The two largest publicly traded U.S. car-rental companies this month each reported drops in first-quarter revenue and widening losses, suggesting that the growing popularity of ride-hailing services, such as Lyft and Uber, is cutting into traditional car-rental demand.
Hertz Global Holdings' first-quarter U.S. car rental revenue fell 3.8% from a year earlier, to $1.35 billion, on a 1% decline in transaction days and a 3% decline in pricing. Its net loss quadrupled to $223 million. Avis Budget's Americas revenue fell 3.7%, to $1.31 billion, as a 4% drop in pricing more than offset a 1% rise in rental days. The company's net loss doubled from a year earlier, to $107 million.
Avis Budget's Americas revenue rose almost 1% last year after increasing about 2% in 2015, while Hertz's U.S. revenue fell 2.7% last year.
Both companies have attempted to capitalize on the growing ride-hailing trend by reaching agreements within the past year to rent out a fraction of their fleets to Uber and Lyft drivers.
Still, financial analysts who cover the two companies said ride-hailing growth is more than offsetting any benefits Avis Budget or Hertz are generating from the partnerships, while business-travel researchers noted that usage of ride-hailing services has jumped as more corporations adjust their policies to allow employees to expense such services.
These challenges are compounded by the impact of car rental leader Enterprise Holdings, a privately held company that accounts for more than half of U.S. car-rental revenue and appears to be taking market share, analysts said.
The largest impact is likely at airports, where car rental companies carry much of their fleet while more municipalities have been legalizing Uber and Lyft services. U.S. car rental companies have collectively expanded their fleet by more than 40% since 2010, to 2.3 million vehicles, according to trade publication Auto Rental News.
As a result, Hertz and Avis Budget are tasked with cutting prices in order to move cars off their lots. Hertz substantially grew its fleet with its $2.3 billion acquisition of Dollar Thrifty in 2013, while Avis Budget's largest acquisition in recent years was its $500 million buyout of car-sharing leader Zipcar that same year.
"Ride-sharing is posing an incremental burden in the on-airport market and has helped drive some of the volume underperformance," Goldman Sachs analyst David Tamberrino wrote in a May 10 note to clients. "Ultimately, we believe that as ride-share operators are authorized to enter airport locations, they add incremental supply to the on-airport market, making it more difficult for rental car operators to push price."
Morgan Stanley analyst Adam Jonas, in a May 8 note, wrote that the increased usage of "shared mobility" will be "transformative" for the car-rental industry.
While ride-hailing made its biggest mark competing against traditional taxi services for residents and leisure travelers in urban centers, the growing acceptance of such services in the corporate world is now chipping away at car-rental demand.
Between last June and this January, the percentage of U.S. corporate policies allowing employees to expense ride-hailing services rose to 50% from 44%. During the same time period, ride-hailing by business travelers jumped 21%, the Global Business Travel Association reported, citing a study it conducted with American Express.
Meanwhile, 50% of corporate travel buyers reported an increase in ride-sharing services between October and April, while 28% of those buyers reported a drop in traditional car rentals, according to the Association of Corporate Travel Executives.
How much revenue car rental companies are losing to ride-hailing services is difficult to measure because Enterprise, Uber and Lyft don't disclose their financial results.
Still, Uber's 2016 revenue was $6.5 billion after the company more than doubled its gross bookings last year, to $20 billion, Bloomberg News reported last month, citing figures it obtained from Uber.
Lyft's 2016 revenue more than tripled, to about $700 million, Bloomberg reported in January, citing people familiar with the company. Neither company is thought to be profitable.
Auto Rental News reported that Enterprise's U.S. revenue jumped about 10%, to more than $15 billion in 2016.
Meanwhile, travel-expense software maker Certify said late last month that U.S. first-quarter corporate spending on Uber and Lyft rose 1% and 2% from a year earlier, respectively, while car-rental and taxi spending fell 9% and 4%.
Certify CEO Robert Neveu last month termed ride-hailing as "still in its early days as an industry." Certify reported in late 2015 that the number of ride-hailing transactions had overtaken car rental transactions.
Avis Budget and Hertz executives did not mention ride-hailing competition as a factor in their first-quarter earnings results, instead citing Easter's move this year to the second quarter from the first quarter as a reason for softer demand.
But the companies also acknowledged the growing popularity of alternatives to traditional car rentals by touting their own efforts to expand into nontraditional ground-transportation services such as ride-hailing and car-sharing.
Hertz financial chief Thomas Kennedy, in his company's earnings call last week, called its rentals to ride-hailing drivers "a profitable, contributing component of the business because it is an alternative use for a fleet that's older."
"We were the first ones to really look at this as an example of getting into a broader mobility world than rental car," Avis Budget CEO Larry De Shon said on his company's May 4 earnings call, referring to the Zipcar acquisition. "So obviously, we are open to any acquisition or partnership that would make sense in the broader mobility landscape."