Expedia 2012 Annual Report Download - page 54

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Air
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 remains high and that flights are 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 grew 4% and
11% in 2012 and 2011. We are encountering pressure on air remuneration as certain supply agreements renew,
and as air carriers and GDS intermediaries re-negotiate their long-term agreements. In addition, some U.S. air
carriers introduced various incentives for customers to book directly with the carrier versus via online travel
agencies. Examples of these incentives include lower fees, advance seat assignments and greater earning
potential for frequent flier miles.
In part as a result of sharply rising average ticket prices, our ticket volumes decreased by 8% in 2011 after
having grown by 11% in 2010. Air ticket volumes grew 7% in 2012, largely due to the acquisition of VIA Travel
and air ticket sales of a major U.S. carrier, which were absent in the first quarter of 2011 due to a commercial
disagreement.
From a product perspective, over 74% of our revenue comes from transactions involving the booking of
hotel reservations, with approximately 8% of our revenue derived from the sale of airline tickets. We believe that
the hotel product is the most profitable of the products we distribute and represents our best overall growth
opportunity.
Growth Strategy
Product Innovation. Each of our leading brands was a pioneer in online travel and has been responsible for
driving key innovations in the space over the past two decades. They each operate a dedicated technology team,
which drives innovations that make researching and shopping for travel increasingly easier and helps customers
find and book the best possible travel options. In the past several years, we made key investments in technology,
including significant development of our technological platforms that makes it possible for us to deliver
innovations at a faster pace. For example, we launched our new Hotels.com global platform in the first quarter of
2010, enabling us to significantly increase the innovation cycle for that brand. Since then, we have been
successful in improving conversion and driving much faster growth rates for the Hotels.com brand. We are in the
midst of a similar transformation for Brand Expedia, having rolled out its new hotel platform in the second half
of 2011, followed by the air platform rollout during the first half of 2012, with expectations that the new package
platform will be completed in 2013.
Global Expansion. Our Expedia, Hotels.com, Egencia, EAN, and Hotwire brands operate both domestically
and through international points of sale, including in Europe, Asia Pacific, Canada and Latin America. We own a
majority share of eLong, which is the second largest online travel company in China. We also own Venere, a
European brand, which focuses on marketing hotel rooms in Europe. Egencia, our corporate travel business,
operates in 54 countries around the world and continues to expand, including its recent acquisition of VIA
Travel. We also partner in a 50/50 joint venture with AirAsia – a low cost carrier serving the Asia-Pacific region
– to jointly grow an online travel agency business. Although the results for the joint venture are not consolidated
in our financial statements, we consider this business to be a key part of our Asia Pacific strategy. In 2012,
approximately 41% of our worldwide gross bookings and 45% of worldwide revenue were international up from
22% for both worldwide gross bookings and revenue in 2005. We have a stated goal of driving more than half of
our revenue through international points of sale.
In expanding our global reach, we leverage significant investments in technology, operations, brand
building, supplier relationships and other initiatives that we have made since the launch of Expedia.com in 1996.
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