Expedia 2008 Annual Report Download - page 45

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2008 compared to the same period in 2007. Our hotel remuneration is also impacted by our hotel margins,
which declined in 2008 due to adverse movements in foreign exchange rates, lower fees and more competitive
hotel pricing.
Industry sources forecast lower occupancies and year-on-year declines in ADRs in 2009. These trends,
combined with softer demand in a weakening economy and lower air capacity into our core leisure travel
destinations, create a challenging backdrop for our hotel business, which has been a key source of revenue and
profitability growth for Expedia.
Online Travel
Increased usage and familiarity with the internet have driven rapid growth in online penetration of travel
expenditures. According to PhoCusWright, an independent travel, tourism and hospitality research firm, in
2008 approximately 58% of U.S. leisure, unmanaged and corporate travel expenditures occurred online,
compared with approximately 33% of European travel. Online penetration in the Asia Pacific region is
estimated to lag behind that of Europe. These penetration rates have increased over the past few years, and are
expected to continue growing. This significant growth has attracted many competitors to online travel. This
competition has intensified in recent years, and the industry is expected to remain highly competitive for the
foreseeable future.
In addition to the growth of online travel agencies, airlines and lodging companies have aggressively
pursued direct online distribution of their products and services, and supplier growth has outpaced online
agency growth since 2002. As a result, according to PhoCusWright, by 2008 travel supplier sites accounted for
61% of total online travel spend in the United States. PhoCusWright forecasts that suppliers’ share of online
travel has reached an inflection point, and will remain relatively constant in 2009 and 2010.
Differentiation among the various website offerings has narrowed dramatically in the past several years,
and the travel landscape has grown extremely competitive, with the need for competitors to generally
differentiate their offerings on features other than price. Newer competitive entrants such as “meta search”
companies have in some cases been able to introduce differentiated features and content compared with the
legacy online travel agency companies, although in most cases they are not providing actual travel booking
services.
The online travel industry has also seen the development of alternative business models and timing of
payment by travelers and to suppliers, which in some cases place pressure on historical business models.
Intense competition has also led to aggressive marketing spend by the travel suppliers and intermediaries, and
a meaningful reduction in our overall marketing efficiency and operating margins.
Strategy
We play a fundamental role in facilitating travel, whether for leisure, unmanaged business or managed
business travelers. We are committed to providing travelers, travel suppliers and advertisers the world over
with the best set of resources to serve their travel needs by leveraging Expedia’s critical assets — our brand
portfolio, our technology and commitment to continuous innovation, our global reach and our breadth of
product offering. In addition, we intelligently utilize our growing base of knowledge about destinations,
activities, suppliers and travelers and our central position in the travel value chain to more effectively
merchandise our travel offerings.
A discussion of the critical assets that we leverage in achieving our business strategy follows:
Portfolio of Travel Brands. We seek to appeal to the broadest possible range of travelers, suppliers and
advertisers through our collection of industry-leading brands. We target several different demographics, from
the value-conscious traveler through our Hotwire brand to luxury travelers seeking a high-touch, customized
vacation package through our Classic Vacations brand.
We believe our flagship Expedia brand appeals to the broadest range of travelers, with our extensive
product offering ranging from single item bookings of discounted product to dynamic bundling of higher-end
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