolver and roughly $830 million of availability under that facility.

We had unused capacity of $2.3 billion under various vehicle-backed financing programs.

Our ratio of net corporate debt to LTM adjusted EBITDA at the end of the quarter was 3.8 times.

This figure includes the debt incurred to acquire Zipcar, but with limited contribution to our LTM adjusted EBITDA from Zipcars since we've only owned the business for 7 months.

Pro forma for anticipated Zipcar synergies, our net leverage is 3.6 times.

We continue to take advantage of attractive funding available to us, completing a $550 million offering of 5-year fixed rate asset-backed notes in September with a weighted average interest rate of just over 3%.

In the quarter, we struck a balance among our priorities for the use of free cash flow.

First, we expanded our global footprint through a significant investment in our Brazilian licensee, as well as the less than $5 million investment earlier this month that gave us majority ownership of our licensee joint venture in India.

While these investments are on different scales, they represent a similar strategy, expanding our presence in fast-growing vehicle rental markets and improving our brand position in these geographies by helping to ensure that we extend our fleet and network there.

Second, we stayed within our target leverage range of 3 times to 4 times EBITDA and reduced our net corporate debt by $118 million.

And third, we returned a portion of our free cash flow to shareholders.

We repurchased 860,000 shares at a cost of roughly $25 million and continue to expect to repurchased a total of about $50 million of stock this calendar year.

Before I wrap up, I'd like to discuss our expectations for the remainder of this year.

As we announced last night, we expect our 2013 revenues to be approximately $7.9 billion to $7.95 billion, a 7% to 8% increase compared to 2012.

We expect total company per-unit fleet cost to be $285 to $295 per unit per month in 2013 with North America per-unit fleet cost around $300, consistent with the estimates we provided in August.

We expect adjusted EBITDA, excluding items, to be approximately $760 million to $780 million, and our 2013 pre tax income, excluding items, to be $395 million to $420 million.

We expect our effective tax rate in 2013 will be approximately 38% and our diluted share count will be between 116 million and 117 million.

Based on these expectations, we estimate that our 2013 diluted earnings per share, excluding certain items, will be approximately $2.10 to $2.25.

We expect our capital expenditures to be around $135 million this year.

And finally, we expect our cash taxes to be approximately $60 million this year and for free cash flow to be in the $300 million range, absent any significant timing differences.

So to wrap up, we had a record quarter.

We continue to achieve higher pricing and increased volume in North America.

EMEA had a strong summer, and we are seeing early signs of economic stabilization in Europe and even modest recovery in some markets.

The integration of Zipcar is moving along, and we're very excited about the opportunities that lie ahead of us.

Finally, we're pleased to have returned $25 million of free cash flow to our shareholders in the third quarter in the form of share repurchases.

And we remind investors that our goal of generating $1 billion of adjusted EBITDA by 2015 should translate into, at least, $500 million of free cash flow or more than $4 per share.

With that, Ron and I would be happy to take your questions.

Thank you.

(Operator Instructions).

Our first question comes from Brian Johnson with Barclays.

You may ask a question.

Good morning.

I want to drill into your comment about the inflationary increases as you work with the auto makers.

So a couple of things around there.

First, can you reconcile that with the dot point that, actually, program car costs are going down?

Does that mean they're also guaranteeing higher residuals, and then second, what do you think the impact of the higher cap costs are on the eventual cap costs to residual ratio and then what does that mean for fleet costs going into next year?

Sure, Brian.

Good morning.

I think there are a few things going on.

First, with respect to program cars, there, we're really focused on the rates that were being charged there.

We may have a little bit of inflation in terms of cap cost, but what really matters is the difference in the monthly costs there.

And what I think we're seeing is that the used car has been fairly stable and reasonably solid this year.

And I have to imagine that's impacting how manufacturers are looking at program cars as our programs cars are their risk cars, and I do like giving them a little bit more comfort with the stability of residual values there.

And so my own view is that that's playing a part in making program cars a little bit more attractive year-over-year and bringing their costs down.

