UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

 

Commission File No. 333-141714

 

 

 

 

405 Lexington Avenue

New York, NY 10174

(Address of principal executive offices, including zip code)

 

(212) 915-9150

(Registrant’s telephone number, including area code)

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None.

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  o      No  þ

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  þ      No  o

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ      No  o

 

Indicate by check whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.  Yes  þ      No  o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o      No  þ

 

As of March 31, 2011, 12,000 shares of the Registrant’s common stock, par value $1.00 per share, were outstanding, all of which were held by Travelport Holdings Limited.

 

DOCUMENTS INCORPORATED BY REFERENCE

None

 

 

TABLE OF CONTENTS

 

 

FORWARD-LOOKING STATEMENTS

 

The forward-looking statements contained herein involve risks and uncertainties. Many of the statements appear, in particular, in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements identify prospective information. Important factors could cause actual results to differ, possibly materially, from those in the forward-looking statements. In some cases you can identify forward-looking statements by words such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “potential”, “should”, “will” and “would” or other similar words. You should read statements that contain these words carefully because they discuss our future priorities, goals, strategies, actions to improve business performance, market growth assumptions and expectations, new products, product pricing, changes to our business processes, future business opportunities, capital expenditures, financing needs, financial position and other information that is not historical information. References within this Annual Report on Form 10-K to “we”, “our” or “us” means Travelport Limited, a Bermuda company, and its subsidiaries.

 

The following list represents some, but not necessarily all, of the factors that could cause actual results to differ from historical results or those anticipated or predicted by these forward-looking statements:

 

 

We caution you that the foregoing list of important factors may not contain all of the factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report may not in fact occur.

 

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. The factors listed in the

section captioned “Risk Factors” in this Annual Report on Form 10-K, as well as any other cautionary language in this Annual Report on Form 10-K, provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described in the forward-looking statements. You should be aware that the occurrence of the events described in these risk factors and elsewhere in this report could have an adverse effect on our business, results of operations, financial position and cash flows.

 

Forward-looking statements speak only as of the date the statements are made. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect thereto or with respect to other forward-looking statements.

 

Travelport Limited was formed on July 13, 2006 to acquire the travel distribution services businesses of Cendant (the “Acquisition”). On August 23, 2006, the Acquisition was completed, and we were acquired by affiliates of The Blackstone Group (“Blackstone”), affiliates of Technology Crossover Ventures (“TCV”) and certain existing and former members of our management. One Equity Partners (“OEP”) acquired an economic interest in us in December 2006.

 

On July 25, 2007, we completed the initial public offering of common stock of our then subsidiary, Orbitz Worldwide, Inc. (“Orbitz Worldwide”), and listed such common stock on the New York Stock Exchange. On October 31, 2007, we transferred approximately 11% of the outstanding equity of Orbitz Worldwide to affiliates, leaving us with approximately 48% of Orbitz Worldwide’s outstanding equity which we recognize for accounting purposes using the equity method. On January 26, 2010, we purchased $50 million of newly issued common shares of Orbitz Worldwide pursuant to an agreement with Orbitz Worldwide. After this investment, and a simultaneous exchange between Orbitz Worldwide and PAR Investment Partners, a third party investor, of approximately $49.68 million of Orbitz Worldwide debt for common shares of Orbitz Worldwide, we continue to own approximately 48% of Orbitz Worldwide’s outstanding common stock.

 

On August 21, 2007, we completed the acquisition of Worldspan for $1.3 billion. Worldspan operated as an independent GDS based in the United States before becoming part of the Travelport GDS business in August 2007. The Worldspan system resulted from the combination of Delta, TWA and Northwest GDS systems in the early 1990s.

 

We continually explore, prepare for and evaluate possible transactions, including acquisitions, divestitures, joint ventures and other arrangements, to ensure we have the most efficient and effective capital structure and/or to maximize the value of the enterprise. No assurance can be given with respect to the timing, likelihood or effect of any possible transactions.

 

Although we focus on organic growth, we may augment such growth through the select acquisition of (or possible joint venture with) complementary businesses in the travel and business services industries. We expect to fund the purchase price of any such acquisition with cash on hand or borrowings under our credit lines. In addition, we continually review and evaluate our portfolio of existing businesses to determine if they continue to meet our business objectives. As part of our ongoing evaluation of such businesses, we intend from time to time to explore and conduct discussions with regard to joint ventures, divestitures and related corporate transactions. However, we can give no assurance with respect to the magnitude, timing, likelihood or financial or business effect of any possible transaction. We also cannot predict whether any divestitures or other transactions will be consummated or, if consummated, will result in a financial or other benefit to us. We intend to use a portion of the proceeds from any such dispositions and cash from operations to retire indebtedness, make acquisitions and for other general corporate purposes.

 

Company Information

 

Our principal executive office currently is located at 405 Lexington Avenue, New York, New York 10174 (telephone number: (212) 915-9150). We anticipate moving our principal executive office to 300 Galleria Parkway, Atlanta, Georgia 30339 in the second quarter of 2011. We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith, we file reports, proxy and information statements and other information with the Securities and Exchange Commission (the “Commission”). Such reports (including our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to such reports) and other information can be accessed on our website at www.travelport.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Commission. A copy of our Code of Conduct and Ethics, as defined under Item 406 of Regulation S-K, including any amendments thereto or waivers thereof, can also be accessed on our website. We will provide, free of charge, a copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and Code of Conduct and Ethics upon request by phone or in writing at the above phone number or address, attention: Investor Relations.

The GDS Business

 

Our GDS business is characterized by a uniquely balanced global footprint and a leading position in each of the four major world travel regions: the Americas, Europe, MEA and APAC, as measured by GDS-processed air segments booked for the year ended December 31, 2010. In 2010, our GDS business processed more than 304 million air segments, approximately 26 million hotel bookings, approximately 17 million car rental bookings and approximately two million rail bookings. In the year ended December 31, 2010, we captured approximately 28% of the global share of GDS-processed air segments, with a uniquely balanced split across regions. In 2010, approximately 170 million tickets were issued through our GDS business, with approximately six billion stored fares normally available at any one time. Our GDS business executed an average of 77 million searches and processed up to 1.8 billion travel-related messages per day in 2010. In 2010, our GDS business earned approximately $1.8 billion in transaction processing revenue, consisting primarily of approximately $1.5 billion from airlines, approximately $108 million from hotels and approximately $74 million from car rental companies.

 

Our GDS business provides a core distribution vehicle and transaction processing services for travel suppliers to facilitate efficient aggregation and distribution of travel inventory to travel agencies and ultimately to end customers globally. Our GDS and Airline IT Solutions businesses provide merchandising and booking-related services, payment solutions, hosting, IT services and business intelligence to travel suppliers in exchange for fees and travel-related content. Our GDS then distributes this content, including pricing, availability, reservations, ticketing and payment, to both online and traditional travel agencies. Travel agencies are given the ability to shop and book across thousands of suppliers in real time, handle payment processing and other fulfillment services on behalf of clients and suppliers, perform customer service functions, such as changes, cancellations and re-issues, and efficiently manage activity through direct data feeds from the GDS to the agency mid- and back-office systems. We typically earn a fee from travel suppliers for each segment booked, cancelled or changed. In connection with these bookings, we generally pay commissions or provide other financial incentives to travel agencies to encourage greater use of our GDS. Travel agencies then distribute the travel inventory to end customers.

 

Our GDS operational business global headquarters are located in the United Kingdom. We are uniquely balanced across the four major travel regions, which allows us to be well positioned to take advantage of market-driven growth in each major travel region and emerging markets in particular, where the number of air passengers boarded are forecast to grow faster than the Americas and Europe. This geographic balance also helps to insulate us from downturns related to specific regional economies. In 2010, our balanced share of GDS-processed air segments was 46%, 25%, 11% and 18% in the Americas, Europe, MEA and APAC, respectively, based on industry global distribution of GDS-processed air segments of 44%, 30%, 9% and 17%, respectively, in each region.

 

Travel Suppliers.   Our relationships with travel suppliers extend to airlines, hotels, car rental companies, rail networks, cruise and tour operators and destination service providers. Travel suppliers process, store, display, manage and distribute their products and services to travel agencies primarily through GDSs. Through participating carrier agreements (for airlines) and various agreements for other travel suppliers, airlines and other travel suppliers are offered varying levels of services and functionality at which they can participate in the Travelport GDSs. These levels of functionality generally depend upon the travel supplier’s preference as well as the type of communications and real-time access allowed with respect to the particular travel supplier’s host reservations systems.

 

We connect travel suppliers with travel agencies across approximately 160 countries and use approximately 30 languages to distribute supplier inventory that is aggregated from approximately 350 airlines, approximately 310 hotel chains covering more than 89,000 hotel properties, more than 25 car rental companies and 12 major rail networks worldwide, as well as cruise and tour operators.

The table below lists alphabetically Travelport’s largest airline suppliers in the Americas, Europe, MEA and APAC for the year ended December 31, 2010, based on revenue:

 

 

We have entered into a number of specific-term agreements with airlines in the larger and more mature geographic areas, including North America and Western Europe, as well as APAC, to secure full-content parity with the airlines’ own websites. Full-content agreements allow our travel agency customers to have access to the full range of our airline suppliers’ public content, including the ability to book the last available seat, as well as to parity in functionality. The typical duration of these agreements ranges from three to seven years. We have secured full-content agreements with approximately 95 airlines worldwide, including all the major airlines in North America, as well as European and Asian airlines such as British Airways, Air France, KLM, Iberia, Lufthansa, Swiss, Alitalia, Qantas and Singapore Airlines. Bookings attributable to such full-content agreements comprised 77% of our air segments in the year ended December 31, 2010. Certain of such full content agreements, particularly in North America, expire, or may be terminated, during 2011, and we are in active discussions to renew or extend such agreements.

 

Our standard GDS distribution agreements with air, hotel and car rental suppliers are open-ended or roll over unless specifically terminated. The majority of our agreements remain in effect each year, with exceptions usually linked to airline mergers or insolvencies. Our contracts with a majority of our top fifteen suppliers, as measured by revenue for the year ended December 31, 2010, are in place until 2012, unless earlier terminated pursuant to the specific terms of each contract. Contracts with two of the largest U.S. travel suppliers, American Airlines and US Airways, representing approximately 8% of our transaction processing revenue for the year ended December 31, 2010, expire and are up for renewal in 2011. We are currently in discussions with American Airlines and US Airways to renew or extend their current full content agreements with us. See “Risk Factors.” Our top 15 travel suppliers (by revenue), all of which are airlines, have been customers on average for more than ten years and, for the year ended December 31, 2010, represented approximately 42% of transaction processing revenues. We have a high renewal rate with our travel suppliers.

 

We have over 50 low cost carriers (“LCCs”) participating in our GDS, with our top 10 LCCs by revenue, accounting for approximately 4% of our air segments in the year ended December 31, 2010. Frontier Airlines, AirTran Airways and Jet Blue represented the largest number of segments attributable to LCCs during the period. Our segment volume from LCCs increased by 20% for the year ended December 31, 2010, in contrast to a 2% growth in segments attributable to traditional carriers. We believe that our geographic breadth makes us a compelling source of value for most major LCCs, although LCC activity on the GDS relative to legacy airlines remains at an early stage of development in terms of the level of booking activity. In addition, the choice and level of participation is driven by the relevance of the GDS in the countries and regions in which the LCCs choose to distribute and sell. For example, our leading position with LCCs, including participation of both Jet Blue and Southwest Airlines in the United States, Virgin Blue and JetStar in APAC and easyJet and Air Berlin in Europe, is indicative of the value that travel suppliers place on the scale and breadth of a GDS’s footprint. We believe that we are well positioned to capture growth from the LCCs due to our global footprint and strength in the business travel arena in some of the prime areas where LCCs are strongest such as the United States, the United Kingdom and Australia.

 

We have relationships with more than 89,000 hotels, representing approximately 310 hotel chains, which provide us with live availability and instant confirmation for bookings. Our top five hotel suppliers for our GDS business for the year ended December 31, 2010 were Hilton, Hyatt, Intercontinental Hotel Group,

Marriott Hotels and Starwood, which together accounted for approximately 58% of our hotel revenue in this period. We have a relationship with over 30,000 car rental locations, providing seamless availability and instant confirmation for virtually all customers. Our top five car rental companies for our GDS business for the year ended December 31, 2010 were Avis, Budget, Enterprise, Hertz and National, which together accounted for approximately 73% of our car rental revenue in this period. We provide electronic ticketing solutions to 12 major international and national rail networks, including Société Nationale des Chemins de Fer France (SNCF) (France), Amtrak (United States), Via-Rail (Canada), Eurostar Group (United Kingdom/France) and AccessRail (United States), which accounted for all of our rail revenue for the year ended December 31, 2010.

 

Travel Agencies.   Approximately 67,000 online and offline travel agencies worldwide use us for travel information, booking and ticketing capabilities, travel purchases and management tools for travel information and travel agency operations. Access to the Travelport GDSs enables travel agencies to electronically search travel-related data such as schedules, availability, services and prices offered by travel suppliers and to book travel for end customers.

 

Our GDS business also facilitates travel agencies’ internal business processes such as quality control, operations and financial information management. Increasingly, this includes the integration of products and services from independent parties that complement our core product and service offerings, including a wide array of mid- and back-office service providers. We also provide technical support, training and other assistance to travel agencies, including numerous customized access options, productivity tools, automation, training and customer support focusing on process automation, back-office efficiency, aggregation of content at the desktop and online booking solutions.

 

Our relationships with travel agencies typically are non-exclusive, with the majority of GDS-processed air segments booked through agencies which are dual automated, meaning they subscribe to and have the ability to use more than one GDS. In order to encourage greater use of our GDS, we pay commissions or provide other financial incentives to many travel agencies. Travel agencies or other GDS subscribers in some cases pay a fee for access to our GDSs on a transactional basis or to access specific services or travel content. Such fees, however, are often discounted or waived if the travel agency generates a specified number of transactions processed by us during a specified time period, and are normally significantly less than incentives provided by us.

