Hertz, already hobbled by massive debt, faces possible bankruptcy as the travel industry has come to a standstill due to the coronavirus.
Photo: Justin Sullivan/Getty ImagesAvis Budget Group Inc. reported a net loss of $158 million in the first quarter, highlighting the pressures the car-rental industry is facing as the virus outbreak continues to stifle travel and keep people at home.
Avis, one of the nation’s largest rental-car companies, said Monday that revenue fell 9% to $1.8 billion in the period as rental days dropped 7%. The performance was largely in line with preliminary results the company released last month.
The New Jersey-based company expects revenue to fall further in April and May, with a gradual recovery potentially beginning in June. Avis said it expects to burn through roughly $800 million in cash in the second quarter and should have enough liquidity to last through the end of the year.
The company reported an adjusted loss of $1.40 a share for the March-ended quarter; analysts were expecting a loss of $1.89 a share.
The big U.S. rental-car companies are scrambling amid the fallout of the pandemic with business getting pummeled from two ends: fewer travel customers and falling used-car values.
Air travel, which accounts for roughly two-thirds of the industry’s business, has plunged in recent months as government-directed lockdowns have kept people at home and generally restricted movement.
The vehicles now sitting on rental-car lots are rapidly losing value in a slumping used-car market and yet the rental firms must still make monthly payments on them, adding to financial strains, analysts say.
The threat to the companies crystallized Wednesday when Hertz began preparing for a potential bankruptcy filing after failing to make lease payments on its fleet to preserve cash, people familiar with the situation have told The Wall Street Journal.
Hertz, which was already carrying massive debt and attempting a turnaround before the health crisis, on Monday hired an additional adviser to help prepare for a bankruptcy filing, people familiar with the matter told the Journal. The company didn’t immediately respond to a request for comment.
Avis was in a better position heading into the viral outbreak, with the company saying last month that strong results in January and February were pointing toward a record year. But business collapsed in March with global travel virtually halted.
On Monday, the company said it is seeking to raise $400 million by issuing a new secured bond with the proceeds tagged for general corporate purposes.
Stocks for rental-car firms have been hammered in recent weeks as the pandemic played out. On Monday, Avis shares closed at $13.97, compared to $50 at the end of February, according to Factset. Hertz shares have hovered around $4, down roughly 80% since February.
Even before the outbreak, the rental-car industry was fending off threats to its business, including a loss of customers to ride-hailing firms, such as Uber Technologies Inc. and Lyft Inc. With such apps becoming more prevalent, especially for use at airports, many travelers have opted to use them over renting a car, a decision that has led to a decline in bookings in recent years.
In recent months, both Avis and Hertz have cut executive pay and resorted to furloughs and job cuts. In April, Hertz laid off about 10,000 employees in North America.
Enterprise Holdings Inc., which is privately held and doesn’t publicly release financial results, has paused hiring, reduced hours for full-time staff and made temporary and permanent workforce reductions, Dave Nestor, its operations chief, said in an interview last month.
Earlier this year, the rental-car industry pressed for government loans and assistance to deal with the health crisis, telling the Treasury secretary in a letter that travel restrictions and lockdown orders were “wreaking havoc.”
But only the smaller rental car firms have been in line for the federal money being dispensed, said Greg Scott, a spokesman for the American Car Rental Association, a lobbying group. The larger daily-rental companies have yet to see any aid, he said.
The cost-cutting moves are being felt more broadly with many rental-car firms canceling orders for new vehicles from auto makers, analysts say. Avis, for instance, said last month it was aiming to reduce its fleet size by 20% by the end of June.
Some industry executives say business is likely to rebound when people can move freely again and the economy has had time to recover.
“There is a pent-up demand for people to get out and travel,” said Mr. Nestor, of Enterprise. “We’re certainly looking forward to that.”
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