Orbitz 2009 Annual Report Download - page 39

Download and view the complete annual report

Please find page 39 of the 2009 Orbitz annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 132

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132

generate higher net revenue per transaction, and we believe these categories present significant long-term
growth opportunities.
We also believe that there are long-term growth opportunities in regions outside of the U.S. for our
international brands. We experienced growth in our international gross bookings of 17% and 24% during the
years ended December 31, 2008 and 2007, respectively, excluding the impact of fluctuations in foreign
exchange rates and the results of Travelbag, an offline U.K. travel subsidiary that we sold in July 2007. The
ability to continue to grow our international brands depends to a large extent on the scale of their operations.
In light of current economic and industry conditions, in the short-term, we are focused on improving our
operating efficiency, simplifying the way we do business, and continuing to innovate. We have already taken
steps to reduce our cost structure, by reducing our global workforce, our use of contractors and other operating
costs, and by implementing a common technology platform for our ebookers websites. We may continue to
take additional measures going forward to further reduce our cost structure, as deemed necessary. We intend to
simplify our business, primarily with respect to our technology, which we believe will enable us to continue to
develop new, innovative functionality on our websites, such as Orbitz Price Assurance, more efficiently and
with fewer resources. We believe this short term strategy will better position us to manage through this
challenging environment, until such time as economic and industry conditions improve and we redefine our
long term strategy (see Item 1, “Business — Company Strategy”).
Industry Trends
The economic and industry outlook deteriorated significantly for the fourth quarter of 2008 and into
2009, as the global economy is experiencing a prolonged recession. The weakening economy has caused
unemployment rates to rise and lowered consumer confidence which, in turn, has resulted in changes to
consumer spending patterns, including reduced spending on discretionary items, such as travel.
The current economic environment has already begun to significantly impact the travel industry,
particularly the domestic airline industry. As a result of higher fuel prices during the majority of 2008 and in
response to lower demand, airlines raised ticket prices and implemented capacity reductions during the year
ended December 31, 2008. As fuel prices returned to normal levels during the fourth quarter of 2008, airlines
have begun to decrease ticket prices. However, as demand continues to weaken, certain domestic airlines have
announced further capacity reductions in 2009. The current economic environment has also begun to impact
the international airline industry. In response to lower demand, international airlines have announced that they
will also implement capacity reductions in 2009.
We believe that capacity reductions and any increase in airline ticket prices that could result from these
reductions will negatively impact demand for air travel. Lower demand for air travel could impact the net
revenue that online travel companies (“OTCs”) generate from the booking of airline tickets and in turn, impact
net revenue generated from the booking of other travel products, such as hotels and car rentals. Potential
bankruptcies and consolidation in the airline industry could also result in capacity reductions that could further
increase ticket prices and reduce the number of seats available for booking on OTCs’ websites.
Globally, airlines are also under increased pressure to reduce their overall costs, including costs of
distributing air travel through OTCs and GDSs. As a result, our distribution partners could attempt to terminate
or renegotiate their agreements with us on more favorable terms to them, which could reduce the revenue we
generate from those agreements. In addition, any pressure placed on GDSs by the airlines may result in an
attempt by the GDSs to pass additional costs to us.
The current economic environment has also begun to impact the car rental industry. In response to lower
demand for air travel, demand for car rentals has also declined, and we expect this trend to continue into
2009. Lower demand for car rentals could impact the net revenue that OTCs generate from the booking of car
rentals. The financial condition of car rental companies has also begun to deteriorate, which may result in
potential bankruptcies and industry consolidation. Potential bankruptcies and industry consolidation could
cause an increase in average daily rates (“ADRs”) for car rentals as well as a reduction in the number of cars
available for booking on OTCs’ websites.
39