 

Our travel agency customers comprise online, offline, corporate and leisure travel agencies. Our top ten travel agency customers, as measured by booking fees, have, on average, been customers for over fifteen years, and booking fees attributable to their activities in the year ended December 31, 2010 represented approximately 31% of GDS transaction processing revenue. Our largest online travel agency customers, by booking fees, in 2010 were Orbitz Worldwide (which includes orbitz.com and cheaptickets.com in the United States and ebookers.com in Europe), Priceline and Expedia. In the year ended December 31, 2010, regional travel agencies (such as TrailFinders) accounted for over 60% of GDS bookings, online travel agencies were the next largest category, representing less than 25% of GDS bookings, and global accounts (such as American Express) accounted for the remaining amount. Our largest corporate travel agency customers in 2010 were American Express, BCD Holdings, Carlson Wagonlit Travel, Flight Centre Limited and Hogg Robinson Group. Our largest leisure travel agency customers in 2010 include AAA Travel, Affinion, Kuoni and USA Gateway.

 

Airline IT Solutions.   We have been a pioneer in IT services for the airline industry, being the first GDS to provide e-ticketing to travel agencies in 1995 and the first GDS to offer an automated repricing solution in 2000. Through our Airline IT Solutions business, we provide hosting solutions and IT subscription services to United, Delta and seven other airlines and the technology companies that support them, IT subscription services to over 270 airline and airline ground handlers and business intelligence services to approximately 170 airlines. In total, we employ or contract with approximately 1,500 IT professionals to support and enhance our application suite, many of whom are shared across GDS and IT solutions activities.

 

 

We host and manage the IT platforms for United and operate the hosting platform for Delta. These contracts, which accounted for over 99% of hosting revenue in the year ended December 31, 2010, expire in 2013 and 2018, respectively. We also provide seven other airlines around the world with other reservation system products through our hosting solutions. Delta’s acquisition of Northwest resulted in the two airlines migrating to a common IT platform in the first quarter of 2010. As a result of the integration of Delta’s and Northwest’s operations, which we managed, in 2010, the revenue and Travelport EBITDA attributable to contracts with these airlines included in Airline IT Solutions decreased by approximately $22 million and $15 million, respectively. In addition, in December 2010, United provided us with notice of termination of the master services agreement for the Apollo reservations system operated by Travelport for United, with a termination date of March 1, 2012. We expect that United will consolidate the internal reservations systems for United and Continental on the reservations system used by Continental. We expect that such termination will not have an impact on our financial results until 2012, at the earliest, and we expect that United’s integration work will likely require use of the Apollo system until at least some point in 2012. We expect that once United fully transitions off the Apollo system, which would be during the 2012 fiscal year at the earliest, it may adversely affect our results of operations due to the loss of fees resulting from this agreement, unless such revenue can be regained through the sale of other services to United or other carriers. If the United-Continental reservations system integration is delayed for any reason, including United requesting us to provide additional termination assistance and continuation of service, the financial impact on us may occur later in 2012 or may not occur at all.

 

 

 

 

New Products and Products in Development.   We employ or contract with approximately 1,500 IT professionals to support and enhance our application suite. As a result, we have a continuous pipeline of new products/enhancements to the GDS for the various channels we serve:

 

 

GDS Sales and Marketing.   Our sales and marketing teams, accounting for approximately 23% of our employees, are responsible for developing existing and initiating new commercial relationships with travel

suppliers and travel agencies worldwide. The sales and marketing teams include customer support, product strategy, management and marketing communications and sales teams working across the Americas, Europe, MEA and APAC. Our Airline IT Solutions team includes a dedicated sales and service organization that is responsible for marketing our services to airlines globally. We also provide global account management services to certain large multi-national customers.

 

We employ a hybrid sales and marketing model consisting of direct sales and marketing organizations (“SMOs”), which we directly manage, and indirect, third-party national distribution companies (“NDCs”). We market, distribute and support our products and services primarily through SMOs. In certain countries and regions, however, we provide our products and services through our relationships with NDCs which are typically independently owned and operated by a local travel-related business in that country or region or otherwise by a major airline based in the local market. Our SMOs and NDCs are organized by country or region and are typically divided between the new account teams, which seek to add new travel agencies to our distribution system, and account management teams, which service and expand existing business. In certain regions, smaller customers are managed by telemarketing teams.

 

Historically, we relied on NDCs owned by national airlines in various countries in Europe, MEA and APAC to distribute our products and services. However, in 1997, we acquired many of these NDCs from the airlines, including in the United States, the Netherlands, Switzerland and the United Kingdom, and, later, in Hungary, Ireland, Italy, Australia, New Zealand, Malaysia and Canada. This enabled us to directly control our distribution at a time when the airlines wished to divest the NDCs and concentrate on their core airline businesses.

 

We typically pay an NDC a commission based on the booking fees generated pursuant to the relationship that the NDC establishes with a subscriber, with the NDC retaining subscriber fees billed for these bookings. We regularly review our network of NDCs and periodically revise these relationships. In less developed regions, where airlines continue to exert strong influence over travel agencies, NDCs remain a viable and cost effective alternative to direct distribution. Although SMO margins are typically higher than NDC margins, an NDC structure is generally preferred in countries where we have the ability to leverage a strong airline relationship or an NDC’s expertise in a local market. We also contract with new NDCs in countries and regions where doing so would be more cost effective than establishing an SMO. In 2009, we consolidated our Indian NDC arrangements under one NDC arrangement and acquired our Galileo NDC in Poland, consolidating this with our Worldspan SMO operation. In 2008, we acquired our Galileo NDC in Hungary and since that time, have consolidated our Galileo and Worldspan operations there. In 2010, we terminated our NDC relationship in Colombia and continued operations solely as an SMO. In January 2011, we terminated our Galileo NDC arrangements in Greece and Cyprus, and during 2011, we will be consolidating our Galileo and Worldspan operations in those territories.

 

GDS Competitive Landscape.   The marketplace for travel distribution is large, multi-faceted and highly competitive. The Travelport GDS business competes with a number of travel distributors, including other traditional GDSs, such as Amadeus and Sabre, several regional GDS competitors, such as Abacus, application programming interface-based (“API”) direct connections between travel suppliers and travel agencies, and also suppliers’ own websites and other forms of direct booking, such as metasearch engines.

 

In contrast to us, our main GDS competitors are highly geographically concentrated in the markets of their respective founder airlines. In the year ended December 31, 2010, Amadeus accounted for an 84% share of GDS-processed air segments in Germany, France, Spain, Denmark, Norway and Sweden compared to a 27% share in the rest of the world. In the same period, Sabre accounted for a 58% share of GDS-processed air segments in the United States compared to a 17% share in the rest of the world. The largest regional GDSs are based in Asia and include Abacus International Pte Ltd., which is primarily owned by a group of ten Asian airlines; Axess International Network Inc. and INFINI Travel Information, Inc., which are majority owned by Japan Airlines International Co. Ltd. and All Nippon Airways, Co. Ltd., respectively; Topas Co., Ltd., which is majority owned by Korean Air Lines; and TravelSky, which is majority owned by Chinese state-owned enterprises.

We routinely face new competitors and new methods of travel distribution. Suppliers and third parties seek to promote distribution systems that book directly with travel suppliers, with direct channels accounting for an estimated 36% of total travel revenue in the United States in 2010. Airlines and other travel suppliers are selectively looking to build API-based direct connectivity with travel agencies. In addition, established and start-up search engine companies, as well as metasearch companies, have entered the travel marketplace to offer end customers new ways to shop for and book travel by, for example, aggregating travel search results across travel suppliers, travel agencies and other websites. The impact of these alternative travel distribution systems on our GDSs, however, remains unclear at this time.

 

Each of the other traditional GDSs offers products and services substantially similar to ours. We believe that competition in the GDS industry is based on the following criteria:

 

 

As a result of a number of structural issues, our total share of GDS-processed air segments declined moderately from 33% in September 2007 (following the Worldspan Acquisition) to 28% in the year ended December 31, 2010 (including the share attributable to Worldspan in 2007 prior to the Worldspan Acquisition). This decline was driven in part by Expedia’s shift of business from Worldspan, a decision which was taken prior to our agreeing to acquire Worldspan. In addition, during 2009, our management took an active decision to trade reduced share for increased margin in MEA, transitioning from NDC operations to wholly-owned operations in the United Arab Emirates, Saudi Arabia and Egypt by establishing direct operations in these countries in 2009. We believe we have addressed the key drivers of this share loss and have strategies in place which aim to gain share in the future.

 

Airline IT Solutions Competitive Landscape.   The Airline IT Solutions sector of the travel industry is highly fragmented by service offering, including hosting solutions, such as internal reservation system services, as well as flight operations technology services and software development services. For example, our competitors with respect to internal reservation and other system services include Amadeus, HP Enterprise Services, ITA, Navitaire, LLC, Sabre, SITA and Unisys Corporation, as well as airlines that provide the services and support for their own internal reservation system services and also host external airlines. The business intelligence services sector of the Airline IT Solutions business is highly competitive, with our ability to market our products dependent on our perceived competitive position and the value of the information obtained through the GDS business. Our primary competitors in this sector are IATA, through its PaxIS product, as well as Amadeus and Sabre.

 

Technology.   In September 2008, we consolidated our Galileo and Worldspan data centers into a single location in Atlanta, Georgia to support our GDSs and Airline IT Solutions businesses. Our data center offers a state-of-the-art facility that has completed comprehensive technology upgrades to the latest IBM processing and storage platforms. The combined facility features an industry-leading technology platform in terms of functionality, performance, reliability and security. The existing systems are certified compliant with the Payment Card Industry Data Security Standard, offering a secure environment for combined Galileo and Worldspan operations and have historically operated at a 99.98% core systems uptime. The combined data center comprises over eight mainframes, open systems servers and storage and network devices, providing over six billion fares eligible for processing, with maximum peak message rates of more than 25,000 messages per second. The data center processes more than 40 billion transactions each month, averaging 17,000 per second. On peak message days, up to 1.8 billion travel-related messages are processed.

 

The consolidation of our primary data center operations in Atlanta, Georgia, is an example of the significant competitive advantage created as a result of the ongoing integration of the Galileo, Apollo and Worldspan GDS systems. By managing all three systems in a state-of-the-art, unified data center environment, our customers benefit from access to one of the industry’s most powerful, reliable and responsive travel

distribution and hosting platforms. Running our GDS business from one facility has allowed us to rationalize more rapidly the links required to connect suppliers to our GDSs and to more readily share technology across the systems. This has resulted in reduced complexity and cost for our suppliers. In addition, our balanced geographical presence contributes to efficiency in data center operations as travel agencies from various regions in which we operate access the system at different times.

 

Continued modernization of our technical environment is an integral part of our aim to support growth by efficiently delivering transaction processing systems to our GDS customers. In April 2010, we announced a multi-year agreement with IBM under which IBM will deliver significant upgrades to our existing systems architecture and software infrastructure of our technology platform. This investment, which was designed to more than double the information we process on behalf of customers, is expected to expand options for users of our GDS platform by facilitating broader travel and travel-related content search and aggregation functions, and to integrate searching from sources in addition to those typically stored in a GDS platform.

 

The GTA Business

 

GTA.   GTA is a leading global wholesaler of accommodation, ground travel, sightseeing and other destination services with three decades of travel expertise. GTA is focused on city center travel rather than beach destinations. GTA has relationships with more than 27,000 travel supplier partners and sells travel products and services in over 150 countries. GTA has an inventory of approximately 34,000 hotels, a substantial number of which are independent, and over 69 million hotel rooms annually. For the year ended December 31, 2010, GTA serviced more than 26,000 groups, supplied more than nine million fully independent traveler (“FIT”) room nights, made over 2.7 million FIT bookings and generated total transaction value (“TTV”) of approximately $1,887 million and revenue of approximately $294 million. GTA’s business is geographically diverse, with no single inbound destination and no single outbound source accounting for more than 20% of GTA’s sales as measured by room nights.

 

As discussed above, on March 5, 2011, Travelport reached an agreement to sell the GTA business to Kuoni Travel Holding Ltd. for gross consideration of $720 million, subject to certain closing adjustments based on minimum cash and working capital targets at the time of closing. The transaction is scheduled to be completed in May 2011.

 

GTA receives access to rate accommodations, ground travel, sightseeing and other destination services from travel suppliers at negotiated rates and then distributes the inventory, through multiple channels, to other travel wholesalers, tour operators, travel agencies and directly to end customers through Octopus Travel. GTA has arrangements with individual hotel chains and independent hotel properties through which it is given access to an inventory of over 34,000 participating hotels at negotiated rates. The room inventory to which GTA has access under these arrangements is provided to GTA on an allocation basis, which ensures availability of those rooms. GTA then distributes the room inventory under contract to other travel wholesalers, tour operators and travel agencies. GTA currently bears inventory risk on approximately 1% of its supplier contracts, based on room nights, which represented approximately 1% of GTA’s TTV in the year ended December 31, 2010.

 

A critical aspect of GTA’s business model is that it competes successfully both as a wholesale and retail provider of group and independent travel, the two key leisure travel segments. This business model makes GTA attractive to hotels and other travel suppliers as it helps drive these two fundamentally discrete groups of travelers to their businesses. In return, GTA is able to secure highly competitive inventory allotments and net rates. GTA’s group and independent traveler offerings operate symbiotically and strengthen its offering to both suppliers and travel agencies.

 

GTA has a significant presence in Asia, with one-third of its business originating in the region, particularly Japan, China and Indonesia. GTA also is well positioned to take advantage of growth in the fast growing MEA and APAC regions, with more than a dozen offices in the region and significant experience in operating in this region.

Octopus Travel.   Octopus Travel, which includes the brands Octopus Travel and Needahotel.com, delivers content directly to end customers, offering the ability to book reservations online from a large inventory of hotels in numerous cities and countries. It offers accommodation in more than 150 countries worldwide and conducts business in 29 different languages. Octopus Travel’s bookings are also made directly to consumers through its affiliate channels, such as airlines, loyalty companies and financial institutions, which incorporate the booking services and content of Octopus Travel into their own websites. Partners can choose from a variety of branding solutions to market products and services to their customers. Octopus Travel manages content, online marketing and customer service functions on behalf of many of these partners. Octopus Travel has more than 500 agreements with its partners across Europe, MEA and APAC regions.

