Orbitz 2011 Annual Report Download - page 41

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41
timing of our recognition of this revenue (see discussion above). Travel insurance revenue further increased due to a higher
attachment rate, higher average air fares and higher air transaction volume. Car net revenue for our domestic leisure brands
increased primarily due to higher transaction volume, partially offset by lower average daily rates for car rentals. These
increases were partially offset by a $6.3 million decline in hosting revenue due primarily to the termination of one of our airline
hosting agreements in 2010.
Costs and Expenses
Cost of Revenue
Our cost of revenue is comprised of costs to operate our customer service call centers, credit card processing fees and
other costs, which include customer refunds and charge-backs, hosting costs and connectivity and other processing costs.
Years Ended
December 31, Increase/ (Decrease)
Years Ended
December 31, Increase/ (Decrease)
2011 2010 $ % 2010 2009 $ %
Cost of revenue: (in thousands) (in thousands)
Customer service costs . . . . . . $ 53,812 $ 56,102 $ (2,290) (4)% $ 56,102 $ 53,179 $ 2,923 5%
Credit card processing fees . . . 46,519 44,163 2,356 5 % 44,163 39,562 4,601 12%
Other . . . . . . . . . . . . . . . . . . . . 39,059 38,014 1,045 3 % 38,014 34,954 3,060 9%
Total cost of revenue (a) .$ 139,390 $ 138,279 $ 1,111 1 % $ 138,279 $ 127,695 $ 10,584 8%
(a) During 2011, we changed the classification of expenses for affiliate commissions from cost of revenue to marketing
expense. We reclassified affiliate commissions of $15.2 million and $10.7 million from cost of revenue to marketing
expense for the years ended December 31, 2010 and 2009, respectively.
Cost of revenue increased $1.1 million (a $2.0 million decrease excluding the impact of foreign currency fluctuations)
for the year ended December 31, 2011 compared with the same period in 2010. The increase was primarily driven by a $2.9
million increase in customer refunds and charge-backs and a $2.4 million increase in credit card processing fees. These
increases were partially offset by a $2.3 million decrease in customer service costs, a $1.1 million decrease in ticketing costs, a
$0.9 million decrease in hosting costs and a $0.7 million decrease in connectivity and processing costs.
Customer refunds, charge-backs and credit card processing fees increased from the prior year due primarily to increased
volume for ebookers. In 2011, customer service costs decreased primarily due to higher customer service staffing levels
required as a result of the travel disruptions caused by the volcano eruption in Iceland in April 2010. Ticketing and connectivity
and processing costs decreased primarily due to lower domestic transaction volume, and the decrease in hosting costs resulted
from the termination of our airline hosting agreements in 2010 and 2011.
Cost of revenue increased $10.6 million ($9.6 million excluding the impact of foreign currency fluctuations) for the year
ended December 31, 2010 compared with the same period in 2009, primarily driven by a $2.9 million increase in customer
service costs, a $4.6 million increase in credit card processing costs and a $5.7 million increase in customer refunds, partially
offset by a $1.7 million decrease in costs related to our airline hosting business and a $0.3 million decrease in connectivity and
processing costs.
Customer service costs increased in 2010 primarily due to higher customer service staffing levels required to support the
higher volume of air transactions and as a result of the travel disruptions caused by the volcano eruption in Iceland in April
2010. The increase in credit card processing costs and customer refunds and charge-backs was primarily due to growth in our
merchant hotel and merchant air gross bookings in 2010. Customer refunds also increased as a result of the volcano eruption.
Connectivity and processing costs decreased primarily due to more favorable pricing terms with one of our GDS providers at
ebookers, partially offset by an increase in search fees and retail hotel commission processing fees for our domestic leisure
brands due to higher transaction volume.