In terms of risk cars, our expectation is that inflationary cost increases in purchase prices wouldn't change the ratio of residual values after 14 months or 16 months to the purchase price.

We do, however, think that the increase in off-lease volume and the general economic and market trends will probably create a modest amount of pressure, some decrease in residual value as a percentage of cap costs.

And that is part of our thinking as we work through the 2014 plan.

We're still working through our analyses of that issue, and I'm not ready to go out with a numerical projection at this point in time.

But we are looking for trends in the market to put a little bit of pressure on the ratio of residual values to initial net cap cost.

And so just to remind us do you have a view of the percent that residual could go down or rough range of residual trends next year?

Yes.

When we look over time, over the last several years, which has included some fairly extreme movements, most of the time, residual value have stayed within 3 points or 4 points of the average.

But that's the range, including some relatively extreme periods.

And at this point, I don't think we expect nearly that dramatic a shift from 2013 to 2014.

Okay.

Thank you.

Our next question Chris Agnew with MKM Partners.

You may ask a question.

Thanks very much.

Good morning.

Maybe a follow-up on fleet costs.

You've left your per-unit per monthly fleet cost guidance for the full year unchanged at $285 to $295.

I believe that you're largely through some of your risk cars.

What would cause you to be at the low end of that range versus maybe the higher end of that range, where you're kind of tracking?

Thank you.

Hi, Chris, good morning.

We're not expecting a tremendous amount of volatility.

And as I mentioned, in North America, we're largely done with risk car sales.

So we don't expect a lot of movement there.

We did see more noise in the European and Australian used car markets.

We actually had a modest amount of gains in both of those markets in used car sales in the third quarter.

And I think if there were to be movement in our costs, something driving it more toward one end or another, it would probably be driven by our International segment, much more than the North America.

Thanks.

And a follow-up on Europe, can you give us an overview on the European market?

We're seeing tremendous growth of Budget, where's the market share coming from?

Just really trying to get a sense of how much runway there is for Budget to grow in Europe.

I think a lot of investors here, are less familiar with the marketplace.

And then is there scope to take a deep value segment or your brand over to Europe?

Thanks.

Hi, Chris, I still think there's a substantial amount of runway for Budget even despite the significant growth that we've had in Budget, we're still less than a 3% share of the entire market.

And as you recall, the market is still about 35% independents and the independents tend to be the value players, and so that's the segment of the market that really represents Budget's target.

They're continuing to grow strongly.

Avis is also growing well.

October, we had a much stronger month than we anticipated, volume-wise.

I think Europe was up about 7% in terms of total days.

So the combination, I think, of the economy starting to turn around and the opportunity to grab share from the independents, I think, is going to drive that business pretty significantly.

In terms of taking our brands overseas, Payless has I think about a dozen licensees in Europe.

Zipcar is in Austria, Spain and the U.K. The U.K. is probably the most significant of those three operations.

And yes, we think there's a big opportunity to take Payless into the European market and drive it through our licensee network, as well as our own network.

And we feel the same is true for Zipcar.

What I do think is the manufacturers in some of the countries are in the car-sharing business, and they have reasons beyond the profitability of car sharing to be in that market.

So I think you ought to be careful about where and how you expand.

But we think there's a lot of opportunity to grow the Zipcar brand and Payless overseas.

Great, thank you.

I'll get back in queue.

Our next question John Healy with Northcoast Research.

You may ask a question.

Thank you.

Ron, I want to ask a question on the volume side.

I'm sure you know there's been a good amount of healthy debate of what's happening in the U.S. airport market in terms of volumes and there's been a little debate in terms of what's happening at the corporate and leisure and government.

And I want to get your thoughts as you plan your business for next year.

When I think about your business, you pulled off some opaques, you had got some government disruption and you've been probably a bit more disciplined on the corporate side.

But as you plan the business for next year and you hear airlines are adding capacity, is it realistic in your thought process to think that the volume gains in on the airport market next year can be better than what you've seen this year, specifically for Avis and are you planning your fleet that way for next year?

