Shares of Avis Budget Group (NASDAQ:CAR) tumbled in March as the rental car industry collapsed along with the rest of the travel sector. As popular vacation destinations shut down, conferences and events of all sorts were canceled, and hundreds of millions of Americans were firmly requested by state and local governments to stay at home as much as possible, airline passenger loads plunged. And conditions in the rental car business are closely tied to those in the air travel business, as fliers make up a large share of vehicle renters.
According to data from S&P Global Market Intelligence, the stock gave up 57% over the course of the month.
Valuations in the travel sector were among the first to get hit in the coronavirus sell-off as investors anticipated the industry would come to standstill as the outbreak spread in the U.S. and Europe.
On March 5, Morgan Stanley analyst Adam Jonas sounded the warning bell for the rental car industry, noting a "potentially significant disruption." From that point, the stock slid fairly steadily for two weeks, but bottomed out on March 18 as the broader market started to bounce back on hopes for a rescue package from Congress.
On March 23, the company withdrew its financial guidance as CEO Joe Ferraro said Avis Budget was "seeing significant impacts in our business around the world as a result of the coronavirus." Reservations for April were down 60% at the time with the potential to go lower. Management said it's responding to the crisis by shrinking the size of the company's fleet, reducing operational expenses and capital spending, and cutting executive compensation and staffing levels.
The company said it had sufficient liquidity to operate for the rest of this year after having borrowed $1.1 billion against the surplus equity value of its fleet, and it has no significant debt maturities until 2023.
Even before the coronavirus crisis, Avis was already struggling in an industry that has been disrupted by ridesharing giants Uber and Lyft. While those companies are also struggling due to the pandemic, they lack the heavy fixed costs that rental car companies have. Additionally, ridesharing companies will be positioned to respond more nimbly when the recovery starts as their drivers can immediately get back to work when they notice rising demand. Avis may be able to survive this crisis, but it is likely to take a serious toll on the rental car company.