Avis Budget Group CEO: 'Leisure travel leads demand for car rentals'

Joseph Ferraro, Avis Budget Group CEO, joins Yahoo Finance's The First Trade with Alexis Christoforous and Brian Sozzi to discuss safety protocols implemented by the car rental service, how the company adjusted its fleet amid COVID-19, its recent debt offering and much more.

Video Transcript

BRIAN SOZZI: All right, it's the summer of the staycation. This season, travelers are opting to road trip it instead of flying long distance, while some Americans are choosing to stay at home entirely. Here to despite the impact of the pandemic on rental car services is the CEO of Avis Budget Group Joseph Ferraro. Joseph, good to speak with you this morning. Look--

JOSEPH FERRARO: Thank you for having me.

BRIAN SOZZI: I got to rent a car. I touch the door handle. I sit in that car. I touch the gear shift and the steering wheel. What type of protocols have you put in at Avis just to keep the car sanitary and safe? I imagine it has been a massive undertaking.

JOSEPH FERRARO: Yeah, you know what? Thank you, yes, it has. You know, we've always cleaned our cars really well. But this forced us to look at things very, very differently. We're excited that we partnered with a terrific group of coalition groups that allow us to take our cleaning to a whole new level.

Take, for example, our partnership with Lysol. We now have Lysol products that we're using to clean our cars. We clean our cars in 15 or 17 touch points that, like you mentioned, the door handles, the interior, the entertainment system, things of that nature. And we partnered with a medical group, highly trained professionals that are on the front of this COVID fight out of Columbia University and other renowned universities around the country to give us the understanding and how to train our people on proper use of social distancing, masks, handwashing, things of that nature.

And we've also added a group called Hip-Hop Public Health, which is really great at training and getting people to enact training materials that will provide improved behavior. So we're pretty excited about that. It's the first of its class for us. And we believe that that design, with some of our touchless products--

We announced our Avis Mobile Select, which allows you to get your car through your cell phone. You can change it if you'd like then exit the gate just using your phone to get out of a touchpad. We started to roll that out prior to the pandemic. And we've certainly-- we stopped. We had a pause during this period of time. But we intend to roll it out in the near future, as I announced last week.

ALEXIS CHRISTOFOUROS: Joe, revenue year over year took a hit as many companies had the same experience, down 67%, about was it only 1/3 of what it was a year ago. But are you starting to see things pick up as more economies come off lockdown? And I'm curious if the demand is coming from the leisure market, or are you starting to see some corporate interest again in your cars?

JOSEPH FERRARO: You know, I'd have to say the majority of demand that we're seeing is leisure. And it's close to weekend periods. So people kind of taking the car for weekend and potentially a lot longer. What we've noticed is that the consumers are keeping the cars much more a period of time than they had ever in the past. And I think that tends itself to like people sheltering in some place other than their home, then they need a mobility choice that gives them the freedom to get around.

So yeah, we have seen a sequential improvement of our demand since April, week over week, up until this past weekend, as a matter of fact. Now, and that could be, you know, the leisure activity of July and August is probably kicking in. Yeah, we have seen it.

And we have seen it in commercial as well, not to the same degree as leisure, but we have seen it in commercial as well.

BRIAN SOZZI: Joseph, I am interested in the Zipcar business. That is a business-- I've used Zipcar before. It's in 450 cities and 600 college campuses. What's the medium-term outlook for that business? Because it really is unclear when or if a lot of kids will go back to school.

JOSEPH FERRARO: Yeah. What we're seeing right now in the Zipcar business is-- keep the universities aside at the moment-- is we're centered in urban environments. And the same type of activity that we've seen on the car rental side, we're seeing at the Zipcar business as well.

A lot of urbanites who are looking to get out for either a short distance or a longer period of time, our business at zipcar has progressed pretty nicely over the last couple of months, as a matter of fact, much to a greater degree than we had anticipated.

ALEXIS CHRISTOFOUROS: I know that you've had to make some tough decisions recently, including cutting some workforce. You've had to get rid of more than 100,000 vehicles from your fleet. I believe you even canceled orders on some vehicles. And you also announced yesterday a debt offering. Tell us what the hope is for the debt offering. And what do you expect to do with that money?

JOSEPH FERRARO: Yeah, so you know, it seems like an eternity ago. But in January and February, we had pretty robust activity and terrific volume. And quite frankly, we were on the verge of having a record year. And then everything had to change and change quickly.

And I've been in this business for a while now. And I know when these things happen you have to react. And I'm pretty proud of the team on the way that we reacted and the amount of costs that we took out.

We announced, in the second quarter, the first quarter earnings call there that we were going to take out $2 billion worth of cost. We increased that to 2 and 1/2 billion. Team has worked really hard to get that done, which helps us generate the liquidity that we need to get through.

Yeah, there was an announcement yesterday. We're always looking for ways to improve our liquidity to ensure that we have enough cash to get through the remainder of this year and beyond. And we believe that we certainly do. So yeah, I'm pretty proud of the way we reacted and that cost removal.

As far as the cars, you know, one of the determining factors is how quickly you can align your fleet to demand. And we did both. You know, after the shut down in April, we were able to sell cars more briskly in May and certainly in June. We sold more cars in June than we did last year.

And we have terrific partners with the OEMs. And we were able to cancel a good number of orders to give us that flexibility right now to determine, well, if volume does come back, we can pivot and choose to get it. And if it doesn't, then we would have to react differently, of course.

BRIAN SOZZI: Joe, before we let you go, Hertz, your longtime competitor has filed for bankruptcy. I go to their website. They're dumping cars at really low prices onto the market. How has their situation impacted Avis?

JOSEPH FERRARO: As far as our car sale opportunities, you know, it's been robust. So we haven't seen any issue there. You know, when I think about our industry, it's very competitive. It's a very competitive set. We're all located in basically the same spots.

I think I'd like to concentrate on the things that we do well. You know, do we have an organized group of leaders that are capable of creating efficiency in the organization, which we do. Do we provide customer service that will cause customers to come back, which we do. Have we created enough liquidity in the business to get us through this pandemic? And I would say, yes, the answer to that is yes as well.

So I'm proud of the team. And we've taken some pretty drastic measures. But we will get through this.

BRIAN SOZZI: All right, let's leave it there. CEO of Avis Budget Group Joseph Ferraro, good to see you. And we'll talk to you soon.

JOSEPH FERRARO: Thank you very much.