Orbitz 2008 Annual Report Download - page 51

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increase in net revenue from air bookings, after taking into account the impact of foreign currency fluctuations and purchase accounting adjustments, was
$11 million.
An increase in domestic air volume contributed $19 million to the remaining $11 million increase in air net revenue. This increase helped offset a domestic
decrease of $13 million, primarily driven by lower net revenue per air ticket. Of the $13 million decrease, $4 million resulted from a decrease in air net revenue
due to a reduction in paper ticket fees as the industry continued to move towards electronic ticketing to meet the International Air Transport Association mandate
to eliminate paper tickets by the end of May 2008. The final contractual step-down in transaction payments that we receive from the airlines with which we have
charter associate agreements occurred on June 1, 2006, and represented another $4 million of the $13 million decrease in net revenue per air ticket. The
remaining domestic decrease was due primarily to lower average commissions and transactions payments on our air transactions.
An increase in air volume contributed $15 million to the overall remaining increase in international air net revenue. This increase helped offset an
international decrease of $10 million driven by lower net revenue per air ticket. The lower net revenue per air ticket primarily resulted from an increase in mix of
short-haul flights, the introduction of low cost carriers on our websites in Europe and decreased compensation from suppliers. The sale of our offline U.K. travel
business in July 2007 reduced the overall growth in international air net revenue due to the inclusion of seven months of net revenue from that business in 2007
as compared to a full year in 2006.
Non-air and Other. Net revenue from our non-air and other business increased $87 million, or 22%, to $484 million for the year ended December 31, 2007
from $397 million for the year ended December 31, 2006. Of this increase, $11 million, or 3 percentage points, was due to foreign currency fluctuations. In
addition, net revenue increased $29 million year-over-year due to purchase accounting adjustments, which resulted in a reduction in our non-air and other net
revenue of $6 million and $35 million for the years ended December 31, 2007 and 2006, respectively. The remaining increase in net revenue from non-air and
other bookings, after taking into account the impact of foreign currency fluctuations and purchase accounting adjustments, was $47 million.
An increase in domestic hotel and dynamic packaging net revenue of $22 million and $10 million, respectively, primarily drove the domestic increase in
non-air and other net revenue of $41 million. Domestic net revenue from hotel bookings increased due to higher net revenue per transaction, primarily driven by
a shift in mix from retail to merchant, higher ADRs and a longer average length of stay. An increase in transaction volume and net revenue per transaction drove
the increase in net revenue from dynamic packaging. Domestic non-air and other net revenue also increased due to growth in travel insurance and revenue from
our partner marketing programs, which helped offset decreases in net revenue from car rentals and cruises.
An increase in international hotel and dynamic packaging net revenue of $10 million and $4 million, respectively, primarily drove the international increase
in non-air and other net revenue of $6 million. This increase in international hotel and dynamic packaging net revenue was partially offset by decreases in net
revenue from car rentals and cruises. The sale of our offline U.K. travel business in July 2007 reduced the overall growth in international non-air and other net
revenue due to the inclusion of seven months of net revenue from that business in 2007 as compared to a full year in 2006.
Cost of Revenue
Cost of revenue increased $44 million, or 39%, to $157 million for the year ended December 31, 2007 from $113 million for the year ended December 31,
2006. The increase in cost of revenue was primarily due to higher domestic and international transaction volume.
44
Source: Orbitz Worldwide, In, 10-K/A, August 28, 2008