"Expedia is consistently executing across all of its business lines," said Barry Diller, Expedia Inc.´s Chairman and Senior Executive. "Notwithstanding the broader issues of the world economy, Expedia is proving it can manage in any environment - a testament to its business model and superior management."
"To deliver 26% worldwide room night and continued OIBA growth in this environment speaks volumes about the abilities and execution of the global Expedia team," said Dara Khosrowshahi, Expedia Inc.´s CEO and President. "Significant improvements in our customer value proposition, marketing efficiencies and improved cost control are just a few of the many accomplishments driving our businesses forward. There is much environmental uncertainty and a lot of hard work left to do, but we are well on our way."
Discussion of Results
Gross Bookings & Revenue
Gross bookings decreased 5% (down 1% excluding the estimated impact from foreign exchange) for the second quarter of 2009 compared with the second quarter of 2008, driven primarily by lower prices for hotel rooms and airline tickets, partially offset by an increase in transactions. Domestic bookings decreased 4% and international bookings decreased 8% (up 4% excluding foreign exchange).
Revenue decreased 3% (up 1% excluding foreign exchange) for the second quarter, primarily driven by lower domestic air revenue. Domestic revenue decreased 6% while international revenue increased 3% (up 14% excluding foreign exchange).
Worldwide hotel revenue decreased 1% for the second quarter primarily due to a 19% decrease in average daily rates ("ADRs"), partially offset by a 26% increase in room nights stayed, including rooms delivered as a component of packages and nights booked through Venere™ (which we acquired in the third quarter of 2008).
Worldwide air revenue decreased 20% for the second quarter, primarily due to a 29% decrease in revenue per ticket, partially offset by a 13% increase in ticket volume. Expedia.com® eliminated consumer booking fees on air tickets beginning in March of 2009, which primarily drove the decline in revenue per ticket and the lift in ticket volume.
Advertising and media revenue, including net revenue from our TripAdvisor® segment, increased 5% for the second quarter, accounting for 10% of worldwide revenue.
Worldwide revenue from other products and services (primarily revenue from car rentals and destination services) decreased 2% for the second quarter.
Revenue as a percentage of gross bookings ("revenue margin") was 13.69% for the second quarter, an increase of 29 basis points compared to the second quarter of 2008. Domestic revenue margin decreased 31 basis points to 12.67% while international revenue margin increased 168 basis points to 15.98%. The increase in the worldwide revenue margin was primarily due to a reduction in the mix of lower margin air product and an increased mix of advertising and media revenue. The decrease in the domestic revenue margin was primarily due to a reduction in hotel service fees and the elimination of air booking fees, partially offset by an increased mix of advertising revenue. The increase in the international revenue margin was driven primarily by higher air overrides (in part due to timing of receipts), a reduction in the mix of air product and a benefit related to the changes in foreign exchange rates between the time of hotel bookings and the associated stays.
Profitability
OIBA for the second quarter increased 4% to $212 million and increased 193 basis points as a percentage of revenue to 27.6%, driven primarily by decreases in selling and marketing expense and cost of revenue at faster rates than the decrease in revenue, offset partially by growth in technology and content and general and administrative expenses. Operating income decreased 33%, driven primarily by $74 million of occupancy tax assessments and legal reserves in the second quarter of 2009.
Adjusted net income for the second quarter decreased $7 million compared to the prior year period primarily due to an increase in foreign exchange losses and an increase in net interest expense, partially offset by higher OIBA. Net income decreased $55 million compared to the prior year period primarily due to the decrease in operating income, increased net interest expense and higher foreign exchange losses. Second quarter adjusted EPS and diluted EPS were $0.38 and $0.14, respectively. Adjusted EPS decreased 5% and diluted EPS decreased 58% primarily as a result of lower adjusted net income and net income.
Cash Flows & Working Capital
For the six months ended June 30, 2009, net cash provided by operating activities was $845 million and free cash flow was $802 million. Both measures include $684 million from net changes in operating assets and liabilities, primarily driven by a working capital benefit from our merchant hotel business. Free cash flow increased $2 million compared to the first six months of the prior year primarily due to an increase in OIBA excluding depreciation, higher total cash provided by changes in operating assets and liabilities and lower capital expenditures, partially offset by an increase in cash paid for income taxes and interest.
