Orbitz 2008 Annual Report Download - page 11

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Partner Marketing
Through our partner marketing programs, we create unique relationships with travel partners, convention and visitor bureaus, credit card partners, media,
packaged goods and other non-travel advertisers. We generate advertising revenue by offering our partners a combination of display advertising,
performance-based advertising and other marketing programs.
Retail and Merchant Models
Retail Model
Our retail model provides customers the ability to book air, hotel, cruise and car rental reservations. Air transactions comprise the majority of this business.
Through our retail model, we earn fees and commissions from travel suppliers for airline tickets, hotel rooms, car rentals and other travel products and services
booked on our websites. We also charge our customers a service fee for booking the travel reservation. Generally, our net revenue per transaction is lower under
the retail model compared to the merchant model described below. However, due to the high volume of air reservations booked under the retail model, it
contributes substantially to our overall gross bookings and net revenue. We recognize net revenue under the retail model when the reservation is made, secured
by a customer with a credit card and when there are no further obligations on our part to perform. In this model, we do not take on credit risk with travelers; we
are not the primary obligor with the customer; we have no latitude in determining pricing; we take no inventory risk; we have no ability to determine or change
the products or services delivered; and we have no discretion in the selection of the service supplier.
Merchant Model
Our merchant model primarily provides customers the ability to book air, hotel, destination services reservations and dynamic vacation packages. Hotel
transactions comprise the majority of this business. Through our merchant model, we provide customers the ability to book the travel reservation, and we
contract with various suppliers that provide the travel products needed to fulfill the reservation. We generate revenue for our services based on the difference
between the total amount the customer pays for the travel product and the negotiated net rate as well as estimated taxes that the supplier charges for that travel
product. We also charge our customers a service fee for booking the travel reservation. Generally, our net revenue per transaction is higher under the merchant
model compared to the retail model due to our negotiation of net rates with suppliers. Customers generally pay for reservations in advance, at the time of
booking. Initially, we record these advance payments as deferred net revenue and accrued merchant payables. We recognize net revenue when customers use the
reservations. In this model, we do not take on credit risk with travelers, however we are subject to fraud risk; we have some pricing flexibility; we are not
responsible for the actual delivery of the flight, hotel room, or car rental; we take no inventory risk; we have no ability to determine or change the products or
services delivered; and we have no discretion in the selection of the service supplier.
When customers assemble a dynamic vacation package, we may offer the customer the ability to book a mix of travel products that use both the retail model
and the merchant model. The use of products under the merchant model allows us to make certain products available to our customers at prices that are generally
lower than booking each travel product separately.
Supplier Relationships and Global Distribution Systems
Supplier Relationships
We have teams that manage relationships and negotiate agreements with our suppliers. These agreements generally cover access to the supplier's travel
inventory as well as payment for our services. Our teams cover air, hotel, car rental, cruise, travel insurance and destination services suppliers. We
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Source: Orbitz Worldwide, In, 10-K/A, August 28, 2008