Orbitz 2010 Annual Report Download - page 39

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travel market will be more closely aligned with the growth rates of the overall travel industry. Internationally,
the online travel industry continues to benefit from rapidly increasing Internet usage and growing acceptance
of online booking. We expect international growth rates for the online travel industry will continue to outpace
growth rates of the overall travel industry.
We believe that OTCs will continue to focus on differentiating themselves from supplier websites in a
variety of ways, including offering customers the ability to selectively combine travel products such as air, car,
hotel and destination services into dynamic vacation packages. Through dynamic vacation packages, we make
certain products available to our customers at prices that are generally lower than booking each travel product
separately. We foresee growth potential for OTCs for these types of services, particularly since travelers are
increasingly price-sensitive. Our net revenue per transaction is generally higher for dynamic vacation packages
than for travel products booked separately.
OTCs make significant investments in marketing through both online and traditional offline channels. Key
areas of online marketing include SEM, travel research, display advertising, affiliate programs and email
marketing. Search engine marketing costs have been rising in the U.S. over time, although to a lesser extent in
the current economic environment, and competition for search-engine key words continues to be intense. If
these trends continue, we could experience lower margins or declines in transaction growth rates. We are
actively pursuing strategies to improve the efficiency of our marketing efforts. These strategies include
increasing the amount of non-paid traffic coming to our websites through SEO and customer relationship
management and eliminating unprofitable SEM and travel research spending. Our retailing efforts are designed
to improve conversion and ultimately reclaim previously unprofitable SEM and travel research transactions on
a profitable basis.
RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be
read in conjunction with our accompanying consolidated financial statements and related notes.
Key Operating Metrics
Our operating results are affected by certain key metrics that represent overall transaction activity. Gross
bookings and net revenue are key metrics that drive our business. Gross bookings is defined as the total
amount paid by a consumer for travel products booked under both the merchant and retail models. Net revenue
includes: commissions earned from suppliers under our retail model; the difference between the total amount
the customer pays us for a travel product and the negotiated net rate plus estimated taxes that the supplier
charges us for that travel product under our merchant model; service fees earned from customers under both
our merchant and retail models; advertising revenue and certain other fees and commissions.
Gross bookings provide insight into changes in overall travel demand, both industry-wide and on our
websites. We track net revenue trends for our various brands, geographies and product categories to gain
insight into the performance of our business across these categories.
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