Recent Highlights
Global Presence
· Gross bookings from Expedia Inc.´s international businesses were $1.73 billion in the second quarter, accounting for 31% of worldwide bookings, down from 32% in the prior year period. Revenue from international businesses was $277 million, or 36% of worldwide revenue, up from 34% in the prior year period.
· hotels.com® launched a Mandarin-language version for Chinese travelers in partnership with eLong™, providing customers in China with access to over 100,000 international hotels and over 7,000 domestic hotels in nearly 400 cities across China. hotels.com also launched an Arabic-language site.
· Hotwire® launched its first-ever national cable TV advertising campaign in Canada. Hotwire Group´s revenue grew 24% in the second quarter and exceeded $250 million for the first time on a trailing twelve month basis.
· Expedia® Affiliate Network (EAN) signed a Europe-wide white label partnership agreement to power hotel bookings on Avis Rental Car websites in twelve countries. EAN also signed its first agreement in Japan, enabling Airlink to package its air and ground services with Expedia´s hotel offering.
Brand Portfolio
· Expedia.com eliminated online air booking fees, as well as change and cancel fees on all hotel, car rental and cruise reservations and on virtually all flight reservations.
· In the first year since the hotels.com welcomerewards™ program launched, members have earned free nights by staying in more than 36,000 properties worldwide and have redeemed in more than 7,000 properties.
· Expedia.co.jp has partnered with MSN Japan, the country´s second largest internet portal, to power its international hotel bookings.
· Egencia™ expanded its Preferred Rate program across Europe, offering exclusive discounts at 4,000 hotels plus amenities such as loyalty points, high speed internet, early check-in, complimentary breakfast and free parking.
· Expedia Media Solutions® signed agreements with VisitDenmark, the Spain Ministry of Tourism, the San Diego Convention and Visitors Bureau and South African Tourism to promote travel to those destinations across a variety of Expedia® and hotels.com sites in multiple countries. Expedia Media Solutions now has agreements with more than 50 destination marketing organizations.
Content & Innovation
· The U.S. Travel Association named TripAdvisor "Innovator of the Year".
· TripAdvisor launched its Business Travel Center that ranks the best hotels for business travelers in 750 cities and incorporates Egencia content in the ranking algorithm.
· FlipKey™, TripAdvisor Media Network´s vacation rental review site, launched a self-service program for homeowners to list their properties on flipkey.com for $1.99 per month until the end of this year.
· Expedia.com´s Annual Summer Sale kicked off June 1, and represents the single largest ever hotel promotional event, with more than 5,000 participating hotels worldwide, up from 1,800 in 2008.
· Egencia´s Meetings & Incentives division introduced the corporate travel industry´s first fully integrated global technology solution combining online registration, attendee management, travel booking and reporting.
Supply Portfolio
· Expedia signed long term agreements with a number of regional air partners, including Mexico´s AeroMexico and Mexicana; Ireland´s Aer Arann and Isle of Man´s Manx2, which will be featured on all Expedia sites in Europe; Etihad, the national airline of the United Arab Emirates; as well as Air New Zealand.
· Expedia signed a renewed global contract with Virgin Atlantic through which Virgin Atlantic schedules and fares will be available on all Expedia sites worldwide.
· Expedia signed an agreement with Berlin-based Design Hotels™, giving their 180 member properties the opportunity for enhanced exposure on Expedia and hotels.com sites worldwide. Expedia also signed a new strategic agreement with Red Roof Inn to offer the chain´s properties in Expedia´s global marketplace.
· Expedia signed deals with Hertz and Payless Car Rental through which both will be offered as Preferred Partners on Expedia.com. In addition, both will be offered on Expedia.ca, EAN, Expedia sites in APAC and Egencia and Hertz will also be offered on Hotwire.
· Expedia began rolling out its new commission-based Expedia Easy Manage agency hotel program in Europe as an alternative to the longstanding Expedia Special Rate merchant hotel program. The new program is targeted primarily towards smaller properties outside primary destinations.