 

Travel Suppliers.   GTA has relationships with more than 27,000 travel supplier partners, including more than 18,000 independently contracted hotel suppliers. GTA’s contracts with travel suppliers are typically renegotiated every six months, with substantially all suppliers typically electing to renew with GTA. GTA has had relationships with its top ten independent hotel suppliers (as measured by number of room nights) for over five years. These suppliers represented approximately 2% of room nights sold in the year ended December 31, 2010.

 

Travel Wholesalers, Travel Agencies and Tour Operators.   GTA’s customers include travel wholesalers, travel agencies and tour operators in over 150 countries. GTA has relationships with over 5,000 travel agencies. On average, GTA’s top ten travel agencies (by revenue) have been customers for over ten years, and in the year ended December 31, 2010, represented approximately 20% of revenue. GTA typically has evergreen agreements with travel customers, which have no set expiry but which may be terminated by either party.

 

GTA Sales and Marketing.   GTA has 2,290 staff in 27 sales offices globally, including in London, New York, Hong Kong, Tokyo and Dubai, which are responsible for maintaining and building relationships with retail travel agencies, wholesale tour operators and corporate travel clients in over 150 countries worldwide. GTA develops relationships with its customers using its direct sales force and account managers. The GTA strategy focuses on both attracting new customers and increasing the business of existing customers. Sales and marketing techniques include partnership marketing, preferred product placement, public relations and recommendations in travel guides. GTA also works with the media and country and regional tourism boards to promote destinations. Points of differentiation include technology customized to provide direct access to inventory and rates, inventory allocations, GTA’s reputation as a reliable supplier and competitive room rates. GTA has dedicated contractors globally that are tasked with securing local hotel and services content. These contractors are responsible for negotiating commercial terms for hotels (including rates and allocations) and other ground services (including restaurants, sightseeing, excursions, transfers and long distance coaches).

 

Technology.   GTA has an IT department of approximately 130 personnel that operates its core systems from a third-party hosted center near Hounslow, United Kingdom and has secondary servers in GTA’s operational business headquarters in London, United Kingdom. GTA’s systems and telecommunication infrastructure is online 24 hours a day, seven days a week, 365 days a year. Since April 2009, GTA has added a dynamic inventory model to its operations, which provides real time updates to available rates from participating hotels. This allows GTA to access greater volumes of room nights at the best available rates. In January 2010, GTA acquired a software development firm that has worked on GTA’s IT systems for over 15 years. The acquisition added a core team of developers to GTA’s IT operations and is expected to improve the continuity of the management of GTA’s IT systems.

 

GTA’s back end systems are hosted on a large, logically partitioned, IBM iSeries platform with immediate replication to associated secondary systems. The platform is scaleable vertically, within the same chassis, and horizontally, to further partitioned servers if required. GTA’s front end systems are hosted on variable sized load balanced “stacks’ of servers utilizing open source software and industry standard database technology. The structure is such that more stacks can easily be added to enable scalability to cater to the ever-increasing levels of traffic being directed at the platform. The front end systems have been developed to allow customers of GTA and Octopus Travel the ability to search and use inventory and pricing of hotels and ancillary services.

Industry strength secure networks support GTA’s worldwide presence. GTA’s systems are subject to annual review by external third parties from a compliance and security perspective.

 

GTA operates and maintains global websites and online interfaces that serve a diverse range of travel sellers. Wholesale customers and corporate “white label” customers may use an XML interface that has been developed in-house. GTA’s financial systems run on an industry standard packaged application licensed from and maintained by a third party. The GTA hotel search process also connects customers to chain hotel inventory via multiple hotel aggregator systems, which is in addition to the GTA contract inventory. The results of the concurrent searches are blended and displayed seamlessly to the customer.

 

GTA Competitive Landscape.   The wholesale travel industry is highly fragmented. GTA competes primarily with regional and local wholesalers of accommodation, transportation, sightseeing and other travel-related products and services, such as Kuoni Travel Holding Ltd. (Switzerland) and TUI Travel PLC (United Kingdom), Tourico Holidays, Inc. (United States), Miki Travel Limited (Japan) and Qantas Holidays Limited (Australia). We believe that, unlike GTA, many of these regional competitors often depend on one region for 75% or more of their TTV. GTA, with its global footprint, is well positioned to sell inter- and intra-regional travel worldwide. GTA also competes with global, regional and local online hotel retailers in the Americas, Europe, MEA and APAC.

 

We believe that factors affecting the competitive success of travel wholesalers, including GTA, include:

 

 

Material Agreements

 

On March 31, 2010, Travelport, LP, an indirect wholly owned subsidiary of Travelport Limited, entered into Amendment 11 to the Asset Management Offering Agreement, effective as of July 1, 2002, as amended, among Travelport, LP, IBM and IBM Credit LLC. A summary description of the amendment is included in our Current Report on Form 8-K filed with the Commission on April 6, 2010.

 

On August 18, 2010, we entered into an Indenture, relating to our 9% Senior Notes due 2016, with The Bank of Nova Scotia Trust Company of New York, as trustee. A summary description of the Indenture is included in our Current Report on Form 8-K filed with the Commission on August 18, 2010.

 

On October 22, 2010, we amended our senior secured credit agreement pursuant to the Third Amended and Restated Credit Agreement. A summary description of the amendment is included in our Current Report on Form 8-K filed with the Commission on October 26, 2010.

 

Financial Data of Segments and Geographic Areas

 

Financial data for our segments and geographic areas are reported in Note 20 — Segment Information to our Financial Statements included in Item 8 of the Annual Report on Form 10-K.

Intellectual Property

 

We regard our technology and other intellectual property as critical components and assets of our business. We protect our intellectual property rights through a combination of copyright, trademark and patent laws, and trade secret and confidentiality laws and procedures, as well as database rights, where applicable. We own and seek protection of key technology and business processes and rely on trade secret and copyright laws to protect proprietary software and processes. We also use confidentiality procedures and non-disclosure and other contractual provisions to protect our intellectual property assets. We rely on appropriate laws to protect the ownership of our data and databases.

 

Where appropriate, we seek statutory and common law protection of our material trade and service marks, which include TRAVELPORT ^® , GALILEO ^® , GULLIVERS TRAVEL ASSOCIATES ^® , GTA ^® , OCTOPUSTRAVEL ^® , TRAVELCUBE ^® , TRAVEL BOUND ^® , WORLDSPAN ^® and related logos. The laws of some foreign jurisdictions, however, vary and offer less protection than other jurisdictions for our proprietary rights. Unauthorized use of our intellectual property could have a material adverse effect on us, and there is no assurance that our legal remedies would adequately compensate us for the damages caused by such unauthorized use.

 

We rely on technology that we license or obtain from third parties to operate our business. Vendors that support our core GDS technology include IBM, Hitachi, CA, SAS, Cisco and Microsoft. Certain agreements with these vendors are subject to renewal or negotiation within the next year. In 2010, we obtained licenses to our Transaction Processing Facility operating system from IBM. Associated maintenance, support and capacity are available through at least December 31, 2014 under an agreement with IBM. In addition, we rely on our fares and pricing application that was originally jointly developed with Expedia and EDS.

 

Employees

 

As of December 31, 2010, we had approximately 5,475 employees worldwide, with approximately 2,000 employees in the Americas, approximately 1,935 employees in Europe, approximately 1,315 employees in APAC and approximately 225 employees in MEA. None of our employees in the United States are subject to collective bargaining agreements governing employment with us. In certain of the European countries in which we operate, we are subject to, and comply with, local law requirements in relation to the establishment of work councils. In addition, due to our presence across Europe and pursuant to an E.U. Directive, we have a Travelport European Works Council (EWC) in which we address E.U. and enterprise-wide issues. We believe that our employee relations are good.

 

Government Regulations

 

In the countries in which we operate, we are subject to or affected by international, federal, state and local laws, regulations and policies, which are constantly subject to change. The descriptions of the laws, regulations and policies that follow are summaries and should be read in conjunction with the texts of the laws and regulations. The descriptions do not purport to describe all present and proposed laws, regulations and policies that affect our businesses.

 

We believe that we are in material compliance with these laws, regulations and policies. Although we cannot predict the effect of changes to the existing laws, regulations and policies or of the proposed laws, regulations and policies that are described below, we are not aware of proposed changes or proposed new laws, regulations and policies that will have a material adverse effect on our business.

 

GDS Regulations

 

Our GDS businesses are subject to specific regulations in the European Union (the “E.U.”) and Canada.

 

Historically, regulations were adopted in the United States, Canada and the E.U. to guarantee consumers access to competitive information by requiring computerized reservation systems (“CRSs”) (then owned by individual airlines) to provide travel agencies with unbiased displays and rankings of flights. On January 14, 2009, following a public consultation, the European Commission adopted new CRS Regulations which entered

into force on March 29, 2009. Under the new CRS Regulations, GDSs and airlines are free to negotiate booking fees charged by the GDSs and the information content provided by the airlines. The E.U. CRS Regulations include provisions to ensure a neutral and non-discriminatory presentation of travel options in the GDS displays and to prohibit the identification of travel agencies in MIDT data without their consent. The E.U. CRS Regulations also require GDSs to display rail or rail/air alternatives to air travel on the first screen of their principal displays in certain circumstances. In addition, to prevent parent carriers of GDSs from hindering competition from other GDSs, parent carriers will continue to be required to provide other GDSs with the same information on their transport services and to accept bookings from another GDS.

 

There are also GDS regulations in Canada, under the regulatory authority of the Canadian Department of Transport. Under the present regulations, Air Canada, the dominant Canadian airline, could choose distribution channels that it owns and controls or distribution through another GDS rather than through our GDSs. Under its agreement with us, Air Canada may terminate its distribution in our GDSs after the expiration of its current contract.

 

In 2010, new Civil Aviation Requirements were issued by the Government of India to regulate Computer Reservations Systems operating in India for the purpose of displaying or selling air services, to promote fair competition in the airline sector and to ensure that consumers do not receive inaccurate or misleading information on airline services.

 

In January 2011, new draft Interim Regulations on Administering the Review and Ratification of Direct Access to and Use of Foreign Computer Reservation System by Foreign Airlines’ Agents in China were published by the Civil Aviation Administration of China.

 

We are also subject to regulations affecting issues such as telecommunications and exports of technology.

 

GTA Regulations

 

Our travel services are subject to regulation and laws governing the offer and/or sale of travel products and services, including laws requiring us to register as a “seller of travel” and to comply with certain disclosure requirements. Where we sell travel products and services in Europe directly to travelers as part of a “package,” we are regulated by The Package Travel, Package Holidays and Package Tours Regulations Directive 90/314/EEC (June 13, 1990), as implemented by E.U. member states into country-specific regulations (the “ Package Travel Regulations ”). Where the Package Travel Regulations apply, they impose primary liability on us for all elements of a trip sold through us, whether we own or control those services or whether we sub-contracts them to independent suppliers. The Package Travel Regulations principally affect our GTA business where the sale is made in the European Union.

 

Travel Agency Regulations

 

The products and services that we provide are subject to various international, U.S. federal, U.S. state and local regulations. We must comply with laws and regulations relating to our sales and marketing activities, including those prohibiting unfair and deceptive advertising or practices. As a seller of air transportation products in the United States, we are subject to regulation by the U.S. Department of Transportation, which has jurisdiction over economic issues affecting the sale of air travel, including customer protection issues and competitive practices. The U.S. Department of Transportation has the authority to enforce economic regulations and may assess civil penalties or challenge our operating authority. In addition, many of our travel suppliers and trade customers are heavily regulated by the U.S. and other governments, and we are indirectly affected by such regulation.

 

In addition, certain jurisdictions may require that we hold a local travel agencies’ license in order to sell travel products to travelers.

Privacy and Data Protection Regulations

 

Privacy regulations continue to evolve and on occasion may be inconsistent from one jurisdiction to another. Many states in the United States have introduced legislation or enacted laws and regulations that provide for penalties for failure to notify customers when security is breached, even by third parties.

 

Many countries have enacted or are considering legislation to regulate the protection of private information of consumers, as well as limiting unsolicited commercial email to consumers. In the United States, the legislation that has become state law is a small percentage of the number still pending, and is similar to what has been introduced at the federal level. We cannot predict whether any of the proposed state privacy legislation currently pending will be enacted and what effect, if any, it would have on our businesses.

 

A primary source of privacy regulations to which our operations are subject is the E.U. Data Protection Directive 95/46/EC of the European Parliament and Council (October 24, 1995). Pursuant to this Directive, individual countries within the European Union have specific regulations related to the transborder dataflow of personal information (i.e., sending personal information from one country to another). The E.U. Data Protection Directive requires companies doing business in E.U. member states to comply with its standards. It provides for, among other things, specific regulations requiring all non-E.U. countries doing business with E.U. member states to provide adequate data privacy protection when processing personal data from any of the E.U. member states. The E.U. has enabled several means for U.S.-based companies to comply with the E.U. Data Protection Directive, including a voluntary safe-harbor arrangement and a set of standard form contractual clauses for the transfer of personal data outside of Europe. We most recently completed self-certification for our GDS data processing under this safe-harbor arrangement on February 9, 2011.

 

The new CRS Regulations in force in Europe also incorporate personal data protection provisions that, among other things, classify GDSs as data controllers under the E.U. Data Protection Directive. The data protection provisions contained in the CRS Regulations are complementary to E.U. national and international data protection and privacy laws.

 

Many other countries have adopted data protection regimes. An example is Canada’s Personal Information and Protection of Electronic Documents Act (“PIPEDA”). PIPEDA provides Canadian residents with privacy protections with regard to transactions with businesses and organizations in the private sector. PIPEDA recognizes the need of organizations to collect, use and share personal information and establishes rules for handling personal information.

 

Marketing Operation Regulations

 

The products and services offered by our various businesses are marketed through a number of distribution channels, including over the Internet. These channels are regulated on a country-by-country basis, and we believe that our marketing operations will increasingly be subject to such regulations. Such regulations, including anti-fraud laws, customer protection laws, and privacy laws, may limit our ability to solicit new customers or to market additional products or services to existing customers. Management is also aware of, and is actively monitoring the status of, certain proposed U.S. state legislation related to privacy and to email marketing that may be enacted in the future. It is unclear at this point what effect, if any, such U.S. state legislation may have on our businesses. California in particular, has enacted legislation that requires enhanced disclosure on Internet websites regarding customer privacy and information sharing among affiliated entities. We cannot predict whether these laws will affect our practices with respect to customer information and inhibit our ability to market our products and services nor can we predict whether other U.S. states will enact similar laws.

