Avis warns fall in US tourists will knock 10% off revenues

Avis Europe warned yesterday that a further slump in the number of Americans willing to travel would knock as much as 10 per cent off its revenues for 2003.

The car rental group blamed concerns over war in Iraq, the weak economic outlook in Europe and savage price-cutting by rivals for issuing its third profit warning since 11 September 2001. Its shares plunged by 19 per cent to 81.5p. The company has lost nearly two-thirds of its value in the past 12 months.

In a trading update, the group said it had "limited visibility under current trading conditions". It calculated that the prospect of a tough summer would reduce full-year revenues by 5 to 10 per cent. Dresdner Kleinwort Wasserstein, its house broker, slashed its pre-tax profit forecast to £39m from £78m.

Mark McCafferty, the chief executive, said the long-haul leisure market – cars booked by customers arriving from outside Europe – had tumbled by as much as 25 per cent since the Allies invaded Iraq. He said demand within Europe was "holding up pretty well", but said the war had wiped out previous growth of about 5 per cent, admitting the market was now flat.

The group, which snapped up its bankrupt US rival Budget earlier this year, said car rental prices were falling "as a result of competitive activity in the continuing weak environment". Mr McCafferty added: "Companies are bidding quite competitively for corporate business so we need to make sure we can compete effectively."

Avis, Europe's biggest car rental company with just under one-fifth of the market, said the Budget acquisition would reduce group profits by between €4m (£2.8m) and €6m this year, while it pumped money in to lure back lost customers. Budget's share of the European rent-a-car market fell to 2 per cent from 6 per cent, Mr McCafferty said.

The group said it was implementing contingency plans put in place in the event of an Iraqi war. These include cutting back on new car orders and widespread freezes on hiring seasonal staff. It is also putting all capital expenditure plans on hold.

The group said first-quarter revenues were affected as expected by weaker economic conditions in Europe. It has launched a structural change programme, which includes opening a shared service centre in central Europe, to improve operating margins. The programme will be implemented over the next two years at a cost of €70m, which would take four years to recoup.