Hertz has just become the latest major travel brand to reorganize, as the company has voluntarily entered Chapter 11 bankruptcy.
Hertz files for bankruptcy
Hertz Global Holdings, as well as certain US and Canadian subsidiaries, yesterday filed voluntary petitions for Chapter 11 bankruptcy.
As the company explains, the impact of COVID-19 on travel demand has been sudden and drastic, causing a decline in revenue and future bookings. Hertz claims to have taken immediate action to prioritize the health and safety of employees and customers, eliminate all non-essential spending, and preserve liquidity.
However, due to uncertainty around when revenue will return and when the used car market will fully re-open for sales (which is a big part of the car rental business model), the company has decided to reorganize.
As of now Hertz has more than $1 billion in cash on hand to support ongoing operations. The company may seek additional cash (including through new borrowings) depending on how long the current situation lasts.
It’s also pointed out that the company was on a strong upward financial trajectory prior to COVID-19, including 10 consecutive quarters of year-over-year revenue growth. In January and February of 2020 the company increased revenue by 6% and 8% year over year, respectively.
What does this mean for the future of Hertz?
For those of you not familiar with Chapter 11 bankruptcy, this basically allows a reorganization whereby a business can be kept alive and creditors can be paid over time. The company can get out of some obligations, and in many cases the biggest losers are shareholders.
For now it should be business as usual for Hertz (at least business as it has been for the past several weeks). All Hertz businesses globally will continue to operate as they did before. This includes subsidiaries Dollar, Thrifty, Firefly, Hertz Car Sales, and Donlen.
All reservations, promotional offers, vouchers, and loyalty program rewards, are expected to continue as usual.
Bottom line
Hertz has become the first major car rental company to file for bankruptcy as a result of the current pandemic. If you’re a Hertz customer it should be business as usual for now, as it’s not like the company is liquidating.
Frankly it amazes me that car rental companies continue to do well during non-pandemic times, and even continue to grow. Personally I feel like ride sharing and car sharing has changed the way so many people get around when traveling.
Obviously there are still situations where people rent cars from the major companies, but I would have assumed that market is getting smaller and smaller. Apparently that’s not the case, though.
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