 

Internet Regulations

 

We must also comply with laws and regulations applicable to businesses engaged in online commerce. An increasing number of laws and regulations apply directly to the Internet and commercial online services. For example, email activities are subject to the U.S. CAN-SPAM Act of 2003. The U.S. CAN-SPAM Act regulates the sending of unsolicited, commercial electronic mail by requiring the sender to (i) include an

identifier that the message is an advertisement or solicitation if the recipient did not expressly agree to receive electronic mail messages from the sender, (ii) provide the recipient with an online opportunity to decline to receive further commercial electronic mail messages from the sender and (iii) list a valid physical postal address of the sender. The U.S. CAN-SPAM Act also prohibits predatory and abusive electronic mail practices and electronic mail with deceptive headings or subject lines. There is currently great uncertainty whether or how existing laws governing issues such as property ownership, sales and other taxes, libel and personal privacy apply to the Internet and commercial online services. It is possible that laws and regulations may be adopted to address these and other issues. Further, the growth and development of the market for online commerce may prompt calls for more stringent customer protection laws.

 

New laws or different applications of existing laws would likely impose additional burdens on companies conducting business online and may decrease the growth of the Internet or commercial online services. In turn, this could decrease the demand for our products or increase the cost of doing business.

 

U.S. federal legislation imposing limitations on the ability of U.S. states to impose taxes on Internet-based sales was enacted in 1998. The U.S. Internet Tax Freedom Act, which was extended in 2007, exempted certain types of sales transactions conducted over the Internet from multiple or discriminatory state and local taxation through November 1, 2014. The majority of products and services we offer are already taxed. Hotel rooms and car rentals are taxed at the local level, and air transportation is taxed at the federal level (with states pre-empted from imposing additional taxes on air travel).

 

In Europe, there are laws and regulations governing e-commerce and distance-selling which require our businesses to act fairly towards customers, for example, by giving customers a cooling-off period during which they can cancel transactions without penalty. There are various exceptions for the leisure and travel industry.

 

 

 

If there were to be a prolonged substantial decrease in travel volume, particularly air travel volume, for these or any other reason, it would have an adverse impact on our business, financial condition and results of operations.

 

We may also be adversely affected by shifting trends in the travel industry. For example, a significant portion of the revenue of our GTA business is attributable to the distribution of accommodation, destination services and transportation that are combined by traditional wholesale and tour operators or GTA into travel packages for group and individual travelers. In certain markets, we believe an increasing proportion of travel is shifting away from that method of organizing and booking travel towards more independent, unpackaged travel, where travelers book the individual components of their travel separately. To the extent that our GTA business or other components of our business are unable to adapt to such shifting trends, our results of operations may be adversely affected.

 

The travel industry may not recover from the recent global financial crisis and recession to the extent anticipated or may not grow in line with long-term historical trends following any recovery.

 

As a participant in the global travel industry, our business and operating results are impacted by global economic conditions, including the recent European debt crisis, a slowdown in growth of the Chinese economy, a prolonged slow economic recovery in Japan and a general reduction in net disposable income as a result of fiscal measures adopted by countries to address high levels of budgetary indebtedness, which may adversely affect our business, results of operations and financial condition. In our industry, the recent financial crisis and global recession have resulted in higher unemployment, a decline in consumer confidence, large-scale business failures and tightened credit markets. As a result, the global travel industry, which historically has grown at a rate in excess of global GDP growth during economic expansions, has experienced a cyclical downturn. A continuation of recent adverse economic developments in areas such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs, particularly the expected rise in the price of crude oil, and other matters could reduce discretionary spending further and cause the travel industry to continue to contract. In addition, the global economy may not recover as quickly or to the extent anticipated, and consumer spending on leisure travel and business spending on corporate travel may not increase despite improvement in economic conditions. As a result, our business may not benefit from a broader macroeconomic recovery, which could adversely affect our business, financial condition or results of operations.

The travel industry is highly competitive, and we are subject to risks relating to competition that may adversely affect our performance.

 

Our businesses operate in highly competitive industries. If we cannot compete effectively, we may lose share to our competitors, which may adversely affect our financial performance. Our continued success depends, to a large extent, upon our ability to compete effectively in industries that contain numerous competitors, some of which may have significantly greater financial, marketing, personnel and other resources than us.

 

GDS business

 

Our GDSs have two different categories of customers, namely travel suppliers, which provide travel content to our GDSs, and travel agencies, which shop for and book that content on behalf of end customers. The inter-dependence of effectively serving these customer groups, and the resulting network effects, may impact the GDS business’ ability to attract customers. If the GDS business is unable to attract a sufficient number of travel suppliers to provide travel content, its ability to service travel agencies will be adversely impacted. Conversely, if the GDS business is unable to attract a sufficient number of travel agencies, its ability to maintain its large base of travel suppliers and attract new travel suppliers will be impaired.

 

In addition to supplying sufficient content, the ability of our GDSs to attract travel agencies is dependent on the development of new products to enhance our GDS platform and on the provision of adequate financial incentives to travel agencies. Competition to attract travel agencies is particularly intense as travel agencies, particularly larger ones, are dual automated (meaning they subscribe to more than one GDS at any given time). We also have had to, and expect that it will continue in certain circumstances to be necessary to, increase financial assistance to travel agencies in connection with renewals of their contracts, which may in the future reduce margins in the GDS business. If travel agencies are dissatisfied with our GDS platform or we do not pay adequate commissions or provide other incentives to travel agencies to remain competitive, our GDSs may lose a number of travel agency customers.

 

Our GDSs compete against other traditional GDSs operated by Amadeus, Sabre, regional participants such as Abacus, as well as against alternative distribution technologies. Our GDSs also compete against direct distribution of travel content by travel suppliers, such as airlines, hotels and car rental companies, many of which distribute all or part of their inventory directly through their own travel distribution websites (known as “supplier.com websites”). In addition, our GDSs compete against travel suppliers that supply content directly to travel agencies as well as new companies in the GDS industry that are developing distribution systems without the large technology investment and network costs of a traditional GDS.

 

Our share of GDS-processed segments processed by the GDS industry declined from 33% in 2007 immediately following the Worldspan Acquisition to 28% in 2010. This decline can be primarily attributed to the loss of Worldspan’s business with Expedia, Inc. (“Expedia”), a decision that Expedia made prior to the Worldspan Acquisition but which impacted us after the Worldspan Acquisition, and our decision to establish direct sales and marketing operations in the United Arab Emirates, Saudi Arabia and Egypt, leading to a loss in volume as a result of transitioning from relying on third party NDCs in these countries. Although we have taken steps to address these developments, our GDSs could continue to lose share or may fail to increase our share of GDS bookings.

 

The Airline IT Solutions sector of the travel industry is highly fragmented. We compete with airlines that run applications in-house and multiple external providers of IT services. Competition within the IT services industry is segmented by the type of service offering. For example, reservations and other system services competitors include Amadeus, HP Enterprise Services, Navitaire Inc., Sabre, Unisys Corporation, ITA and SITA, as well as airlines that provide the services and support for their own internal reservation system services and also host external airlines. Our ability to market business intelligence products is dependent on our perceived competitive position and the value of the information obtained through the GDS business, particularly compared to PaxIS, an IATA product, and products distributed by Amadeus and Sabre.

GTA business

 

The wholesale travel industry is highly fragmented, and GTA competes with global, regional and local wholesalers of accommodation, transportation, sightseeing and other travel-related products and services, including, among others, Miki Travel Limited, TUI Travel PLC’s Hotelbeds, Kuoni Travel Holding Ltd. and Tourico Holidays, Inc., regional or specialist wholesalers of travel-related products and services, and global, regional and local online hotel retailers in the Americas, Europe, MEA and APAC.

 

Some of our competitors in the GTA business may be able to secure services and products from travel suppliers on more favorable terms than we can. In addition, the introduction of new technologies and the expansion of existing technologies may increase competitive pressures. The enhanced presence of online travel agencies, for example, is placing pressure on GTA’s ability to secure allocations of hotel rooms.

 

Increased competition may result in reduced operating margins, as well as loss of market share and brand recognition. We may not be able to compete successfully against current and future competitors, and competitive pressures we face could have a material adverse effect on our business, financial condition or results of operations.

 

If we fail to develop and deliver new innovative products or enhance our existing products and services in a timely and cost-effective manner in response to rapid technological change and market demands, our business will suffer.

 

Our industry is subject to constant and rapid technological change and product obsolescence as customers and competitors create new and innovative products and technologies. Products or technologies developed by our competitors may render our products or technologies obsolete or noncompetitive. We must develop innovative products and services and enhance our existing products and services to meet rapidly evolving market demands to attract travel agencies. The development process to design leading, sustainable and desirable products to generate new revenue streams and profits is lengthy and requires us to accurately anticipate technological changes and market trends. Developing and enhancing these products is uncertain and can be time-consuming, costly and complex. If we do not continue to develop innovative products that are in demand by our customers, we may be unable to maintain existing customers or attract new customers. Customer and market requirements can change during the development process. There is a risk that these developments and enhancements will be late, fail to meet customer or market specifications, not be competitive with products or services from our competitors that offer comparable or superior performance and functionality or fail to generate new revenue streams and profits. Our business will suffer if we fail to develop and introduce new innovative products and services or product and service enhancements on a timely and cost-effective basis.

 

Trends in pricing and other terms of agreements among airlines and travel agencies have become less favorable to us, and a further deterioration may occur in the future which could reduce our revenue and margins.

 

A significant portion of our revenue is derived from fees paid by airlines for bookings made through our GDSs. Airlines have sought to reduce or eliminate these fees in an effort to reduce distribution costs. One manner in which they have done so is to differentiate the content, in this case, the fares and inventory, that they provide to us and to our GDS competitors from the content that they distribute directly themselves. In these cases, airlines provide some of their content to GDSs, while withholding other content, such as lower cost web fares, for distribution via their own supplier.com websites unless the GDSs agree to participate in a cost reduction program. Certain airlines have also threatened to withdraw content, in whole or in part, from individual GDSs as a means of obtaining lower booking fees or, alternatively, to charge GDSs to access their lower cost web fares. Airlines also have aggressively expanded their use of the direct online distribution model for tickets in the United States and in Europe in the last ten years, such as the recent direct connect efforts of American Airlines, with such ticket sales generating more than 30% of revenue for airlines in the United States in 2008, compared to less than 3% of revenue in 1999. There also has been an increase in the number of airlines which have introduced unbundled, “à la carte” sales and optional services, such as fees for checked

baggage or premium seats, which threaten to further fragment content and disadvantage GDSs by making it more difficult to deliver a platform that allows travel agencies to shop for a single, “all-inclusive” price for travel.

 

We have entered into full-content agreements with most major carriers in the Americas and in Europe, and a growing number of carriers in MEA, which provide us with access to the full scope of fares and inventory which the carriers make available through direct channels, such as their own supplier.com websites, with a contract duration usually ranging from three to seven years. In addition, we have entered into agreements with most major carriers in APAC which provide us with access to varying levels of their content. We may not be able to renew these agreements on a commercially reasonable basis or at all. If we are unable to renew these agreements, we may be disadvantaged compared to our competitors, and our financial results could be adversely impacted. The full-content agreements have required us to make significant price concessions to the participating airlines. If we are required to make additional concessions to renew or extend the agreements, it could result in an increase in our distribution expenses and have a material adverse effect on our business, financial condition or results of operations. Moreover, as existing full-content agreements come up for renewal, there is no guarantee that the participating airlines will continue to provide their content to us to the same extent or on the same terms as they do now. For example, our contracts with two of the largest U.S. travel suppliers, US Airways and American Airlines, representing approximately 8% of transaction processing revenue for the year ended December 31, 2010, expire and are up for renewal in 2011. We are in discussions with American Airlines and US Airways to renew or extend their current full-content agreements with us. In addition, certain full-content agreements may be earlier terminated pursuant to the specific terms of each agreement. A substantial reduction in the amount of content received from the participating airlines or changes in pricing options could also negatively affect our revenue and financial condition. Equally, the removal of the discounts presently provided to these carrier under these agreements could also positively affect our revenue and financial condition.

 

In addition, GDSs have implemented, in some countries, an alternative business and financial model, generally referred to as the “opt-in” model, for travel agencies. Under the “opt-in” model, travel agencies are offered the opportunity to pay a fee to the GDS or to agree to a reduction in the financial incentives to be paid to them by the GDS in order to be assured of having access to full content from participating airlines or to avoid an airline-imposed surcharge on GDS-based bookings. There is pressure on GDSs to provide highly competitive terms for such “opt-in” models as many travel agencies are dual automated, subscribing to more than one GDS at any given time. The “opt-in” model has been introduced in a number of situations in parallel with full-content agreements between us and certain airlines to recoup certain fees from travel agencies and to offset some of the discounts provided to airlines in return for guaranteed access to full content. The rate of adoption by travel agencies, where “opt-in” has been implemented, has been very high. If airlines require further discounts in connection with guaranteeing access to full content and in response thereto the “opt-in” model becomes widely adopted, we could receive lower fees from the airlines. These lower fees are likely to be only partially offset by new fees paid by travel agencies and/or reduced inducement payments to travel agencies, which would adversely affect our results of operations. In addition, if travel agencies choose not to opt in, such travel agencies would not receive access to full content without making further payment, which could have an adverse effect on the number of segments booked through our GDSs.

 

The level of fees and commissions we pay to travel agencies is subject to continuous competitive pressure as we renew our agreements with them. If we are required to pay higher rates of commissions, it will adversely affect our margins.

 

We may not be able to protect our technology effectively, which would allow competitors to duplicate our products and services and could make it more difficult for us to compete with them.

