Orbitz 2011 Annual Report Download - page 35

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35
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
EXECUTIVE OVERVIEW
General
We are a leading global online travel company (“OTC”) that uses innovative technology to enable leisure and business
travelers to search for and book a broad range of travel products and services. Our brand portfolio includes Orbitz,
CheapTickets, The Away Network and Orbitz for Business in the United States; ebookers in Europe; and HotelClub and
RatesToGo (collectively referred to as “HotelClub”) based in Australia, which have operations globally. We provide customers
with the ability to book a wide array of travel products and services from suppliers worldwide, including air travel, hotels,
vacation packages, car rentals, cruises, travel insurance and destination services such as ground transportation, event tickets and
tours. Our mission is to unlock the joy of travel by becoming the travel expert for the world, where our customers easily find
and book personalized travel options. See Item 1, “Business - Company Strategy” for a discussion of our strategic initiatives.
Industry Trends
The online travel industry is highly competitive, and our position in the industry is affected by the industry-wide trends
discussed below, as well as a number of factors specific to our global operations and supplier relationships. In addition, the
presence of high unemployment rates and related pressure on consumer spending, recent natural disasters and related travel
disruptions, as well as perceived uncertainty about the state of the global economy, continues to cause uncertainty and volatility
in the travel market.
Over the past few years, fundamentals in the global hotel industry have strengthened, with year-over-year increases in
both hotel occupancy rates and average daily rates for hotel rooms, and we expect these trends to continue.
Demand in the air travel industry has also strengthened over the past year, driven largely by increased corporate travel,
resulting in higher airfares. High ticket prices have put pressure on leisure travel demand, which represents the majority of air
bookings through OTCs. In the near term, higher fuel costs and further consolidation in the airline industry could continue to
put upward pressure on airfares. In the second half of 2011, domestic air capacity was up slightly, and we expect nominal to flat
capacity growth in 2012. International air capacity contracted in the second half of 2011, and we do not expect it to increase in
the near term.
Airlines continue to look for ways to decrease their overall costs, including the cost of distributing airline tickets through
OTCs and GDSs, and to increase their control over distribution, such as limiting forward distribution of their fares through
meta-search websites, which could significantly reduce the net revenue OTCs earn from air travel and other ancillary travel
products. In addition, as certain supply agreements renew and as airlines and GDSs renegotiate their agreements over the next
several quarters, the net revenue we and other OTCs earn in the form of incentive payments from GDSs or in the form of
commissions from airlines may be negatively impacted. See Item 1, “Business - Global Distribution Systems and Supplier
Relationships” for more information on relationships with our suppliers.
We believe the domestic online travel market has matured. However, internationally, the online travel industry continues
to benefit from increasing internet usage rates and growing acceptance of online booking. As a result, international growth rates
for the online travel industry have outpaced, and we expect will continue to outpace, domestic growth rates for online travel.
Intense competition in the travel industry has historically led OTCs and travel suppliers to aggressively spend on online
marketing. Competition for search engine key words continues to be intense as economic conditions improve and certain OTCs
and travel suppliers increase their marketing spending. In addition, as meta-search engines enter the online travel market,
competition will intensify and could increase costs to acquire traffic. In addition, if large search engines gain popularity with
their meta-search models, costs to acquire traffic could increase. For example, Google recently launched Google Flights, which
directs consumers to the websites of suppliers for potential booking of travel and not to OTCs' sites.