John, I don't think that we see next year as a whole lot different from this year.

We've had a strong, strong year in commercial in Avis.

I think it largely represents some new accounts that we got.

But I tend to think that we're going to see overall growth in the car rental market probably, again, in the 1% to 3% range, and that's the way we're going to plan the fleet.

What I think will affect it is that we are maintaining our discipline.

And if we can't get rates that we think are remunerative with some of our commercial account renewals that come up, we're not going to lose money simply to post volumes.

So I think that tempers some of our view of what our volume increase will be, not withstanding how strong it was over the course of this year.

Look, I think everybody is kind of in the slow-growth mentality, economic growth of 2% plus and I think that probably suggests volumes that are not dissimilar from this year.

Great.

And with that point, you said everyone's seems to be, in my words, rational in terms of other thinking about growing the business with an expectation of some moderate level of fleet costs.

You've made the comment that December, you get tougher comps on pricing.

Are you still a believer that in 2014, the stage is still very much and set to maybe experience some pricing?

Yes.

I don't think we're going to let up on this.

I still think that the return on capital in our business has some ways to go, and we're going to continue to drive pricing.

I think we certainly need to be driving pricing on the commercial side of our business, because as I've said earlier, you can't compound down 2% for the last 4 years and maintain a profitable business model.

So I think on that side of the realm, the industry does need to get more pricing.

If you look at what we've done since 2009 on the leisure side of the business, I think the industry has actually done reasonably well.

So the focus has to be commercial but, to a certain extent, I think everybody's fleet costs are going to move in lockstep.

And to the extent that we think they'll be up modestly on inflation, I think you'll see some pressure to move prices up to recover some of those costs.

Great, thank you.

Our next question, Kevin Milota with JPMorgan.

You may ask a question.

(Operator Instructions).

Sorry about that.

Good morning every one.

I was hoping to talk a little bit about price here.

Was hoping you could give some commentary on the price increases that you've been able to achieve, what's coming from the increased mix shift versus actual prices that you been able to push up organically.

Sure.

Well, since the end of the third quarter, we've launched three price increases that I would say, one, with substantial adoption and, two, with mixed results.

We just announced one for December 2, and I would say the trends that we've seen in the past characterize this one.

Enterprise was the faster follower.

Adoption rates are still climbing, but they look like we'll get some traction with it.

So I don't think that the matter in which people are adopting price increases has changed much since the end of the quarter.

The second of part of the question was about mixed impacts.

And I do think mix is a part of our strategy for achieving increased pricing.

And so as we shift away from opaques a bit and adjust our fleet mix to have a few more luxury or premium vehicles in the fleet, that is having a modest effect.

But I think the as a greater effect is the one that Ron was talking about, the moves for price increases in spot markets, as well as the push we're making when we talk to commercial accounts to try to retain and increase pricing there.

Okay.

Thank as lot guys.

Our next question, Adam Jonas with Morgan Stanley.

You may ask your question.

Hi, Ron, hi, David, hope you are well.

First, one of your competitors has been making some noise about buying used cars to help offset the used car price decline.

Wanted your view on that and whether that's a tool that you could consider or have done in the past and how we should think about that?

Sure.

We bought used cars from time to time over the last couple of years.

They're not a substantial part of our fleet.

I'd say, at any given time, they might be somewhere between 5,000 and 10,000 cars.

Usually, we do it to fill it in areas where at times, when you either can't get cars from the manufacturer or it's the wrong time of the year to buy new cars and you just need to supplement some volume surprises on the upside that you might have had.

But I think it's entirely a reasonable strategy, and I think that we'll continue to use it, but I don't see it becoming a substantial part of our fleet mix.

Okay.

Thank for the that, Ron.

And this you brought up earlier in your prepared remarks the debate about the true strength of the airport market in the United States.

And I'm just curious how you reconcile this gap between you and Hertz in terms of how you see it.