 

Our success and ability to compete depend, in part, upon our technology and other intellectual property, including our brands. Among our significant assets are our software and other proprietary information and intellectual property rights. We rely on a combination of copyright, trademark and patent laws, trade secrets, confidentiality procedures and contractual provisions to protect these assets. Our software and related

documentation are protected principally under trade secret and copyright laws, which afford only limited protection. Unauthorized use and misuse of our technology and other intellectual property could have a material adverse effect on our business, financial condition or results of operations, and there can be no assurance that our legal remedies would adequately compensate us for the damage caused by unauthorized use.

 

Intellectual property challenges have been increasingly brought against members of the travel industry. We have in the past, and may in the future, need to take legal action to enforce our intellectual property rights, to protect our intellectual property or to determine the validity and scope of the proprietary rights of others. Any future legal action might result in substantial costs and diversion of resources and the attention of our management.

 

We depend on our supplier relationships, and adverse changes in these relationships or our inability to enter into new relationships could negatively affect our access to travel offerings and reduce our revenue.

 

We rely significantly on our relationships with airlines, hotels and other travel suppliers to enable us to offer our customers comprehensive access to travel services and products. Adverse changes in any of our relationships with travel suppliers or the inability to enter into new relationships with travel suppliers could reduce the amount of inventory that we are able to offer through our GDSs, and could negatively impact the availability and competitiveness of travel products we offer. Our arrangements with travel suppliers may not remain in effect on current or similar terms, and the net impact of future pricing options may adversely impact revenue. Our top ten air travel suppliers by revenue, combined, accounted for approximately 35% of our revenue from GDS transaction processing for the year ended December 31, 2010.

 

Travel suppliers are increasingly focused on driving online demand to their own supplier.com websites and may cease to supply us with the same level of access to travel inventory in the future. For example, Delta Air Lines recently decided to cease selling its tickets through certain online websites. In addition, some LCCs historically have not distributed content through us or other third-party intermediaries. If the airline industry continues to shift from a full-service carrier model to a low-cost one, this trend may result in more carriers moving ticket distribution systems in-house and a decrease in the market for our products.

 

We are in continuous dialogue with our major hotel suppliers about the nature and extent of their participation in our GDS business and our wholesale accommodation business. If hotel occupancy rates improve to the point that our hotel suppliers no longer place the same value on our distribution systems, such suppliers may reduce the amount of inventory they make available through our distribution channels or the amount we are able to earn in connection with hotel transactions. A significant reduction on the part of any of our major suppliers of their participation in our GDS business or our wholesale accommodation business for a sustained period of time or a supplier’s complete withdrawal could have a material adverse effect on our business, financial condition or results of operations.

 

GTA also receives access to inventory directly from hotels at negotiated rates and then distributes the rooms at a marked-up price to travel agencies and tour operators who then make such inventory available to travelers. Many hotels use these types of arrangements with businesses such as GTA to allocate excess hotel room inventory or to increase their inventory distribution. If hotels experience increased demand for rooms, they might reduce the amount of room inventory they make available through these negotiated rate arrangements. A hotel chain might seek to increase the cost of negotiated rate offerings or reduce compensation to GTA for rooms of that chain sold by GTA, which may also adversely affect our business, financial condition and results of operations. For example, several international hotel chains no longer allow distributors, including GTA, to distribute rooms online that they have purchased or gained access to at a lower “net” rate than may be available on the supplier’s own website.

 

In addition, GTA currently bears limited inventory risk as it only pre-pays for a small fraction of rooms which it is allocated, and bears no risk of loss for the vast majority of rooms which are allocated to GTA. However, if a significant number of hotels were no longer willing to allocate rooms to GTA without GTA incurring a financial commitment, GTA may be required to bear the financial risks associated with pre-paid or committed inventory in order to have hotel content to offer its customers. As more of GTA’s bookings are completed under a flexible rate model with contracted hotel chains, such chains or hotels may seek to change

the terms on which they provide inventory to us, limit our ability to maintain or raise margins on hotel bookings, or restrict our ability to adjust pricing in light of market trends and other factors. Such pressures may also adversely affect our business, financial condition and results of operations.

 

Our business is exposed to customer credit risk, against which we may not be able to protect ourselves fully.

 

Our businesses are subject to the risks of non-payment and non-performance by travel suppliers and travel agencies which may fail to make payments according to the terms of their agreements with us. For example, a small number of airlines that do not settle payment through IATA’s billing and settlement provider have, from time to time, not made timely payments for bookings made through our GDS systems. In addition, upon check out of a hotel room by a traveler, the GTA business incurs the obligation to pay the hotel for the room and then relies on its wholesale or retail travel agencies to pay GTA for the hotel cost plus GTA’s margin. We manage our exposure to credit risk through credit analysis and monitoring procedures, and sometimes use credit agreements, prepayments, security deposits and bank guarantees. However, these procedures and policies cannot fully eliminate customer credit risk, and to the extent our policies and procedures prove to be inadequate, our business, financial condition or results of operations may be adversely affected.

 

Some of our customers, counterparties and suppliers may be highly leveraged, not well capitalized and subject to their own operating, legal and regulatory risks and, even if our credit review and analysis mechanisms work properly, we may experience financial losses in our dealings with such parties. Currently, some of the wholesale and retail travel agencies with which GTA does business have defaulted on their obligations to pay GTA, which has caused losses to GTA, and such non-payment may continue, and the frequency may increase, in the future. A lack of liquidity in the capital markets or the continuation of the global recession may cause our customers to increase the time they take to pay or to default on their payment obligations, which could negatively affect our results. In addition, continued weakness in the economy could cause some of our customers to become illiquid, delay payments, or could adversely affect collection on their accounts, which could result in a higher level of bad debt expense.

 

Travel suppliers are seeking alternative distribution models, including those involving direct access to travelers, which may adversely affect our results of operations.

 

Travel suppliers are seeking to decrease their reliance on third-party distributors, including GDSs, for distribution of their content. For example, some travel suppliers have created or expanded commercial relationships with online and traditional travel agencies that book travel with those suppliers directly, rather than through a GDS. Many airlines, hotels, car rental companies and cruise operators have also established or improved their own supplier.com websites, and may offer incentives such as bonus miles or loyalty points, lower or no transaction or processing fees, priority waitlist clearance or e-ticketing for sales through these channels. In addition, metasearch travel websites facilitate access to supplier.com websites by aggregating the content of those websites. Due to the combined impact of direct bookings with the airlines, supplier.com websites and other non-GDS distribution channels, the percentage of bookings made without the use of a GDS at any stage in the chain between suppliers and end-customers, which we estimate was approximately 58% in 2010, may continue to increase. In this regard, American Airlines terminated certain agreements with Orbitz Worldwide in November 2010, in pursuit of a direct connect relationship with American Airlines rather than Orbitz Worldwide making bookings through our GDS. Currently, American Airlines tickets are not available for sale through Orbitz Worldwide or Expedia, and no American Airlines bookings are being made through our GDS by Orbitz Worldwide or Expedia. Continued efforts by American Airlines or any other major airline to encourage our subscribers to book directly rather than through our GDS will adversely affect our results of operations.

 

Furthermore, recent trends towards disintermediation in the global travel industry could adversely affect our GDS business. For example, airlines have made some of their offerings unavailable to unrelated distributors, or made them available only in exchange for lower distribution fees. Some LCCs distribute exclusively through direct channels, bypassing GDSs and other third-party distributors completely and, as a whole, have increased their share of bookings in recent years, particularly in short-haul travel. In addition, several travel suppliers have formed joint ventures or alliances that offer multi-supplier travel distribution

websites. Finally, some airlines are exploring alternative global distribution methods developed by new entrants to the global distribution marketplace. Such new entrants propose technology that is purported to be less complex than traditional GDSs, which they claim enables the distribution of airline tickets in a manner that is more cost-effective to the airline suppliers because no or lower inducement payments are paid to travel agencies. If these trends lead to lower participation by airlines and other travel suppliers in our GDSs, then our business, financial condition or results of operations could be materially adversely affected.

 

In addition, given the diverse and growing number of alternative travel distribution channels, such as supplier.com websites and direct connect channels between travel suppliers and travel agencies, as well as new technologies that allow travel agencies and consumers to bypass a GDS, increases in travel volumes, particularly air travel, may not translate in the same proportion to increases in volume passing through our GDSs, and we may therefore not benefit from a cyclical recovery in the travel industry to a similar extent as other industry participants.

 

We rely on third-party national distribution companies to market our GDS services in certain regions.

 

Our GDSs utilize third-party, independently owned and managed NDCs to market GDS products and distribute and provide GDS services in certain countries, including Austria, Greece, India, Kuwait, Lebanon, Pakistan, Syria, Turkey and Yemen, as well as many countries in Africa. In Asia, where many national carriers own one of our regional competitors, we often use local companies to act as NDCs. In the Middle East, in conjunction with the termination of an NDC agreement on December 31, 2008, we established our own sales and marketing organizations in the United Arab Emirates, Saudi Arabia and Egypt and entered into new NDC relationships with third parties in other countries.

 

We rely on our NDCs and the manner in which they operate their business to develop and promote our global GDS business. Our top ten NDCs generated approximately $230 million (12%) of our GDS revenue for the year ended December 31, 2010. We pay each of our NDCs a commission relative to the number of segments booked by subscribers with which the NDC has a relationship. The NDCs are independent business operators, are not our employees and we do not exercise management control over their day-to-day operations. We provide training and support to the NDCs, but the success of their marketing efforts and the quality of the services they provide is beyond our control. If they do not meet our standards for distribution, our image and reputation may suffer materially, and sales in those regions could decline significantly. In addition, any interruption in these third-party services or deterioration in their performance could have a material adverse effect on our business, financial condition or results of operations.

 

Consolidation in the travel industry may result in lost bookings and reduced revenue.

 

Consolidation among travel suppliers, including airline mergers and alliances, may increase competition from distribution channels related to those travel suppliers and place more negotiating leverage in the hands of those travel suppliers to attempt to lower booking fees further and to lower commissions. Recent examples include Delta Air Lines, Inc.’s acquisition of Northwest Airlines Corp., the merger of United and Continental Airlines, Lufthansa’s acquisition of Swiss International, Brussels Airlines and Austrian Airlines, Air France’s acquisition of KLM and the proposed acquisition of AirTran Airways by Southwest Airlines. In addition, cooperation has increased within the oneworld, SkyTeam and Star alliances. Changes in ownership of travel agencies may also cause them to direct less business towards us. If we are unable to compete effectively, competitors could divert travel suppliers and travel agencies away from our travel distribution channels, which could adversely affect our results of operations. Mergers and acquisitions of airlines may also result in a reduction in total flights and overall passenger capacity, which may adversely impact the ability of the GDS business to generate revenue.

 

Consolidation among travel agencies and competition for travel agency customers may also adversely affect our results of operations, since we compete to attract and retain travel agency customers. Reductions in commissions paid by some travel suppliers, such as airlines, to travel agencies contribute to travel agencies having a greater dependency on traveler-paid service fees and GDS-paid inducements and may contribute to travel agencies consolidating. Consolidation of travel agencies increases competition for these travel agency

customers and increases the ability of those travel agencies to negotiate higher GDS-paid inducements. In addition, a decision by airlines to surcharge the channel represented by travel agencies, for example, by surcharging fares booked through travel agencies or passing on charges to travel agencies, could have an adverse impact on our GDS business, particularly in regions in which our GDSs are a significant source of bookings for an airline choosing to impose such surcharges. To compete effectively, we may need to increase inducements, pre-pay inducements or increase spending on marketing or product development.

 

In addition, any consolidation among the airlines for which we provide IT hosting systems could impact our Airline IT Solutions business depending on the manner of any such consolidation and the hosting system on which the airlines choose to consolidate. For example, the integration of United and Continental resulted in United providing us with notice of termination of the master services agreement for the Apollo reservations system operated by Travelport for United, with a termination date of March 1, 2012. We expect that United will consolidate the internal reservations systems for United and Continental on the reservations system used by Continental. We expect that such termination will not have an impact on our financial results until 2012, at the earliest, and we expect that United’s integration work will likely require use of the Apollo system until at least some point in 2012. We expect that once United fully transitions off the Apollo system, which would be during the 2012 fiscal year at the earliest, it may adversely affect our results of operations due to the loss of fees resulting from this agreement, unless such revenue can be regained through the sale of other services to United or other carriers. If the United-Continental reservations system integration is delayed for any reason, including United requesting us to provide additional termination assistance and continuation of service, the financial impact on us may occur later in 2012 or may not occur at all. In addition, the integration of operations by Delta Air Lines, Inc. and Northwest Airlines Corp. resulted in a reduction in revenue and GDS Segment EBITDA in 2010.

 

Operational Risks

 

We rely on information technology to operate our businesses and maintain our competitiveness, and any failure to adapt to technological developments or industry trends could harm our businesses.

 

We depend upon the use of sophisticated information technologies and systems, including technologies and systems utilized for reservation systems, communications, procurement and administrative systems. As our operations grow in both size and scope, we continuously need to improve and upgrade our systems and infrastructure to offer an increasing number of customers and travel suppliers enhanced products, services, features and functionality, while maintaining the reliability and integrity of our systems and infrastructure. Our future success also depends on our ability to adapt to rapidly changing technologies in our industry, particularly the increasing use of Internet-based products and services, to change our services and infrastructure so they address evolving industry standards and to improve the performance, features and reliability of our services in response to competitive service and product offerings and the evolving demands of the marketplace. We have recently introduced a number of new products and services, such as Travelport Universal Desktop, Traversa corporate booking tool and next generation search and shopping functions. If there are technological impediments to introducing or maintaining these or other products and services, or if these products and services do not meet the requirements of our customers, our business, financial condition or results of operations may be adversely affected.

 

It is possible that, if we are not able to maintain existing systems, obtain new technologies and systems, or replace or introduce new technologies and systems as quickly as our competitors or in a cost-effective manner, our business and operations could be materially adversely affected. Also, we may not achieve the benefits anticipated or required from any new technology or system, or be able to devote financial resources to new technologies and systems in the future.

 

We may not successfully realize our expected cost savings.

 

We may not be able to realize our expected cost savings, in whole or in part, or within the time frames anticipated. Our cost savings and efficiency improvements are subject to significant business, economic and competitive uncertainties, many of which are beyond our control. We are pursuing a number of initiatives to

further reduce operating expenses, including converging our underlying operating platforms, migrating mainframe technology to open systems, tightening integration of applications development and the simplification of internal systems and processes. The outcome of these initiatives is uncertain and they may take several years to yield any efficiency gains, or not at all. Failure to generate anticipated cost savings from these initiatives may adversely affect our profitability.

