Orbitz 2012 Annual Report Download - page 34

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34
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
EXECUTIVE OVERVIEW
General
We are a leading global online travel company (“OTC”) that uses innovative technology to enable leisure and business
travelers to research, plan and book a broad range of travel products and services. Our brand portfolio includes Orbitz,
CheapTickets, and the Away Network in the Americas; ebookers in Europe; and HotelClub and RatesToGo (collectively
referred to as “HotelClub”) based in Australia, which have operations globally. We also own and operate Orbitz for Business, a
corporate travel company, and Orbitz Worldwide Distribution group delivers private label travel solutions to a broad range of
partners. We provide customers with the ability to book a wide array of travel products and services from suppliers worldwide,
including air travel, hotels, vacation packages, car rentals, cruises, travel insurance and destination services such as ground
transportation, event tickets and tours.
Industry Trends
Our position in the industry is affected by the industry-wide trends discussed below, as well as a number of factors
specific to our global operations and supplier relationships. In addition, the presence of high unemployment rates and related
pressure on consumer spending, as well as perceived uncertainty about the state of the global economy, cause uncertainty and
volatility in the travel market.
The worldwide travel industry is a large and dynamic industry that has been characterized by rapid and significant
change. The online travel industry continues to benefit from increasing internet usage rates and the growing acceptance of
online booking. According to PhoCusWright, an independent travel, tourism and hospitality research firm, in 2012 the online
travel booking penetration rate in the United States was nearly 60% and was over 40% in Europe. Asia Pacific lags behind
Europe with an online penetration rate of just under 25%. We expect online penetration rates will continue to grow in the
future, which represents a significant growth opportunity for us and our competitors.
The online travel industry is highly competitive and competition has intensified in recent years. Airlines and hotels have
increasingly focused on distributing their products through their own websites, and meta-search and travel research sites have
gained in popularity. In fact, some of our competitors have recently announced acquisitions or investments in meta-search
companies. We have also seen search engines, such as Google, increase their interest in the online travel vertical.
Intense competition in the travel industry has historically led OTCs and travel suppliers to aggressively spend on online
marketing. Competition for search engine key words continues to be intense as certain OTCs and travel suppliers increase their
marketing spending in this area. Competitive dynamics could cause the cost to acquire traffic to continue to increase.
Over the past few years, fundamentals in the global hotel industry have strengthened. In general, we have seen rising
hotel occupancy rates and higher average daily rates for hotel rooms. In addition, we have seen a shift in the business model
under which some of our competitors make hotel rooms available to consumers. Our hotel business operates predominantly
under the merchant model, however some of our competitors have adopted a retail model, or a model where the traveler can
choose to purchase a hotel room under either a retail or merchant model. This could put pressure on historical business models.
Demand in the air travel industry has strengthened over the past few years driven largely by increased corporate travel
demand. In addition, airlines continued to maintain discipline around capacity in 2012. Both of these factors resulted in higher
airfares. Higher airfares generally put pressure on leisure travel demand, which represents the majority of air bookings through
OTCs.
Suppliers continue to look for ways to decrease their overall distribution costs, which could significantly reduce the net
revenue OTCs earn from travel and other ancillary travel products. We have encountered, and expect to continue to encounter,
pressure on supplier economics as certain supply agreements are renegotiated.