Priceline 2011 Annual Report Download - page 14

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discount hotel market in the U.S. could further decrease.
We believe that for a number of reasons, including the recent significant year-over-year increase in retail airfares,
consumers are engaging in increased shopping behavior before making a travel purchase than they engaged in previously.
Increased shopping behavior reduces our advertising efficiency and effectiveness because traffic becomes less likely to result in
a purchase on our website, and such traffic is more likely to be obtained through paid online advertising channels than through
free direct channels.
The launch of Room Key discussed above is demonstrative of the effort of many hotel, airline and rental car suppliers,
including suppliers with which we conduct business, to drive online demand to their own websites in lieu of third-party
distributors such as us. Certain suppliers have attempted to charge additional fees to customers who book airline reservations
through an online channel other than their own website. Furthermore, some airlines may distribute their tickets exclusively
through their own websites. Suppliers who sell on their own websites typically do not charge a processing fee, and, in some
instances, offer advantages such as web-only fares, bonus miles or loyalty points, which could make their offerings more
attractive to consumers than models like ours.
We rely on the performance of highly skilled personnel and, if we are unable to retain or motivate key personnel or
hire, retain and motivate qualified personnel, our business would be harmed.
Our performance is largely dependent on the talents and efforts of highly skilled individuals. Our future success
depends on our continuing ability to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our
organization. In particular, the contributions of certain key senior management in the U.S., Europe and Asia are critical to the
overall management of the Company. We cannot ensure that we will be able to retain the services of any members of our
senior management or other key employees, the loss of whom could harm our business.
In addition, competition for well-qualified employees in all aspects of our business, including software engineers,
mobile communication talent and other technology professionals, is intense both in the U.S. and abroad. With the recent
success of our international business and the increased profile of the Booking.com business and brand, competitors have
increased their efforts to hire our international employees. Our continued ability to compete effectively depends on our ability
to attract new employees and to retain and motivate existing employees. If we do not succeed in attracting well-qualified
employees or retaining and motivating existing employees, our business would be adversely affected. We do not maintain any
key person life insurance policies.
We are dependent on certain suppliers.
Our arrangements with the hotel, airline and rental car suppliers generally do not require them to provide any specific
quantity of hotel room reservations, airline tickets or rental cars, or to make room reservations, tickets or cars available for any
particular route, in any geographic area or at any particular price. During the course of our business, we are in continuous
dialogue with our major suppliers about the nature and extent of their participation in our system. The significant reduction on
the part of any of our major suppliers of their participation in our system for a sustained period of time or their complete
withdrawal could have a material adverse effect on our business, results of operations and financial condition.
During the recent worldwide recession, the hotel industry experienced a significant decrease in occupancy rates and
ADRs, and an increase in reservation cancellation rates. While lower occupancy rates have historically resulted in hotel
suppliers increasing their distribution of hotel room reservations through third-party intermediaries such as us, our
remuneration for hotel transactions changes proportionately with room price, and therefore, lower ADRs generally have a
negative effect on our hotel business and a negative effect on our gross profit.
In addition, certain hotels have begun initiatives to reduce margins received by third party intermediaries on retail
merchant transactions, which is the primary method we employ to distribute retail hotel room reservations in the United States.
Many hotels distribute room reservations through their own websites and therefore might increase negotiated rates for merchant
rate hotel room reservations sold through our merchant price-disclosed hotel service, decreasing the margin available to us.
While our merchant price-disclosed hotel agreements with our leading hotel suppliers provide for specified discounts, if one or
more participating hotels were to require us to limit our merchant margins, upon contract renewal or otherwise, it could have an
adverse effect on our business, results of operations and financial condition.
We could be adversely affected by changes in the airline industry, and, in many cases, we will have no control over
such changes or their timing. Examples of such changes could include, without limitation, carrier bankruptcy, industry
consolidation, capacity reductions, airfare increases and loss of GDS incentives, any or all of which could adversely affect our