Following my appointment as Group Chief Executive on 1 January 2008, we undertook an initial review of our strategy and decided to place more emphasis on brand leadership and service differentiation, geographic and customer diversification, cost reduction and improving the flexibility of our business model.
We also adopted a stronger operational approach with more emphasis on delivery and accountability, which are fundamental in a service, customer-facing and extensively networked business, as well as on accelerating benefits from recent investment in initiatives such as revenue management.
During the year we made very good progress in implementing this strategy, but also in reacting very quickly, particularly in the second half, as the trading environment weakened.
Brand leadership and service differentiation, as well as our geographic and customer diversification, supported volumes in a weakening demand background. Group revenues were ahead by 1.3% in constant currency and just 1.0% lower at €1,313.8 million on a reported basis. Our excellent and well balanced customer portfolio enabled us to compensate lower revenues in the less resilient Leisure segment with continued growth in the Corporate and Insurance/Replacement segments. The strength of our brand also supported our leading position with industry partners; we recently agreed a five-year global and exclusive partnership with British Airways, in addition to strengthening our partnerships with Iberia, KLM and Lufthansa. The renewal of our five-year exclusive partnership with SNCF and our preferred partner status with Eurostar also put us in an excellent position to share in the growth of the rapidly expanding high-speed rail networks.
We reinforced the differentiation of our brand by implementing further customer-oriented initiatives across the network, all designed to improve speed and quality of service. Our absolutely unique “3-minute promise”, for Avis Preferred members, is now rolled out across 600 stations in Europe and is serving customers with an exceptional 99% success rate. As a consequence we generated a very strong 18% increase in sign-ups to our loyalty programme, Avis Preferred, and achieved solid customer satisfaction scores.
We placed a daily operational focus on achieving gains in constant currency rental revenue per day, our measure of pricing, to offset the pressures on costs. In particular we maximised the benefits from our recent three-year investment in revenue management, a series of tools and processes which help us maximise pricing, yields and utilisation. As a consequence, for the year as a whole, we achieved a 0.7% improvement in rental revenue per day at constant currency.
We took substantial and early actions to reduce costs to protect and indeed deliver an improvement in our operating margin. These included the enforcement of a rigorous recruitment freeze, faster release of seasonal staff and redundancies, which together saw a 9% reduction in full time employees in the second half. We also focussed on the rationalisation of property with the transfer of the staff of the UK business head-office into the Group headquarters building and the closing of low margin stations, as well as significant cuts in discretionary expenditure. Overall these actions delivered some cost benefits in 2008 and are expected to deliver savings of approximately €16 million annually thereafter. Since the year end we have implemented a salary freeze across the Group.
In terms of improving the flexibility of our business model we have ensured proactive management of our fleet. We constantly optimised our fleet levels and reduced capacity to match demand, as soon as the trading environment began to weaken in the second half. As an example, in the fourth quarter of the year, we demonstrated this flexibility by reducing capacity by just under 5% and exiting December with utilisation ahead by 3.1%.
Regarding funding, the credit markets are generally difficult at present, therefore we have ensured that we will have sufficient liquidity for the next 12 months, with good headroom for our anticipated requirements. We continue to benefit from the flexibility of our business model, have strong capital and cash flow controls in place, and are focussed on improving asset returns. It is our intention to put further financing in place in good time for maturities that fall due from mid-2010.
In summary, these actions and results mean that we are well positioned to face the challenges and opportunities of 2009, as recessionary pressures intensify and the trading environment is expected to remain very difficult.
Our key strategic priorities outlined above will remain unchanged, with a particular focus and emphasis on:
- Protecting profitable revenue and leading the industry opportunity to change;
- Developing further radical cost actions to defend the business from economic pressures;
- Continuing to adapt our business model and its flexibility; and
- Focussing on capital management and cash generation as key priorities.
We are developing further significant cost actions, whilst continuing to adapt our business model. We expect cost savings of around €22 million in 2009, including the run-rate savings from 2008, and anticipate a further reduction in fleet capacity of around 5% to 10% as we target a step-change improvement in utilisation. These actions will help to maintain our flexibility in this difficult environment and ensure further progress in 2009.
Pascal Bazin
Chief Executive
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