Expedia 2005 Annual Report Download - page 41

Results of Operations for the Years Ended December 31, 2005, 2004 and 2003
Revenue
Beginning January 1, 2004, as part of the integration of our businesses, Hotels.com conformed its
merchant hotel business practices with those of our other businesses. As a result, we commenced
prospectively reporting revenue for Hotels.com on a net basis. This change in reporting did not affect gross
profit, operating income or net income. We have presented certain of our 2003 information in the tables
below on an as reported and comparable net basis.
Year Ended December 31, % Change
2005 2004 2003 2005 vs 2004 2004 vs 2003
($ in thousands)
Revenue (as reported) ÏÏÏÏÏ $2,119,455 $1,843,013 $2,339,813 15% (21)%
Revenue (on a comparable
net basis) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,119,455 1,843,013 1,400,164 15% 32%
In 2005, the increase in revenue was primarily due to increases in worldwide merchant hotel business,
worldwide air revenue, growth in our car rental business and acquisitions. Worldwide merchant hotel
revenue increased 10% in 2005 compared to 2004. The increase was primarily due to a 9% increase in
room nights and a 1% increase in revenue per room night. The increase in revenue per room night was
primarily due to a 7% increase in average daily rates, offset by a contraction in hotel raw margin (defined
as hotel net revenue as a percentage of hotel gross bookings).
Worldwide air revenue increased 5% in 2005 compared to 2004. Year-over-year, the air tickets sold
increased by 17%, offset by an 11% decrease in air revenue per ticket. The increase in air tickets sold is
primarily due to the growth in domestic ticket sales while the decrease in air revenue per tickets resulted
from less inventory allocation and lower discounting of merchant air tickets, as the industry experienced
high load factors.
Other revenue, which includes car rental, destination services and cruise, increased by 57% in 2005
compared to 2004, primarily due to acquisitions and growth in the car rental business. International
revenue increased by 48% in 2005 compared to 2004, primarily due to our acquisitions and continued
growth from international websites.
In 2004, the decrease in revenue compared to 2003 revenue (as reported) was due to a change in
business practice at Hotels.com to conform its business practice to the approach used by the other Expedia
Businesses. Our 2004 revenue increased compared to 2003 revenue (on a net comparable basis) primarily
due to increases in worldwide merchant hotel business, worldwide air revenue, packages and acquisitions.
In 2003, revenue included a favorable adjustment of $22.4 million related to estimated merchant supplier
payables.
Worldwide merchant hotel revenue increased 24% in 2004 compared to 2003, primarily due to an
increase in hotel room nights stayed, combined with an increase in revenue per room night. Year-over-
year, merchant hotel room nights stayed, including rooms booked as a component of packages, increased
21%, reflecting continued growth in international demand, acquisitions and growth in our private label and
affiliate programs. Revenue per room night increased 3% primarily due to increases in average daily room
rates, partially offset by a decline in merchant hotel raw margins.
The domestic merchant hotel business in 2004 presented a more challenging environment than the
prior year, primarily due to increased third party distributor competition, promotion by hotel chains from
their own direct sites and higher overall occupancy rates. These increases resulted in decreased availability
of favorably priced travel products and services when compared with 2003.
Worldwide air revenue increased 34% in 2004 compared to 2003. Year-over-year, the number of air
tickets sold increased by 33% primarily due to the growth in domestic and international ticket sales.
Acquisitions also contributed to the increase in worldwide air revenue.
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