Expedia 2010 Annual Report Download - page 44

All percentages within this section are calculated on actual, unrounded numbers.
Trends
The travel industry, including offline agencies, online agencies and other suppliers of travel products and
services, has historically been characterized by intense competition, as well as rapid and significant change. In
2009, during the global recession, Expedia was able to grow volumes robustly by exposing excellent travel deals
to our customers. However, we eliminated or reduced a wide variety of customer fees, airfare and hotel room
prices were down substantially and advertising rates were soft, which led to revenue growth in 2009 of only 1%.
During 2010, we experienced an improving travel environment with air carriers flying at very high load factors
and hoteliers generally seeing stronger occupancies and rising room rates. As such, our 2010 year-over-year unit
growth moderated compared to 2009, but our unit economics (e.g. revenue per ticket) improved and our revenue
growth accelerated to 13%.
We believe the combination of high unemployment rates, pressure on consumer spending, European
volcanic activity and related travel disruptions, foreign currency fluctuations, overall uncertainty about the
European economy, actual and threatened labor strikes and rising airfares caused some ongoing uncertainty and
volatility in the travel market during 2010. Global economic conditions remain uncertain and, as such, our
near-term visibility remains limited.
Airline Sector
The airline sector in particular has historically experienced significant turmoil. In recent years, there has
been increased air carrier consolidation, generally resulting in lower overall capacity and higher fares. In
addition, air carriers have made significant efforts to keep seat capacity relatively low in order to ensure that
demand for seats remained high and flights as full as possible. Reduced seating capacities are generally negative
for Expedia as there is less air supply available on our websites, and in turn less opportunity to facilitate hotel
rooms, car rental and other services on behalf of air travelers. Ticket prices on Expedia sites declined by 15%
year-over-year in 2009 but grew 10% in 2010. Although air capacity discipline appears to generally remain in
place, there are early signs that carriers are beginning to add some capacity as we move into 2011.
In the spring of 2009, Expedia.com and other major online travel agencies began offering air tickets to
consumers without an associated online booking fee, matching the airline supplier sites. These actions led to
robust ticket growth but severe pressure on our revenue per ticket. After we passed the anniversary of these fee
cuts, our ticket volume growth moderated, but our revenue per ticket began to grow, leading to an improved
revenue performance for our air product. We believe that the economics for our air business are largely stable in
the near term, though we could encounter pressure on air remuneration as certain supply agreements renew, and
as air carriers and GDSs re-negotiate their long-term agreements in 2011. For example, in late 2010, American
Airlines began to pursue a new distribution strategy requiring online travel agents to agree to connect directly to
American Airlines’ systems, rather than through GDSs, and our contract with American Airlines expired without
renewal resulting in their fares being removed from our leisure travel sites.
Hotel Sector
During the recession, lodging companies generally saw significantly reduced occupancies and ADRs. In that
environment, suppliers increasingly turned to Expedia to help fill more rooms while travelers increasingly looked
to Expedia to find excellent travel deals. This combination led to robust room night growth and a substantial
reduction in our revenue per room night (since our remuneration in our hotel business varies proportionally with
the room price). In 2010, occupancy rates and ADRs began to improve for the lodging suppliers in an improving
overall travel environment. This led to moderating, though still healthy, room night growth and an improving
ADR environment. ADRs for rooms booked on Expedia sites declined by 15% year-over-year for 2009, but grew
1% in 2010.
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