Expedia 2015 Annual Report Download - page 50

Intense competition also historically led to aggressive marketing efforts by the travel suppliers and
intermediaries, and a meaningful unfavorable impact on our overall marketing efficiencies and operating
margins. We manage our selling and marketing spending on a brand basis at the local or regional level, making
decisions in each market that we think are appropriate based on the relative growth opportunity, the expected
returns and the competitive environment. In certain cases, particularly in emerging markets, we are pursuing and
expect to continue to pursue long-term growth opportunities for which our marketing efficiency is less favorable
than that for our consolidated business, but for which we still believe the opportunity to be attractive. The
crowded online travel environment is now driving certain secondary and tertiary online travel companies to
establish marketing agreements with global players in order to leverage distribution and technology capabilities
while focusing resources on capturing consumer mind share.
In May 2015, Expedia sold its 62.4% equity stake in eLong for approximately $671 million to several
purchasers including Ctrip.com International, Ltd (“Ctrip”). Expedia and Ctrip also reached agreement on
cooperation for certain travel products in specified geographic markets. The transaction closed on May 22, 2015.
Unless otherwise noted, all discussion in the “Trends” and “Growth Strategy” sections refers to results for
Expedia, Inc. excluding eLong.
Lodging
We generate the majority of our revenue through the facilitation of hotel reservations (stand-alone and
package bookings). Although our relationships with our hotel supply partners have remained broadly stable in the
past few years, as part of the global rollout of ETP, we reduced negotiated economics in certain instances to
compensate for hotel supply partners absorbing expenses such as credit card fees and customer service costs,
which has negatively impacted the margin of revenue we earn per booking. In addition, as we continue to expand
the breadth and depth of our global hotel offering, in some cases we have reduced and expect to continue to
reduce our economics in various geographies based on local market conditions. These impacts are due to specific
initiatives intended to drive greater global size and scale through faster overall room night growth. Lastly,
currency exchange rate fluctuations have had a negative effect on unit economics due to unfavorable book-to-
stay as well as translation impacts. Based on these dynamics, our average revenue per room night declined in
each quarter of 2013, 2014 and 2015 and we expect it to remain under pressure in the future.
Since our hotel supplier agreements are generally negotiated on a percentage basis, any increase or decrease
in ADRs has an impact on the revenue we earn per room night. Over the course of the last several years,
occupancies and ADRs in the lodging industry have generally increased on a currency-neutral basis in a
gradually improving overall travel environment. However, U.S. dollar-denominated ADRs declined in 2015 due
to the currency translation impact. Current occupancy rates are at record highs and there is very little new, net
hotel supply being added in the U.S. lodging market with large chains focusing their development opportunities
in international markets. This may help U.S. hoteliers with their objective of continuing to grow ADRs and tends
to lead to pressure in our negotiations and terms with hoteliers. In international markets, hotel supply is being
added at a much faster rate as hotel owners and operators try to take advantage of opportunities in faster growing
regions such as China and India, among others. Many hotel chains have been focusing on driving direct bookings
on their own websites and mobile applications by offering incentives such as loyalty points, increased or
exclusive product availability and complimentary Wi-Fi. Companies like Airbnb have also added incremental
global supply in the alternative accommodations space. We have had success adding supply to our marketplace
with approximately 269,000 properties and 1.2 million live vacation rental listings on our global websites as of
December 31, 2015. In addition, our room night growth has been healthy, with room nights excluding eLong
growing 16% in 2013, 24% in 2014, and 36% in 2015. ADRs for rooms booked on Expedia sites excluding
eLong increased 4% in 2013, 3% in 2014, and declined 5% in 2015.
Air
The airline sector in particular has historically experienced significant turmoil, including significant air
carrier consolidation in the United States, which has generally resulted in lower overall capacity and higher fares.
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