Expedia 2009 Annual Report Download - page 46

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change/cancel fees in excess of those charged by travel suppliers. These fee actions, combined with the above
reductions in distribution costs, have combined to reduce Expedia’s global revenue per ticket by over 30% in the
past three years.
As a result of the above industry dynamics and the strength of our other product lines, in 2009 air revenue
constituted just 12% of our global revenues. We may encounter additional pressure on air remuneration as certain
supply agreements renew in 2010 and beyond, and as air carriers and GDSs re-negotiate their long-term
agreements in 2011.
In addition to the above challenges, larger carriers participating in the Expedia marketplace have generally
reduced their share of total air seat capacity, while leading low-cost carriers such as Southwest in the United
States have increased their relative capacities, but have generally chosen not to participate in the Expedia
marketplace. This trend has negatively impacted our ability to obtain supply in our air business, and increased the
relative attractiveness of other online and offline sales channels.
Hotel Sector
In 2008, the hotel sector witnessed supply growth and slowing demand, resulting in declining occupancy
rates. ADR growth, which had been robust in 2006 and 2007, slowed considerably throughout 2008, and by the
end of the year had stopped growing entirely. Some key leisure travel markets for Expedia, such as Las Vegas
and Hawaii, have experienced dramatic year-on-year declines in ADRs. In 2009, we experienced a 15% decline
in global ADRs due primarily to weak travel demand and continued supply expansion.
While lower occupancies have historically increased the availability of discounted hotel rooms, and a lower
rate of ADR growth can positively impact underlying room night growth, lower ADRs also decrease our revenue
per room night as our remuneration varies proportionally with the room price. Revenue per room night in 2009
declined 17% primarily due to the downward movement in ADRs as well as adverse movements in foreign
exchange rates and lower fees.
In 2009, the industry declines in occupancies and ADRs were more severe than those experienced after the
9/11 terror events. And although ADRs appear to have stabilized somewhat throughout 2009, they are still
expected to be down in the low to mid single digits for at least the first half of 2010. 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 generates nearly two-thirds of our worldwide revenue and an
even greater percentage of our profitability.
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 2009
approximately 56% of U.S. leisure, unmanaged and corporate travel expenditures occurred online, compared
with approximately 32% 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 outpaced online agency
growth for several years. As a result, according to PhoCusWright, by 2009 travel supplier sites accounted for
61% of total online travel spend in the United States. More recently, due to booking fee reductions and
eliminations, online agents appear to be regaining share of overall online travel spend. Our visibility on whether
these share gains continue once we pass the anniversary of the fee actions in late 2010 is limited.
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. Competitive entrants such as “metasearch” companies have in some
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