Expedia 2005 Annual Report Download - page 14

Download and view the complete annual report

Please find page 14 of the 2005 Expedia annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 98

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98

Merchant and Agency Business Models
We make travel products and services available on a stand-alone and package basis, primarily through
two business models: the merchant model and the agency model. Under the merchant model, we facilitate
the booking of hotel rooms, airline seats, car rentals and destination services from our travel suppliers and
for such bookings, we are the merchant of record. Under the agency model, we act as an agent in the
transaction, passing reservations booked by our travelers to the relevant airline, hotel, car rental company
or cruise line.
As merchant of record, we generally have certain latitude to establish prices charged to travelers (as
compared to agency transactions). Also, we negotiate inventory allocation and pricing with our suppliers
which enables us to achieve a higher level of net revenue per transaction as compared to those provided
through the agency model.
Through our Expedia-branded websites, travelers can dynamically assemble multiple component travel
packages in a single transaction at a lower price as compared to booking each component separately.
Packages assembled by travelers through the packaging model on these websites include a merchant hotel
component and an air or car component. Travelers select packages based on the total package price,
without being provided component pricing. The use of the merchant travel components in packages
enables us to make certain travel products available at prices lower than those charged on an individual
component basis by travel suppliers without impacting their established pricing and position models.
Our agency business is comprised of the sale of airline tickets, hotel, cruise and car rental
reservations. Airline ticket transactions make up the majority of this business. Although net revenue per
transaction is lower (as compared to the merchant model), due to the high volume of airline tickets sold,
our agency gross bookings accounted for 59% of total gross bookings for the year ended December 31,
2005.
Relationships with Travel Suppliers, Distribution and Fulfillment Partners
Overview. We make travel products and services available from a variety of large and small
commercial and charter airlines, lodging properties, car rental companies, cruise lines and destination
service providers. We seek to build and maintain long-term, strategic relationships with travel suppliers and
global distribution system (""GDS'') partners. An important component of the success of our business
depends on our ability to maintain our existing, as well as build new, relationships with travel suppliers and
GDS partners.
Travel Suppliers. We strive to deliver value to our travel suppliers through a wide range of
innovative, targeted merchandising and promotional strategies designed to increase their revenue, while
simultaneously reducing their marketing transaction and customer service costs. We maintain a Partner
Services Group, which consists mainly of strategic account managers and local market managers who work
directly with travel suppliers to increase the marketing of their travel products through our brands.
In addition, we have developed proprietary, supplier-oriented technology that streamlines the
interaction between some of our websites and hotel central reservation systems, making it easier and more
cost-effective for hotels to manage reservations made through our brands. Through this ""direct connect''
technology, hotels can upload information about available products and services and rates directly from
their central reservation systems into our websites, as well as automatically confirm hotel reservations
made by our travelers. In the absence of direct connect technology, both of these processes are generally
completed manually. Our travelers can book reservations with over 25,000 merchant hotel properties
worldwide, of which over 30% are now fully direct-connected. We expect that this number will increase in
the future.
Distribution Partners. GDS, also referred to as computer reservation services, provide a centralized,
comprehensive repository of travel suppliers ""content'' Ì such as availability and pricing of seats on
various airline point-to-point flights, or ""segments.'' The GDSs act as intermediaries between the travel
7