Tough times made SIXT a winner

In March 2020, when the COVID-19 pandemic brought the whole world to a literal standstill due to severe global lockdown measures, businesses everywhere – in particular in the hospitality sector such as restaurants and bars and in the tourism industry (airlines, duty-free shops, etc.) – have been hit existentially hard.

With the secular trend towards digitalization having accelerated once more in 2020, it came to no surprise that tech companies like Amazon, Alphabet, Microsoft, Apple, etc. have been the huge winners of the pandemic lockdowns. Businesses like Square, Shopify, Fiverr crossed break-even and will be literal cash machines in the years to come.

Interestingly, there have been a bunch of enterprises with business models being extremely vulnerable towards social distancing measures that fared very well. In fact, they got stronger. Not despite the COVID-19 pandemic but Because of it.

I am thinking here of The Walt Disney Company, which slashed costs in connection with its parks and cruise lines, preserved cash (by canceling the dividend) WHILE significantly investing into its streaming services, in particular Disney+.

There are further examples such as Mc Donalds or LVMH (Louis Vuitton Moet Hennessy) that benefitted from the crisis. LVMH for instance had the opportunity to acquire its competitor Tiffany’s for a very attractive price.

Another case study I found in particular intriguing was the strong recovery of German car renting giant SIXT.

SIXT SE is a mobility service provider in the business areas of vehicle rental, car sharing, ride-hailing, and subscription. One can imagine the devastating effect of global lockdowns. Business travel etc. slumped by almost 90 % in a matter of a few weeks.

But here’s the catch: compared to its competitors such as Hertz and Europcar, SIXT Car Rental is much more agile and more financially conservative managed. SIXT is led by members of the Sixt family. The company’s history goes back almost 100 years. SIXT has always focused on profit margins primarily and avoided costly acquisitions. Hertz instead became a giant, a huge holding company with hundreds of subsidiaries, several of them being unprofitable even before the COVID-19 pandemic.

SIXT’s reaction was immediate in 2020: the company optimized its cost structure, put shareholder distributions to zero for 2020 and 2021 to protect its balance sheet, and remains vigilant towards market trends.

Hertz and Europcar ran into huge financial problems. Losing money for one to two years is one thing, but with a heavy debt burden, that’s a threat to the existence of a business.

SIXT on the other hand managed to protect its strong financial position. The company shied away from acquisitions. Even now, that some of the smaller competitors could be swallowed for little money.

SIXT’s strategy is clever: as consolidation is inevitable, they remain agile with a strong balance sheet and the company is literally in the position to watch its competitors bleed and finally some of them go out of business.

There is another aspect, where SIXT has an edge compared to its rivals: SIXT has been technologically at the forefront of the branch. SIXT develops its own software and a bunch of sophisticated technological solutions.

So, as the industry has come under enormous pressure with several market participants prone to go down, SIXT is in the enviable position to ride the waves and not only to recover but to thrive.

You are responsible for your own investment and financial decisions. This article is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

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