Expedia 2009 Annual Report Download - page 18

periodically rising airline ticket prices, all of which we have recently experienced. Events or weakness specific to
the air travel industry that could negatively affect our business also include fare increases, travel-related strikes
or labor unrest, bankruptcies or liquidations and fuel price volatility. Additionally, our business is sensitive to
safety concerns, and thus our business has in the past and may in the future decline after incidents of actual or
threatened terrorism, during periods of political instability or geopolitical conflict in which travelers become
concerned about safety issues, as a result of natural disasters such as hurricanes or earthquakes or when travel
might involve health-related risks, such as the H1N1 and avian flu outbreaks. Such concerns could result in a
protracted decrease in demand for our travel services. This decrease in demand, depending on its scope and
duration, together with any future issues affecting travel safety, could significantly and adversely affect our
business, working capital and financial performance over the short and long-term. In addition, the disruption of
the existing travel plans of a significant number of travelers upon the occurrence of certain events, such as actual
or threatened terrorist activity or war, could result in the incurrence of significant additional costs and
constrained liquidity if we provide relief to affected travelers by refunding the price or fees associated with
airline tickets, hotel reservations and other travel products and services.
Our business depends on our relationships with travel suppliers and travel supplier intermediaries.
An important component of our business success depends on our ability to maintain and expand
relationships with travel suppliers and GDS partners. A substantial portion of our revenue is derived from
compensation negotiated with travel suppliers and GDS partners for bookings made through our websites. Over
the last several years, air and hotel travel suppliers have generally reduced or in some cases eliminated payments
to travel agents and other travel intermediaries. In addition, our hotel remuneration varies with the room rates
paid by travelers (Average Daily Rates, or “ADRs”), meaning that our revenue for each room will generally be
proportionately higher or lower depending on the level of the ADR. The significant decline in ADRs, which
began in late 2008 and continued into 2009, has accordingly negatively impacted our hotel booking revenue. To
the extent ADRs are pressured even further in 2010, our hotel booking revenue may be further negatively
impacted. During the recent decline, we have experienced a drop in ADRs generally faster than the overall
industry due to a number of factors including the increased use of our distribution channels for promotional
activities by hotels. We expect this trend to continue until the hotel industry begins to rebound. Also, each year
we typically negotiate or renegotiate numerous long-term airline and hotel contracts. No assurances can be given
that GDS partners or travel suppliers will not further reduce or eliminate compensation, attempt to charge travel
agencies for content, credit card fees or other services, or further reduce their ADRs, any of which could reduce
our revenue and margins thereby adversely affecting our business and financial performance. More recently
airlines have been “unbundling” various services such as food and beverage, baggage and other services from
base airfares. GDSs have been slow to incorporate these elements into our product selection, impacting our
product display and comparability with the airlines own sites or other channels that show this content detail.
Adverse changes in existing relationships, increasing industry consolidation or our inability to enter into new
arrangements with these parties on favorable terms, if at all, could reduce the amount, quality and breadth of
attractively priced travel products and services that we are able to offer, which could adversely affect our
business and financial performance.
We rely on the value of our brands, and the costs of maintaining and enhancing our brand awareness
are increasing.
We believe continued investment in our brands, including Expedia, hotels.com, Hotwire, Classic Vacations,
Egencia, eLong, Venere, the TripAdvisor Media Network and Expedia Local Expert, is critical to retaining and
expanding our traveler, supplier and advertiser bases. We have and expect to continue having to spend more to
maintain our brands’ value due to a variety of factors. These include increased spending from our competitors,
the increasing costs of supporting multiple brands, expansion into geographies and products where our brands are
less well known, inflation in media pricing including search engine keywords and the continued emergence and
relative traffic share growth of search engines and metasearch engines as destination sites for travelers. We have
spent considerable financial and human resources to date on the establishment and maintenance of our brands,
and we will continue to invest in, and devote resources to, advertising and marketing, as well as other brand
building efforts to preserve and enhance consumer awareness of our brands. We may not be able to successfully
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