Orbitz 2013 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
Orbitz Worldwide, Inc. is a global online travel company 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 and
CheapTickets in the Americas; ebookers in Europe; and HotelClub based in Australia, which have operations globally. We also
own and operate Orbitz for Business, a corporate travel company, and Orbitz Partner Network group, which 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, rail tickets, 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 continued presence of relatively 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. We compete in various geographic markets, with our primary markets being the United States, Europe and Asia
Pacific. We are one of the market leaders within the United States, which is the most mature of the global travel markets.
Internationally, a relatively low percentage of travel sales are transacted online and the market is highly fragmented, which
presents a significant growth opportunity for us and our competitors. In Europe, OTCs represent just 38% of the online market,
but OTCs are growing faster than online supplier direct bookings. While OTCs account for only a third of the Asia Pacific
online travel market, OTC gross bookings surpassed $30 billion in 2013 and mobile will likely be the fastest growing travel
distribution channel in the region through 2015.
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 and some of our competitors have acquired, or invested in meta-search companies. We have also seen
technology companies, such as Google, increase their interest in online travel.
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 the economics of historical
business models.
Demand in the air travel industry has strengthened over the past few years driven largely by increased corporate travel
demand. The increased corporate travel demand combined with continued discipline by airlines around capacity have resulted
in higher airfares. Higher airfares generally put pressure on leisure travel demand, which represents the majority of air
bookings through OTCs. Further consolidation of the airline industry, such as the merger between American Airlines and US
Airways, could put additional pressure on capacity and airfares in the future.
Suppliers continue to look for ways to decrease 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. We expect that our shift in mix towards hotels
and dynamic packaging will positively impact our overall transaction economics over time.