Orbitz 2009 Annual Report Download - page 60

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We believe that the estimates and assumptions used when preparing our consolidated financial statements
were the most appropriate at that time. However, events that are outside of our control cannot be predicted
and, as such, they cannot be contemplated in evaluating such estimates and assumptions. We have discussed
these estimates with our Audit Committee.
Presented below are those accounting policies that we believe require subjective and complex judgments
that could potentially affect our reported results. Although we believe these policies to be the most critical,
other accounting policies also have a significant effect on our consolidated financial statements and certain of
these policies may also require the use of estimates and assumptions (see Note 2 — Summary of Significant
Accounting Policies of the Notes to Consolidated Financial Statements).
Revenue Recognition
We record revenue based on SEC Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition.”
We recognize revenue when it is earned and realizable, when persuasive evidence of an arrangement exists,
services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. We
record revenue earned net of all amounts paid to our suppliers under both our retail and merchant models, in
accordance with the criteria established in Emerging Issues Task Force (“EITF”) No. 99-19, “Reporting
Revenue Gross as a Principal versus Net as an Agent.”
We offer customers the ability to book airline, hotel, car rental and other travel reservations through our
various brands, including Orbitz, CheapTickets, ebookers, HotelClub and RatesToGo. These products and
services are made available to our customers for booking on a stand-alone basis or as part of a dynamic
vacation package. We have two primary types of contractual arrangements with our vendors, which we refer to
herein as the “retail” and “merchant” models.
Under the retail model, we pass reservations booked by our customers to the travel supplier for a
commission. We also charge our customers a service fee for booking the travel reservation. Under this model,
we do not take on credit risk with travelers; we are not the primary obligor with the customer; we have no
latitude in determining pricing; we take no inventory risk; we have no ability to determine or change the
products or services delivered; and we have no discretion in the selection of the service supplier.
We recognize net revenue under the retail model when the reservation is made, secured by a customer
with a credit card and we have no further obligations to our customers. For air transactions, this is at the time
of booking. For hotel transactions and car transactions, net revenue is recognized at the time of check-in or
customer pick-up, respectively, net of an allowance for cancelled reservations. The timing of recognition is
different for retail hotel and retail car transactions than for retail air travel because unlike air travel where the
reservation is secured by a customer’s credit card at booking, car rental bookings and hotel bookings are not
secured by a customer’s credit card until the pick-up date and check-in date, respectively. Allowances for
cancelled reservations primarily relate to cancellations that do not occur through our website, but instead occur
directly through the supplier of the travel product. The amount of the allowance is determined based on our
historical experience. The majority of commissions earned under the retail model are based upon contractual
agreements.
Under the merchant model, we provide customers the ability to book the travel reservation, and we
contract with various suppliers that provide the travel products needed to fulfill the reservation. We generate
revenue for our services based on the difference between the total amount the customer pays for the travel
product and the negotiated net rate plus estimated taxes that the supplier charges for that travel product. We
also charge our customers a service fee for booking the travel reservation. Customers generally pay for
reservations in advance, at the time of booking. Initially, we record these advance payments as deferred
income and accrued merchant payables. In this model, we do not take on credit risk with travelers, however
we are subject to fraud risk; we have the ability to determine the price; we are not responsible for the actual
delivery of the flight, hotel room, or car rental; we take no inventory risk; we have no ability to determine or
change the products or services delivered; and the customer is responsible for the selection of the service
supplier.
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