Priceline 2010 Annual Report Download - page 118

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the growth of the domestic online market for travel services has slowed. We believe the decline in market share is
attributable, in part, to (1) a concerted initiative by travel suppliers to direct customers to their own websites in an
effort to reduce distribution expenses and establish more direct control over their pricing, and (2) a price advantage
in that the suppliers generally do not charge a processing fee. However, with the aforementioned elimination and
reduction of processing and other fees by all of the major online travel companies, we believe that the domestic
market share of third party distributors stabilized and potentially increased during 2009 and 2010.
Domestic airlines have recently reduced capacity and increased fares. In addition, the threat of carrier
bankruptcies and the emerging prospect of industry consolidation, as evidenced by the recent mergers of United Air
Lines with Continental Airlines and Delta Air Lines with Northwest Airlines, as well as the recently announced
future acquisition of AirTran by Southwest Airlines, could lead to additional decreases in capacity and further
reduce the amount of airline tickets available to us. Significant increases in average airfares thus far in 2010 may
adversely impact travel demand. Reduced airline capacity and demand negatively impact our priceline.com air
business, which in turn has negative repercussions on our priceline.com hotel and rental car businesses. Recent
decreases in rental car fleets have led to decreases in rental car availability, which has negatively impacted our Name
Your Own Price® rental car service. In addition, Avis is currently in discussions to acquire the Dollar-Thrifty
Automotive Group. The merger or acquisition of the Dollar-Thrifty Automotive Group by Avis or another rental car
company could result in a decrease of rental car reservations available to our rental car service. In January 2010,
Toyota recalled over 8 million vehicles due to faulty accelerator pedals, leading to further strain on rental car
companies’ fleets and increased retail rental car rates. As a result of these challenges, we experienced a decline in
Name Your Own Price® airline tickets and rental car days during the year ended December 31, 2010 compared to the
same period in 2009. Nevertheless, we continue to believe that the market for domestic online travel services is an
attractive market with continued opportunity for growth.
We believe that our success will depend in large part on our ability to maintain profitability, primarily from
our hotel business, to continue to promote the Booking.com, Agoda and TravelJigsaw brands internationally and the
priceline.com brand in the United States, and, over time, to offer other travel services and further expand into other
international markets. Factors beyond our control, such as worldwide recession, terrorist attacks, unusual weather
patterns, including natural disasters such as hurricanes, tsunamis, volcanic eruptions (such as the April 2010
eruption of a volcano in Iceland) or earthquakes and other weather phenomena, travel related health concerns
including pandemics and epidemics such as Influenza H1N1, avian bird flu and SARS, political instability, regional
hostilities, increases in fuel prices, imposition of taxes or surcharges by regulatory authorities, travel related
accidents or the withdrawal from our system of a major hotel supplier or airline, could adversely affect our business
and results of operations and impair our ability to effectively implement all or some of the initiatives described
above.
For example, in early 2010, civil unrest in Thailand, a key market for our Agoda business and the Asian
business of Booking.com, negatively impacted booking volumes in this market at the time. In addition, clashes
involving Thai security forces, anti-government demonstrators and groups supporting the government resulted in
violence in various locations in Bangkok, causing the temporary relocation of Agoda’s Thailand-based operations.
Thailand has experienced disruptive civil unrest in prior years as well and continued or future civil or political unrest
could further disrupt Agoda’s Thailand-based business and operations.
We intend to continue to invest in marketing and promotion, technology and personnel within parameters
consistent with attempts to improve operating results. We also intend to broaden the scope of our business, and to
that end, we explore strategic alternatives from time to time in the form of, among other things, mergers and
acquisitions. Our goal is to improve volume and sustain gross margins in an effort to maintain profitability. The
uncertain environment described above makes the prediction of future results of operations difficult, and
accordingly, we cannot provide assurance that we will sustain revenue growth and profitability.
Seasonality. Our Name Your Own Price® services are generally non-refundable in nature, and accordingly,
we recognize travel revenue at the time a booking is generated. However, we recognize revenue generated from our
retail hotel services, including Booking.com and Agoda, at the time that the customer checks out of the hotel. As a
result, a meaningful amount of retail hotel bookings generated earlier in the year, as customers plan and reserve their
spring and summer vacations, will not be recognized as revenue until future quarters. In addition, revenue generated
by TravelJigsaw transactions is recognized when the customer returns the rental car. From a cost perspective,
however, we expense the substantial majority of our advertising activities as they are incurred, which is typically in
the quarter in which bookings are generated. Therefore, if our retail hotel business continues to grow, we expect our