You talked about your share being relatively stable and the market was holding up well.

Hertz, I believe, says their share was stable, if not up, and that the market was weak.

Have you seen that kind of loggerhead of views before, and how do you reconcile it?

Well, all I can speak to is what our results have been, and we've seen a fairly consistent pattern of commercial growth on the airport.

We haven't lost any share.

Our share is roughly flat.

So it could well be that our competitors have had some mix shifts and we're getting more commercial and they're getting more leisure, and that affects their commentary.

Adam, we've been surprised by the strength of the commercial, particularly over the summer.

I think as I said in my comments, Avis was up 8% over the third quarter.

It was up in the mid-single digits in the first two quarters this year.

So I don't think that there's anything anomalous going on.

We did win a big account that started at the first of the year that could have had a point or so impact on that, but I don't think it would be much greater.

Thanks, Ron.

Just to follow up on that, though, on on-airport market.

Why is it that car has to be the -- why does Avis Budget has to be leading the price increases?

Why does the onus seem to be on you to kind of carry the flag for the industry?

I'm just curious why no one else does it?

Look, he who leads always gets up to the volume when you do that, because people don't follow quite as quick and harvest the benefit of you having higher prices.

Look, we're happy to let others lead.

But until somebody does, we're going to continue to step up and do it, because we do think it's the right thing for the industry and we do think that it's important to get our return on capital up.

Thanks, Ron.

Our final question comes from Afua Ahwoi with Goldman Sachs.

You may ask your question.

Thank you.

Just two questions from me.

First, on the 4Q numbers you've mentioned for volume and prices ex Payless, given that, obviously, as we model, we will have Payless impact and that I expect to maybe positive to volume but negative to pricing.

So can you give us an idea of what the Payless impact will be for the fourth quarter?

And then also, for the fleet cost for vehicle sales for the de-fleeting season.

Can your remind us how much you've sold already this season versus last?

I think, earlier, you intimated that you've been selling more than usual when the prices were good.

Thank you.

Good morning, Afua.

On the first question, we did, on table three, try to provide our North America drivers, both with and without Payless, so that you can see the effects there.

I think they worked out to between 1 point and 2 points on the volume side of increase, as you said, and then about a point negative on overall price as a result of including Payless.

That is sort of the order of magnitude associated with the Payless transaction, and we try to be good about providing the drivers there to outline exactly what impact it's having.

What was the second part of your question again?

Sure.

On the second part, but actually, for the first part, I was asking about for the fourth quarter, the numbers that you gave, are you saying in the impact will then be similar to the impact that Payless had in third quarter.

I assume because it's a more leisure brand, it may be more third quarter versus fourth quarter, but maybe correct me if I'm wrong?

And then the second part was just on the vehicle sales.

Can you update us on how much you sold this season versus you typically sell, are you ahead of plan, right on line with plan versus history?

Sure.

The Payless impacts are going to be fairly close to the same in the fourth quarter as they were in the third.

I think our aggregate car sales in the fourth quarter are going to be in the 7,000, maybe 8,000 car range in total.

The sales had been very much in line with our expectations, so we don't expect any significant gain or loss associated with our North America vehicle sales.

Okay, thank you.

For closing remarks, the call is being turned back over to Mr. Ron Nelson.

Please go ahead, sir.

So before we close, I think it's important to reiterate what I believe were the key points from today's call.

One, we're encouraged by both our pricing and volume trends in North America over the summer, and we're seeing similar trends this quarter.

We think the European economy has bottomed, and we're seeing some encouraging signs in certain of the geographies.

And we are excited about the opportunities Zipcar holds for us in the future and remain committed to achieving the $50 million to $70 million in annual synergies from this acquisition.

We have a fairly full investor calendar in the upcoming months and hope to see many of you during our travels.

We're also planning on hosting an Investor Day in early 2014, so we'll have more information surrounding that to get to you in the next month or so.

With that, I want to thank you for your time and interest in the Company.

This concludes today's conference.

You may disconnect at this time.