Orbitz 2008 Annual Report Download - page 54

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record revenue that was generated previous to but not yet recognized at the time of the acquisitions. The following discussion and analysis describes the impact
on the comparability of net revenue year-over-year due to our inability to record this revenue, and refers to these amounts as "purchase accounting adjustments."
Air. Net revenue from air bookings increased $36 million, or 11%, to $355 million for the year ended December 31, 2006 from $319 million for the year
ended December 31, 2005. Of this increase, $1 million was due to foreign currency fluctuations. Purchase accounting adjustments reduced net revenue
year-over-year by $4 million due to reductions in air net revenue for the year ended December 31, 2006. The remaining increase in net revenue from air
bookings, after taking into account the impact of foreign currency fluctuations and purchase accounting adjustments, was $39 million.
An increase in domestic air volume contributed $56 million to the remaining $39 million increase in air net revenue. Partially offsetting this increase in
volume was a domestic decrease of $26 million due to lower net revenue per air ticket. Of the $26 million domestic decrease, $5 million resulted from a decrease
in air net revenue due to a reduction in paper ticket fees as the industry continued to move towards electronic ticketing. The final contractual step-down in
transaction payments that we receive from the airlines with which we have Charter Associate Agreements occurred on June 1, 2006, and represented another
$8 million of the $26 million decrease in net revenue per air ticket. The remaining domestic decrease was primarily due to lower average commissions and
transactions payments on our air transactions.
International air net revenue increased by $9 million largely due to the inclusion of a full-year of ebookers activity in 2006 as compared to only ten months
of activity in 2005. The ebookers acquisition occurred at the end of February 2005. Partially offsetting this increase was a change in mix from higher yielding
offline transactions to lower yielding online transactions and decreased compensation from suppliers.
Non-air and Other. Net revenue from our non-air and other businesses increased $30 million, or 8%, to $397 million for the year ended December 31,
2006 from $367 million for the year ended December 31, 2005. Foreign currency fluctuations impacted the growth in non-air and other by almost nil. Net
revenue decreased $33 million year-over-year due to purchase accounting adjustments, which resulted in a reduction to non-air and other revenue of $35 million
and $2 million for the years ended December 31, 2006 and 2005, respectively. The remaining increase in non-air and other net revenue, after taking into account
the impact of foreign currency fluctuations and purchase accounting adjustments, was $63 million.
An increase in domestic dynamic packaging and hotel net revenue of $29 million and $13 million, respectively, primarily drove the domestic increase in
non-air and other net revenue of $60 million. The growth in dynamic packaging resulted from increased volume driven in part by new packaging combinations
on our websites. Domestic net revenue from hotel bookings increased due primarily to a shift in mix from retail to merchant and higher volume. Domestic
non-air and other net revenue also increased due to growth in revenue from car rentals, travel insurance and destination services.
The international increase in non-air and other net revenue of $3 million was primarily due to an increase in international hotel net revenue. International net
revenue from hotel bookings increased primarily as a result of higher volume at ebookers due in part to the inclusion of a full-year of activity in 2006 as
compared to only ten months of activity in 2005.
Cost of Revenue
Cost of revenue increased $12 million, or 12%, to $113 million for the year ended December 31, 2006 from $101 million for the year ended December 31,
2005. Excluding the impact of the $39 million
47
Source: Orbitz Worldwide, In, 10-K/A, August 28, 2008