Orbitz 2012 Annual Report Download - page 7

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7
under the retail model compared with the merchant model. However, airline tickets booked under the retail model contribute
substantially to our overall gross bookings and net revenue due to the high volume of airline tickets booked on our websites.
We recognize net revenue under the retail model when the reservation is made, secured by a customer with a credit card, and
we have no further obligations to the customer. For air transactions, this is at the time of booking. For hotel transactions and car
transactions, net revenue is recognized at the time of check-in or customer pick-up respectively, net of an allowance for
cancelled reservations. In the retail model, we do not take on credit risk with the customer; 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 the customer chooses the supplier.
Supplier Relationships and Global Distribution Systems
Supplier Relationships
We work with our suppliers to provide our customers with a broad and deep range of highly competitive travel products
and services on our websites. 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. Our teams focus on managing relationships,
obtaining supplier-sponsored promotions and negotiating contracts.
For hotels, we are focused on offering our customers the ability to book the most relevant hotels at the most competitive
prices. To do this, we are focused on improving our infrastructure to ensure we have appropriate connectivity with our
suppliers, sophisticated sort order algorithms and robust promotional capabilities. We have a global hotel services team that
works closely with chains and independent hotels to increase the number of properties that participate on our websites and
works with hotels to ensure that our customers have access to their best available prices, including prices exclusive to our
brands, where possible.
For airlines, we have long-standing and, we believe, generally good relationships with our suppliers. We intend to
continue to work with our suppliers to provide our customers with a highly competitive product offering. Over the course of
2012 we put in place multi-year marketing and distribution agreements with three of our four largest airline partners in the U.S.
Our 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 travel-related products. We have encountered, and expect to continue to
encounter, pressure on supplier economics. As a result, the revenue we and other OTCs earn in the form of incentive payments
from GDSs or in the form of mark-ups and commissions from our suppliers is likely to be impacted over the long term as
supplier contracts are extended.
Global Distribution Systems
Global distribution systems (“GDSs”) provide us access to a comprehensive set of supplier content through a single
source. Suppliers, such as airlines and hotels, utilize GDSs to connect their product and service offerings with travel providers,
who in turn make these products and services available to travelers for booking. Certain of our businesses utilize GDS services
provided by Galileo, Worldspan and Amadeus IT Group (“Amadeus”). Under our GDS service agreements, we receive revenue
in the form of an incentive payment for air, car and hotel segments that are processed through a GDS. These GDS service
agreements contain volume requirements for the number of segments we must process and require us to make shortfall
payments if we do not process the required minimum number of segments for a given year. As a result, a significant portion of
our GDS services are processed by these providers. For the year ended December 31, 2012, we recognized $112.8 million of
incentive revenue from GDS providers, which accounted for more than 10% of our net revenue.
Operations and Technology
Systems Infrastructure and Web and Database Servers
We use SAVVIS co-location services in the United States to host our systems infrastructure and web and database
servers for Orbitz, CheapTickets, the Away Network, Orbitz for Business and ebookers. The majority of our hardware and other
equipment is located at the SAVVIS facility. SAVVIS provides data center management services as well as emergency hands-
on support. In addition, we have our own dedicated staff on-site at the facility. If SAVVIS was unable, for any reason, to
support our primary web hosting facility, we have a secondary facility through Verizon Business, which is also located in the
United States.