 

Our GDS business relies primarily on a single data center to conduct its business.

 

Our GDS business, which utilizes a significant amount of our information technology, and the financial business systems rely on computer infrastructure primarily housed in our data center near Atlanta, Georgia, to conduct its business. In the event the operations of this data center suffer any significant interruptions or the GDS data center becomes significantly inoperable, such event would have a material adverse impact on our business and reputation and could result in a loss of customers. Although we have taken steps to strengthen physical and information security and add redundancy to this facility, the GDS data center could be exposed to damage or interruption from fire, natural disaster, power loss, war, acts of terrorism, plane crashes, telecommunications failure, computer malfunctions, unauthorized entry, IT hacking and computer viruses. The steps we have taken and continue to take to prevent system failure and unauthorized transaction activity may not be successful. Our limited use of backup and disaster recovery systems may not allow us to recover from a system failure fully, or on a timely basis, and our property and business insurance may not be adequate to compensate us for all losses that may occur.

 

We may not effectively integrate or realize anticipated benefits from future acquisitions.

 

We have pursued an active acquisition strategy as a means of strengthening our businesses and have, in the past, derived a significant portion of growth in revenue and operating income from acquired businesses. In the future, we may enter into other acquisitions and investments, including NDCs or joint ventures, based on assumptions with respect to operations, profitability and other matters that could subsequently prove to be incorrect. Furthermore, we may fail to successfully integrate any acquired businesses or joint ventures into our operations. If future acquisitions, significant investments or joint ventures do not perform in accordance with our expectations or are not effectively integrated, our business, operations or profitability could be adversely affected.

 

System interruptions, attacks and slowdowns may cause us to lose customers or business opportunities or to incur liabilities.

 

If we are unable to maintain and improve our IT systems and infrastructure, this might result in system interruptions and slowdowns. We have experienced system interruptions in the past and recently experienced attacks from individuals seeking to disrupt operations. In the event of system interruptions and/or slow delivery times, prolonged or frequent service outages or insufficient capacity which impedes us from efficiently providing services to our customers, we may lose customers and revenue or incur liabilities. In addition, our information technologies and systems are vulnerable to damage, interruption or fraudulent activity from various causes, including:

 

 

In addition, we may have inadequate insurance coverage or insurance limits to compensate for losses from a major interruption, and remediation may be costly and have a material adverse effect on our operating results and financial condition. Any extended interruption or degradation in our technologies or systems, or

any substantial loss of data, could significantly curtail our ability to conduct our businesses and generate revenue. We could incur financial liability from fraudulent activity perpetrated on our systems.

 

We are dependent upon software, equipment and services provided by third parties.

 

We are dependent upon software, equipment and services provided and/or managed by third parties in the operation of our businesses. In the event that the performance of such software, equipment or services provided and/or managed by third parties deteriorates or our arrangements with any of these third parties related to the provision and/or management of software, equipment or services are terminated, we may not be able to find alternative services, equipment or software on a timely basis or on commercially reasonable terms, or at all, or be able to do so without significant cost or disruptions to our businesses, and our relationships with our customers may be adversely impacted. We have experienced occasional system outages arising from services that were provided by one of our key third-party providers. Our failure to secure agreements with such third parties, or of such third parties to perform under such agreements, may have a material adverse effect on our business, financial condition or results of operations.

 

We provide IT services to travel suppliers, primarily airlines, and any adverse changes in these relationships could adversely affect our business.

 

Through our Airline IT Solutions business, we provide hosting solutions and IT subscription services to airlines and the technology companies that support them. We host and manage the reservations systems of eleven airlines worldwide, including Delta and United, and provide IT subscription services for mission-critical applications in fares, pricing and e-ticketing, directly and indirectly, to 274 airlines and airline ground handlers. Adverse changes in our relationships with our IT and hosting customers or our inability to enter into new relationships with other customers could affect our business, financial condition and results of operations. Our arrangements with our customers may not remain in effect on current or similar terms and this may negatively impact revenue. In addition, if any of our key customers enters bankruptcy, liquidates or does not emerge from bankruptcy, our business, financial condition or results of operations may be adversely affected.

 

Delta, one of our largest IT services customers, has completed its acquisition of Northwest, another of our largest IT services customers. As part of their integration, Delta and Northwest have migrated to a common IT platform and will have reduced needs for our IT services after the integration. As a result of the integration of Delta’s and Northwest’s operations, which we managed, in 2010, the revenue and Travelport EBITDA attributable to contracts with these airlines, which include Airline IT Solutions and transaction processing services, decreased by approximately $22 million and $15 million, respectively.

 

In addition, in December 2010, United provided us with notice of termination of the master services agreement for the Apollo reservations system operated by Travelport for United, with a termination date of March 1, 2012. We expect that United will consolidate the internal reservations systems for United and Continental on the reservations system used by Continental. We expect that such termination will not have an impact on our financial results until 2012, at the earliest, and we expect that United’s integration work will likely require use of the Apollo system until at least some point in 2012. We expect that once United fully transitions off the Apollo system, which would be during the 2012 fiscal year at the earliest, it may adversely affect our results of operations due to the loss of fees resulting from this agreement, unless such revenue can be regained through the sale of other services to United or other carriers. If the United-Continental reservations system integration is delayed for any reason, including United requesting us to provide additional termination assistance and continuation of service, the financial impact on us may occur later in 2012 or may not occur at all.

 

Our processing, storage, use and disclosure of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements, evolving security standards, differing views of personal privacy rights or security breaches.

 

In the processing of our travel transactions, we receive and store a large volume of personally identifiable information. This information is increasingly subject to legislation and regulations in numerous jurisdictions

around the world, typically intended to protect the privacy and security of personal information. It is also subject to evolving security standards for credit card information that is collected, processed and transmitted.

 

We could be adversely affected if legislation or regulations are expanded to require changes in our business practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business. For example, government agencies in the United States have implemented initiatives to enhance national and aviation security in the United States, including the Transportation Security Administration’s Secure Flight program and the Advance Passenger Information System of U.S. Customs and Border Protection. These initiatives primarily affect airlines. However, to the extent that the airlines determine the need to define and implement standards for data that is either not structured in a format we use or is not currently supplied by our businesses, we could be adversely affected. In addition, the European Union and other governments are considering the adoption of passenger screening and advance passenger systems similar to the U.S. programs. This may result in conflicting legal requirements with respect to data handling and, in turn, affect the type and format of data currently supplied by our businesses.

 

Travel businesses have also been subjected to investigations, lawsuits and adverse publicity due to allegedly improper disclosure of passenger information. As privacy and data protection have become more sensitive issues, we may also become exposed to potential liabilities in relation to our handling, use and disclosure of travel-related data, as it pertains to individuals, as a result of differing views on the privacy of such data. These and other privacy concerns, including security breaches, could adversely impact our business, financial condition and results of operations.

 

We are exposed to risks associated with online commerce security.

 

The secure transmission of confidential information over the Internet is essential in maintaining travel supplier and travel agency confidence in our services. Substantial or ongoing data security breaches, whether instigated internally or externally on our system or other Internet-based systems, could significantly harm our business. Our travel suppliers currently require end customers to guarantee their transactions with their credit card online. We rely on licensed encryption and authentication technology to effect secure transmission of confidential end customer information, including credit card numbers. It is possible that advances in computer capabilities, new discoveries or other developments could result in a compromise or breach of the technology that we use to protect customer transaction data.

 

We incur substantial expense to protect against and remedy security breaches and their consequences. However, our security measures may not prevent data security breaches. We may be unsuccessful in implementing remediation plans to address potential exposures. A party (whether internal, external, an affiliate or unrelated third party) that is able to circumvent our data security systems could also obtain proprietary information or cause significant interruptions in our operations. Security breaches could also damage our reputation and expose us to a risk of loss or litigation and possible liability. Security breaches could also cause our current and potential travel suppliers and travel agencies to lose confidence in our data security, which would have a negative effect on the demand for our products and services.

 

Moreover, public perception concerning data security and privacy on the Internet could adversely affect customers’ willingness to use websites for travel services. A publicized breach of data security, even if it only affects other companies conducting business over the Internet, could inhibit the use of online payments and, therefore, our services as a means of conducting commercial transactions.

 

We have recently been the target of data security attacks and may experience attacks in the future. Although we have managed to substantially counter these attacks and minimize our exposure, there can be no assurances that we will be able to successfully counter and limit any such attacks in the future.

We are subject to additional risks as a result of having global operations.

 

We operate in approximately 160 countries. As a result of having global operations, we are subject to numerous risks. At any given time, one or more of the following principal risks may apply to any or all of countries in which we operate:

 

 

Our ability to identify, hire and retain senior management and other qualified personnel is critical to our results of operations and future growth.

 

We depend significantly on the continued services and performance of our senior management, particularly our professionals with experience in the GDS industry. Any of these individuals may choose to terminate their employment with us at any time, subject to any notice periods. If unexpected leadership turnover occurs without adequate succession plans, the loss of the services of any of these individuals, or any negative perceptions of our business as a result of those losses, could damage our brand image and our business. The specialized skills we require are difficult and time-consuming to acquire and, as a result, such skills are and are expected to remain in limited supply. It requires a long time to hire and train replacement personnel. An inability to hire, train and retain a sufficient number of qualified employees or ensure effective succession plans for critical positions could materially hinder our business by, for example, delaying our ability to bring new products and services to market or impairing the success of our operations. Even if we are able to maintain our employee base, the resources needed to attract and retain such employees may adversely affect our business, financial condition or results of operations.

 

We are controlled by The Blackstone Group L.P., our Sponsor, and this may result in conflicts of interest with us or the holders of our bonds in the future.

 

Investment funds associated with or designated by the Sponsor beneficially own substantially all of the outstanding voting shares of our ultimate parent company. As a result of this ownership the Sponsor is entitled to elect all or substantially all of our directors, to appoint new management and to approve actions requiring the approval of the holders of its outstanding voting shares as a single class, including adopting most amendments to our articles of incorporation and approving or rejecting proposed mergers or sales of all or substantially all of our assets, regardless of whether noteholders believe that any such transactions are in their own best interests. Through its control of the Parent Guarantor, the Sponsor will control us and all of our subsidiaries.

 

The interests of the Sponsor may differ from yours in material respects. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of the Sponsor and its affiliates, as equity holders, might conflict with your interests as a noteholder. The Sponsor and its affiliates may also have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investments, even though such transactions might involve risks to you as a noteholder. Additionally, the indentures governing the notes offered hereby will permit us to pay advisory

fees, dividends or make other restricted payments under certain circumstances, and the Sponsor may have an interest in our doing so. For example, borrowings under our revolving credit facility and a portion of the proceeds from asset sales may be used for such purposes.

 

The Sponsor and its affiliates are in the business of making investments in companies, and may from time to time in the future, acquire interests in businesses that directly or indirectly compete with certain portions of our business or are suppliers or customers of ours. The Sponsor may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. So long as investment funds associated with or designated by the Sponsor continue to indirectly own a significant amount of the outstanding shares of our common stock, even if such amount is less than 50%, the Sponsor will continue to be able to strongly influence or effectively control our decisions.

 

Financial and Taxation Risks

 

We have recorded and may need to record additional impairment charges relating to our businesses.

 

We assess the carrying value of goodwill and indefinite-lived intangible assets for impairment annually, or more frequently, whenever events occur and circumstances change indicating potential impairment. During the third quarter of 2009, we observed indications of potential impairment related to our GTA segment, specifically that the business performance in what historically has been the strongest period for GTA, due to peak demand for travel, was weaker than expected. This resulted in a reduction to the revenue forecasts for GTA as it was concluded that the recovery in the travel market in which GTA operates will take longer than originally anticipated. As a result, an impairment assessment was performed. We determined that additional impairment analysis was required as the carrying value exceeded the fair value. The estimated fair value of GTA was allocated to the individual fair value of the assets and liabilities of GTA as if GTA had been acquired in a business combination, which resulted in the implied fair value of the goodwill. The allocation of the fair value required us to make a number of assumptions and estimates about the fair value of assets and liabilities where the fair values were not readily available or observable. As a result of this assessment, we recorded a non-cash impairment charge of $833 million during the third quarter of 2009, of which $491 million related to goodwill, $87 million related to trademarks and trade names and $255 million related to customer relationships. This charge is included in the impairment of goodwill and intangible assets expense line item in the Travelport consolidated statement of operations for the period. A further deterioration in the GTA business, or in any of our other business, may lead to additional impairments in a future period.

 

We have a substantial level of indebtedness which may have an adverse impact on us.

 

We are highly leveraged. As of December 31, 2010, our total indebtedness was approximately $3.8 billion. We had an additional $243 million available for borrowing under our revolving credit facility and the ability to increase commitments under our revolving credit facility or to add incremental term loans by up to an additional $350 million. In addition, we maintain a $150 million synthetic letter of credit facility. As of December 31, 2010, we had approximately $13 million of commitments outstanding under our synthetic letter of credit facility and $131 million of commitments outstanding under our cash collateralized letter of credit facility. Pursuant to our separation agreement with Orbitz Worldwide, we maintain letters of credit under our letter of credit facilities on behalf of Orbitz Worldwide. As of December 31, 2010, we had commitments of approximately $72 million in letters of credit outstanding on behalf of Orbitz Worldwide.

 

Our substantial level of indebtedness could have important consequences for us, including the following:

 

 

 

In addition to our substantial level of indebtedness discussed above, on March 27, 2007, our direct parent, Travelport Holdings Limited, entered into a credit agreement in connection with a $1.1 billion senior unsecured payment-in-kind term loan (the “Holding Company Credit Agreement”) with Credit Suisse, Cayman Islands branch, as administrative agent, and certain lenders from time to time party thereto, as amended as of December 4, 2008. Interest on the term loan under the Holding Company Credit Agreement is capitalized quarterly in arrears at a rate currently at LIBOR plus 8%. Interest is paid-in-kind unless Travelport Holdings Limited elects to pay the interest in cash. As of December 31, 2010, approximately $665 million remained outstanding under the Holding Company Credit Agreement. The entire amounts outstanding of the term loans under the Holding Company Credit Agreement are due on March 27, 2012. Travelport Holdings Limited is a holding company with no direct operations. Its principal assets are the direct and indirect equity interests it holds in its subsidiaries, including us, and all of its operations are conducted through us and our subsidiaries. As a result, Travelport Holdings Limited may be dependent upon dividends or distributions and other payments from us to generate the funds necessary to meet its outstanding debt service and other obligations under the Holding Company Credit Agreement. If Travelport Holdings Limited is unable to repay amounts outstanding under the Holding Company Credit Agreement when they become due, Travelport Holdings Limited’s failure to pay such amounts would not be a default under our senior secured credit agreement or the indentures governing our notes. However, if Travelport Holdings Limited were to restructure or refinance its obligations under the Holding Company Credit Agreement in a manner that results in a change of control under the terms of our senior secured credit agreement and the indentures governing our notes, or were to take other actions that result in such a change of control, we would be required to repay all amounts outstanding under our senior secured credit agreement and make an offer to purchase all of the outstanding notes at a price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and additional interest, if any. We may not have the ability to repay such amounts and make such note purchases which would result in a default under the senior secured credit agreement and the notes.

 

The above factors could limit our financial and operational flexibility, and as a result could have a material adverse effect on our business, financial condition and results of operations.

 

Our debt agreements contain restrictions that may limit our flexibility in operating our business.

 

Our senior secured credit agreement and the indentures governing our notes contain various covenants that limit our ability to engage in specified types of transactions. These covenants limit our ability to, among other things:

 

 

In addition, under our credit agreement, we are required to satisfy and maintain compliance with a leverage ratio. Our ability to meet that financial ratio can be affected by events beyond our control and, in the longer term, we may not be able to meet that ratio. A breach of any of these covenants could result in a default under the credit agreement and our indentures. Upon the occurrence of an event of default under the credit agreement, the lenders could elect to declare all amounts outstanding under the credit agreement to be immediately due and payable and terminate all commitments to extend further credit. If we are unable to repay those amounts, the lenders under the credit agreement could take action or exercise remedies, including proceeding against the collateral granted to them to secure that indebtedness. We have pledged a significant portion of our assets as collateral under the credit agreement. If the lenders under the credit agreement accelerate the repayment of borrowings, we cannot provide assurance that we will have sufficient assets to repay the credit agreement as well as our unsecured indebtedness, including our notes.

 

Despite our high indebtedness level, we may still be able to incur significant additional amounts of debt, which could further exacerbate the risks associated with our substantial indebtedness.

 

We and our subsidiaries may be able to incur substantial indebtedness in connection with an acquisition or for other strategic purposes in the future. In addition to our currently available borrowings, the terms of our indentures permit us to increase commitments under the revolving credit facility or to add incremental term loan facilities by an aggregate amount of up to $350 million. All of those borrowings and any other secured indebtedness permitted under the senior secured credit agreement and the indentures are effectively senior to our notes and the subsidiary guarantees. In addition, the indentures governing the notes do not prevent us from incurring obligations that do not constitute indebtedness. If we were to increase such commitments, add such facilities or incur such obligations, the risks associated with our substantial level of indebtedness, which could limit our financial and operational flexibility, would increase.

 

Government regulation could impose taxes or other burdens on us, which could increase our costs or decrease demand for our products.

 

We rely upon generally accepted interpretations of tax laws and regulations in the countries in which we operate and for which we provide travel inventory. We cannot be certain that these interpretations are accurate or that the responsible taxing authority is in agreement with our views. The imposition of additional taxes could cause us to have to pay taxes that we currently do not pay or collect on behalf of authorities and increase the costs of our products or services, which would increase our costs of operations.

 

Changes in tax laws or interpretations thereof may result in an increase in our effective tax rate.

 

We have operations in various countries that have differing tax laws and rates. A significant portion of our revenue and income is earned in countries with low corporate tax rates and we intend to continue to focus on growing our businesses in these countries. Our income tax reporting is subject to audit by domestic and foreign authorities, and our effective tax rate may change from year to year based on changes in the mix of activities and income allocated or earned among various jurisdictions, tax laws in these jurisdictions, tax treaties between countries, our eligibility for benefits under those tax treaties and the estimated values of deferred tax assets and liabilities. Such changes could result in an increase in the effective tax rate applicable to all or a portion of our income which would reduce our profitability.

 

Fluctuations in the exchange rate of the U.S. dollar and other currencies may adversely impact our results of operations.

 

Our results of operations are reported in U.S. dollars. While most of our revenue is denominated in U.S. dollars, a portion of our revenue and costs, including interest obligations on a portion of our senior secured credit facilities under the Credit Agreement and on the euro-denominated Senior Notes due 2014 and senior subordinated notes, is denominated in other currencies, such as pounds sterling, the euro and the Australian dollar. As a result, we face exposure to adverse movements in currency exchange rates. The results of our operations and our operating expenses are exposed to foreign exchange rate fluctuations as the financial results of those operations are translated from local currency into U.S. dollars upon consolidation. If the

U.S. dollar weakens against the local currency, the translation of these foreign currency-based local operations will result in increased net assets, revenue, operating expenses, and net income or loss. Similarly, our local currency-based net assets, revenue, operating expenses, and net income or loss will decrease if the U.S. dollar strengthens against local currency. Additionally, transactions denominated in currencies other than the functional currency may result in gains and losses that may adversely impact our results of operations.

 

Risks Related to Our Relationship with Orbitz Worldwide

 

We have recorded a significant charge to earnings, and may in the future be required to record additional significant charges to earnings if our investment in the equity of Orbitz Worldwide continues to be impaired.

 

We own approximately 48% of Orbitz Worldwide’s outstanding common stock, which we account for using the equity method of accounting. We recorded losses of $28 million related to our investment in Orbitz Worldwide for the year ended December 31, 2010.

 

We are required under U.S. GAAP to review our investments in equity interests for impairment when events or changes in circumstance indicate the carrying value may not be recoverable. We evaluate our equity investment in Orbitz Worldwide for impairment on a quarterly basis. This analysis is focused on the market value of Orbitz Worldwide common stock compared to the book value of such common stock. Factors that could lead to impairment of our investment in the equity of Orbitz Worldwide include, but are not limited to, a prolonged period of decline in the price of Orbitz Worldwide stock or a decline in the operating performance of, or an announcement of adverse changes or events by, Orbitz Worldwide. In addition, in the event that we acquire a majority interest in Orbitz Worldwide, we will be required to consolidate Orbitz Worldwide in our consolidated financial statements.

 

As of December 31, 2010, the fair market value of our investment in Orbitz Worldwide was approximately $273 million and the carrying value of our investment was approximately $91 million. The results of Orbitz Worldwide for the year ended December 31, 2010, were impacted by the impairment charge recorded by Orbitz Worldwide amounting to $81 million. During that period, in connection with Orbitz Worldwide’s annual impairment test for goodwill and intangible assets and as a result of lower than expected performance and future cash flows for its HotelClub and CheapTickets brands, Orbitz Worldwide recorded a non-cash impairment charge. We may be required in the future to record additional charges to earnings if our investment in the equity of Orbitz Worldwide becomes further impaired. Any such charges would adversely impact our results of operations.

 

Orbitz Worldwide is an important customer of our businesses.

 

Orbitz Worldwide is our largest GDS subscriber, accounting for 14% of our total air segments in the year ended December 31, 2010. In addition, Orbitz Worldwide, through a hotel inventory access agreement with our GTA business, accounted for approximately $2 million in net revenue, or 1% of GTA’s net revenue, in the year ended December 31, 2010. Our agreements with Orbitz Worldwide may not be renewed at their expiration or may be renewed on terms less favorable to us. In the event Orbitz Worldwide terminates its relationships with us or Orbitz Worldwide’s business is materially impacted for any reason and, as a result, Orbitz Worldwide loses, or fails to generate, a substantial amount of bookings that would otherwise be processed through our GDSs or GTA business, our business and results of operations would be adversely affected.

 

Legal and Regulatory Risks

 

Third parties may claim that we have infringed their intellectual property rights, which could expose us to substantial damages and restrict our operations.

 

We have faced and in the future could face claims that we have infringed the patents, copyrights, trademarks or other intellectual property rights of others. In addition, we may be required to indemnify travel suppliers for claims made against them. Any claims against us or such travel suppliers could require us to

spend significant time and money in litigation or pay damages. Such claims could also delay or prohibit the use of existing, or the release of new, products, services or processes, and the development of new intellectual property. We could be required to obtain licenses to the intellectual property that is the subject of the infringement claims, and resolution of these matters may not be available on acceptable terms or at all. Intellectual property claims against us could have a material adverse effect on our business, financial condition and results of operations, and such claims may result in a loss of intellectual property protections that relate to certain parts of our business.

 

We may become involved in legal proceedings and may experience unfavorable outcomes.

 

We may in the future become subject to material legal proceedings in the course of our business, including, but not limited to, actions relating to contract disputes, business practices, intellectual property and other commercial and tax matters. Such legal proceedings could involve claims for substantial amounts of money or for other relief or might necessitate changes to our business or operations, and the defense of such actions may be both time consuming and expensive. Further, if any such proceedings were to result in an unfavorable outcome, it could have a material adverse effect on our business, financial position and results of operations.

 

Our businesses are regulated and any failure to comply with such regulations or any changes in such regulations could adversely affect us.

 

We operate in a regulated industry. Our businesses, financial condition and results of operations could be adversely affected by unfavorable changes in or the enactment of new laws, rules and/or regulations applicable to us, which could decrease demand for products and services, increase costs or subject us to additional liabilities. Moreover, regulatory authorities have relatively broad discretion to grant, renew and revoke licenses and approvals and to implement regulations. Accordingly, such regulatory authorities could prevent or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us if our practices were found not to comply with the then current regulatory or licensing requirements or any interpretation of such requirements by the regulatory authority. Our failure to comply with any of these requirements or interpretations could have a material adverse effect on our operations.

 

Our consumer and retail distribution channels are subject to laws and regulations relating to sales and marketing activities, including those prohibiting unfair and deceptive advertising or practices. Our travel services are subject to regulation and laws governing the offer and/or sale of travel products and services, including laws requiring us to be licensed or bonded in various jurisdictions and to comply with certain disclosure requirements. As a seller of air transportation products in the United States, we are also subject to regulation by the U.S. Department of Transportation, which has authority to enforce economic regulations, and may assess civil penalties or challenge our operating authority. We store a large volume of personally identifiable information which is subject to legislation and regulation in numerous jurisdictions around the world, including in the U.S., where we are safe harbor certified, and in Europe.

 

In Europe, revised CRS regulations entered into force on March 29, 2009. These regulations or interpretations of them may increase our cost of doing business or lower our revenues, limit our ability to sell marketing data, impact relationships with travel agencies, airlines, rail companies, or others, impair the enforceability of existing agreements with travel agencies and other users of our system, prohibit or limit us from offering services or products, or limit our ability to establish or change fees.

 

The CRS regulations require GDSs, among other things, to clearly and specifically identify in their displays any flights that are subject to an operating ban within the European Community and to introduce a specific symbol in their displays to identify each so-called blacklisted carrier. We include a link to the European Commission’s blacklist on the information pages accessible by travel agents through our Ask Travelport online facility. We are inhibited from applying a specific symbol to identify a blacklisted carrier in our displays as the European Commission’s blacklist does not currently identify blacklisted carriers with an IATA airline code, although work on a technical solution is currently under way. A common solution for all GDSs is being sought through further dialogue with the European Commission.

Annex 1(9) of the CRS regulations requires a GDS to display a rail or rail/air alternative to air travel, on the first screen of their principal displays, in certain circumstances. We currently have few rail participants in our GDSs. We can display direct point to point rail services in our GDS principal displays, for those rail operators that participate in our GDSs. Given the lack of harmonization in the rail industry, displaying rail connections in a similar way to airline connections is extremely complex, particularly in relation to timetabling, ticketing and booking systems. We are working towards a solution that will include functionality to search and display connected rail alternatives at such time as the rail industry in Europe provides a technically efficient means to do so. We understand that such efficiencies lie at the heart of the European Commission’s policy objectives to sustain a high quality level of European rail services in the future.

 

Although regulations governing GDSs have been lifted in the United States, continued regulation of GDSs in the European Union and elsewhere could also create the operational challenge of supporting different products, services and business practices to conform to the different regulatory regimes.

 

Our failure to comply with these laws and regulations may subject us to fines, penalties and potential criminal violations. Any changes to these laws or regulations or any new laws or regulations may make it more difficult for us to operate our businesses and may have a material adverse effect on our operations. We do not currently maintain a central database of regulatory requirements affecting our worldwide operations and, as a result, the risk of non-compliance with the laws and regulations described above is heightened.

 

 

The table below provides a summary of our key facilities:

 

 

Data Centers

 

We operate a data center out of leased facilities in Atlanta, Georgia, pursuant to a lease that expires in August 2022. The Atlanta facility is leased from Delta. In September 2008, we moved our primary systems infrastructure and web and database servers for our Galileo GDS operations from our Denver, Colorado facility to the Atlanta, Georgia facility, which, prior to the consolidation, supported our Worldspan operations. The Atlanta data center powers our consolidated GDS operations and provides access 24 hours a day, seven days a week and 365 days a year. The facility is a hardened building housing two data centers: one used by us and the other used by Delta Technology (a subsidiary of Delta). We and Delta each have equal space and infrastructure at the Atlanta facility. Our Atlanta data center comprises 94,000 square feet of raised floor space, 27,000 square feet of office space and 39,000 square feet of facilities support area. We use our data center in Denver, which we own, to offer disaster recovery and co-location services.

 

We believe that our properties are sufficient to meet our present needs, and they do not anticipate any difficulty in securing additional space, as needed, on acceptable terms

 

 

 

 

 

 

 

 

 

 

The following discussion and analysis of our results of operations and the financial condition for each of the years ended December 31, 2010, 2009 and 2008, should be read in conjunction with the consolidated financial statements and related notes reported in accordance with US GAAP and included elsewhere in the document. The discussion includes forward-looking statements that reflect the current view of management and involve risks and uncertainties. Our actual results may differ materially from those contained in any forward-looking statements as a result of factors discussed below and elsewhere in this document, particularly under the heading “Item 1A: Risk Factors” and “Forward-Looking Statements”. Unless otherwise noted, all amounts are in $ millions.

 

Overview

 

We are a broad-based business services company and a leading provider of critical transaction processing solutions and data to companies operating in the global travel industry. We believe we are one of the most diversified of such companies in the world, both geographically and in the scope of the services we provide.

 

We are comprised of two businesses:

 

 

Within our GDS business, our Airline IT Solutions business provides hosting solutions and IT subscription services to airlines to enable them to focus on their core business competencies and reduce costs, as well as business intelligence services. Our Airline IT Solutions business manages the mission-critical reservations and related systems for United and Delta as well as seven other airlines. Our Airline IT Solutions business also provides an array of leading-edge IT software subscription services, directly and indirectly, to over 270 airlines and airline ground handlers globally.

 

 

On March 5, 2011, we reached an agreement to sell our GTA business to Kuoni Travel Holding Ltd. for gross consideration of $720 million, subject to certain closing adjustments based on minimum cash and working capital and indebtedness targets at the time of closing. The proposed sale is subject to the approval by the shareholders of Kuoni of a capital increase to finance the transaction. We will use the net proceeds from the sale to repay certain of the indebtedness outstanding under our senior secured credit agreement. The transaction is scheduled to be completed in May 2011.

Key Performance Indicators (“KPIs”)

 

Management monitors the performance of our operations against our strategic objectives on a regular basis. Performance is assessed against the strategy, budget and forecasts using financial and non-financial measures. We use the following primary measures to assess our financial performance and the performance of our operating business.

 

 

Travelport KPIs

 

The key performance indicators used by management to monitor group performance include Travelport Adjusted EBITDA.

 

Travelport Adjusted EBITDA is a non-GAAP financial measure and should not be considered as a measure comparable to net income as determined under US GAAP as it does not take into account certain expenses such as depreciation, interest, income tax, and other costs that we believe are unrelated to our ongoing operations. In addition, Travelport Adjusted EBITDA may not be comparable to similarly named measures used by other companies. The presentation of Travelport Adjusted EBITDA has limitations as an analytical tool, and this measure should not be considered in isolation or as a substitute for analysis of Travelport’s results as reported under US GAAP.

 

We define Travelport Adjusted EBITDA as income (loss) before equity in earnings (losses) of investment in Orbitz Worldwide, interest, income tax, depreciation and amortization and adjusted to exclude items we believe potentially restrict our ability to assess the results of our underlying business.

 

We have included Travelport Adjusted EBITDA as it is the primary metric used by management across our company to evaluate and understand the underlying operations and business trends, forecast future results and determine future capital investment allocations. In addition, it is used by the Board to determine incentive compensation.

We believe Travelport Adjusted EBITDA is a useful measure as it allows management to monitor our ongoing core operations. The core operations represent the primary trading operations of the business. Since our formation, actual results have been significantly affected by events that are unrelated to our ongoing operations due to the number of changes to our business during that time. These events include, among other things, the acquisition of Worldspan and subsequent integration, the transfer of our finance and human resources function from the United States to the United Kingdom and the associated restructuring costs. During the periods presented, these items primarily relate to the impact of purchase accounting, impairment of goodwill and intangible assets, expenses incurred in conjunction with Travelport’s separation from Cendant, expenses incurred to acquire and integrate Travelport’s portfolio of businesses, costs associated with Travelport’s restructuring efforts, development of a global on-line travel platform and non-cash equity-based compensation.

 

The following table provides a reconciliation of Travelport Adjusted EBITDA to net loss:

 

 

 

 

GDS KPIs

 

We monitor the performance of our GDS segment based on both financial and operational measures. These include the following:

 

Segments:   We record and charge one booking fee for each segment of an air travel itinerary (e.g., two segments for a round-trip airline ticket) and one booking fee for each hotel booking, car rental or cruise booking, regardless of the length of time or cost associated with the booking.

 

Segment Adjusted EBITDA:   Segment Adjusted EBITDA is defined as Segment EBITDA (our GAAP segment profitability measure) adjusted to exclude certain items that management believes necessary to provide a measure of performance for our segment operations. Segment Adjusted EBITDA is a non-GAAP financial measure and is not a substitute for Segment EBITDA or operating income (loss). We use Segment Adjusted EBITDA for evaluating our business results, forecasting and determining future capital investment allocations.

 

 

 

 

GTA KPIs

 

We monitor the performance of our GTA segment based on both financial and operational measures. These include the following:

 

Room Nights:   Room nights for GTA represents the total number of room nights sold to tour operators, wholesalers, travel agencies and directly to travelers on our customer websites.

TTV:   TTV for GTA represents the total dollar value of the inventory of hotel rooms sold to tour operators, wholesalers, travel agencies and directly to travelers on our customer websites and the dollar value of ground transportation and other services provided to travel agencies and tour operators.

 

Segment Adjusted EBITDA:   Segment Adjusted EBITDA is defined as Segment EBITDA (our GAAP segment profitability measure) adjusted to exclude certain items that management believes necessary to provide a measure of performance for our segment operations. Segment Adjusted EBITDA is a non-GAAP financial measure and is not a substitute for Segment EBITDA or operating income (loss). We use Segment Adjusted EBITDA for evaluating our business results, forecasting and determining future capital investment allocations.

 

 

 

 

Segments

 

Our management and Chief Operating Decision Maker (“CODM”) use Segment EBITDA to measure segment operating performance. Segment EBITDA is defined as income (loss) from operations before income taxes and equity in losses of investment in Orbitz Worldwide, before depreciation and amortization, interest expense, net, gain on early extinguishment of debt, each of which is presented in the Company’s consolidated statements of operations. Certain expenses which are managed outside of the segment are excluded from the segment results and are included within corporate and unallocated as reconciling items. Segment EBITDA is not intended to be a measure of free cash flows available for either management or the CODM’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Management and the CODM believe Segment EBITDA is helpful in highlighting trends because it excludes the results of transactions that are not considered to be directly related to the underlying segment operations and excludes costs associated with decisions made at the corporate level such as company-wide equity compensation plans and the impact of financing arrangements and certain derivative transactions.

 

Segment EBITDA may not be comparable to similarly named measures used by other companies. In addition, this measure should neither be considered as a measure of liquidity or cash flows from operations nor a measure comparable to net income as determined under US GAAP as it does not take into account certain requirements such as capital expenditures and related depreciation, principal and interest payments and tax payments, and other costs associated with items unrelated to our ongoing operations.

GDS

 

Net Revenue

 

GDS Transaction Processing Net Revenue:   GDS revenue is primarily derived from transaction fees paid by travel suppliers for electronic travel distribution services, and to a lesser extent, other transaction and subscription fees. The GDSs operate an electronic marketplace in which travel suppliers, such as airlines, hotels, car rental companies, cruise lines, rail companies and other travel suppliers, can store, display, manage and sell their products and services, and in which online and traditional travel agencies are able to electronically locate, price, compare and purchase travel suppliers’ services. As compensation for GDS services, fees are earned, on a per segment or per booking basis, from airline, car rental, hotel and other travel-related suppliers for reservations booked through the GDS. We record and charge one transaction for each segment of an air travel itinerary (e.g., two transactions for a round-trip airline ticket), and one transaction for each car rental, hotel or cruise booking, regardless of the length of time associated with the booking.

 

Fees paid by travel suppliers vary according to the levels of functionality at which they can participate in our GDSs. These levels of functionality generally depend upon the type of communications and real-time access allowed with respect to the particular travel supplier’s internal systems. Revenue for air travel reservations is recognized at the time of the booking of the reservation, net of estimated cancellations. Cancellations prior to the date of departure are estimated based on the historical level of cancellations, which are not significant. Revenue for car and hotel reservations is recognized upon fulfillment of the reservation. The later recognition of car and hotel reservation revenue reflects the difference in the contractual rights related to such services as compared to the airline reservation services.

 

In international markets, our GDS business employs a hybrid sales and marketing model consisting of direct sales, SMOs and indirect NDCs. In the United States, our GDS business only employs an SMO model. In markets supported by the Company’s SMOs, we enter into agreements with subscribers which provide for inducements in the form of cash payments, equipment or other services. The amount of the inducements varies depending upon the volume of the subscriber’s business. We establish liabilities for these inducements and recognize the related expense as the revenue is earned in accordance with the contractual terms. Where incentives are provided at inception, we defer and amortize the expense over the life of the contract. In markets not supported by our SMOs, the GDSs utilize an NDC structure, where feasible, in order to take advantage of the NDC partner’s local market knowledge. The NDC is responsible for cultivating the relationship with subscribers in its territory, installing subscribers’ computer equipment, maintaining the hardware and software supplied to the subscribers and providing ongoing customer support. The NDC earns a commission based on the booking fees generated in the NDC’s territory.

 

GDS Airline IT Solutions Net Revenue:   Our GDS business also provides technology services and solutions for the airline and hotel industry focusing on marketing and sales intelligence, reservation and passenger service system and e-commerce solutions. Such revenue is recognized as the service is performed.

 

Operating Expenses

 

Cost of revenue consists of direct costs incurred to generate revenue, including inducements paid to travel agencies who subscribe to the GDSs, commissions and costs incurred for NDCs and costs for call center operations, data processing and related technology costs. Technology management costs, data processing costs and telecommunication costs included in cost of revenue consist primarily of internal system and software maintenance fees, data communications and other expenses associated with operating our Internet sites and payments to outside contractors.

 

Selling, general and administrative (“SG&A”) expenses consist primarily of sales and marketing, labor and associated costs, advertising services, professional fees, and expenses for finance, legal, human resources and other administrative functions.

GTA

 

Net Revenue

 

Services provided by GTA include reservation services for hotel, ground transportation and other travel related services, exclusive of airline reservations. The components of the packaged vacations are based on the specifications requested by the travel agencies and tour operators. The revenue generated from the sale of packaged vacation components is recognized upon departure of the individual traveler or the group of travelers, as GTA has performed all services for the travel agency and the tour operator at that time.

 

Gross Revenue

 

For approximately 1% of the hotel reservations that it provides, GTA assumes the inventory risk, resulting in recognition of revenue on a gross basis upon departure.

 

Operating Expenses

 

Cost of revenue consists of direct costs incurred to generate revenue, including costs for call center operations and the cost of hotel rooms for reservations provided where GTA assumes the inventory risk.

 

SG&A expenses consist primarily of sales and marketing, labor and associated costs, advertising services, professional fees, and expenses for finance, legal, human resources and other administrative functions.

 

the fourth quarter of 2008, the GDS business experienced an unusually large number of cancelled bookings prior to the day of departure as travelers, particularly in the corporate sector, cancelled travel plans as a result of the onset of the global economic recession.

 

Consolidations within the Airline Industry:   Delta, one of our largest Airline IT services customers, completed its acquisition of Northwest, another of our largest Airline IT services customers, in 2009. As part of their integration, Delta and Northwest have migrated to a common IT platform and will have reduced needs for our IT services after the integration. In addition in December 2010, following the merger of United Airlines with Continental Airlines, Travelport received a notice from United Airlines, terminating its agreement for the Apollo reservation system operated by Travelport for United Airlines, with a termination date of March 1, 2012. As a result of such consolidations within the airline industry, our annual revenue and EBITDA in 2010 has decreased compared to 2009 and will reduce further in future periods.

 

Seasonality:   Our businesses experience seasonal fluctuations, reflecting seasonal trends for the products and services we offer. These trends cause our revenue to be generally higher in the second and third calendar quarters of the year, with GDS revenue peaking as travelers plan and purchase their spring and summer travel, and as GTA revenue is traditionally highest in the third quarter, as group travel peaks in the third quarter and revenue for the GTA business is generally recognized upon departure of travelers. Revenue typically flattens or declines in the fourth and first quarters of the calendar year. Our results may also be affected by seasonal fluctuations in the inventory made available to us by our travel suppliers.

 

Foreign Exchange Movements:   We transact business primarily in US dollars. While the majority of our revenue is denominated in US dollars, a portion of costs are denominated in other currencies (principally, the British pound, Euro, Australian dollar and Japanese yen). We use foreign currency forward contracts to manage our exposure to changes in foreign currency exchange rates associated with our foreign currency-denominated receivables and payables and forecasted earnings of foreign subsidiaries. The fluctuations in the value of these forward contracts largely offset the impact of changes in the value of the underlying risk that they are intended to economically hedge. Nevertheless, our operating results are impacted to a certain extent by movements in the underlying exchange rates between those currencies listed above.

 

Restructuring:   Since the Acquisition and the Worldspan Acquisition, we have taken a number of actions to enhance organizational efficiency and consolidate and rationalize existing processes. These actions include, among others, the migration of the Galileo data center, formerly located in Denver, Colorado, into the Worldspan data center, located in Atlanta, Georgia; consolidating certain administrative and support functions of Galileo and Worldspan, including accounting, sales and marketing and human resources functions; and the renegotiation of several material vendor contracts. The most significant impact of these initiatives was the elimination of redundant staff positions, reduced technology costs associated with renegotiated vendor contracts, and, to a lesser extent, cost savings and synergies resulting from a reduction in the amount of office rental space required and related utilities, maintenance and other facility operating costs. As a result, our results of operations have been significantly impacted by these actions.

 

Consolidated Results

 

The net revenue increase of $42 million (2%) consists of a $15 million (1%) growth in our GDS segment and a $27 million (10%) growth in our GTA segment. The growth in net revenue is primarily due to increased global demand which has resulted in volume growth in both our GDS and GTA segments as described in more detail in the segment analysis below.

The cost of revenue increase of $74 million (7%) is attributable to a $70 million (7%) increase in our GDS segment as a result of higher commission costs, higher transaction volumes, and a $4 million (10%) increase in our GTA segment as described in more detail in the segment analysis below.

 

The SG&A expense decrease of $20 million (4%) is primarily due to a $15 million (5%) decrease in our GDS segment expenses as detailed in the GDS segment analysis below and a $5 million (7%) decrease in our corporate costs and expenses not allocated to the segments as detailed below.