Doug Anmuth (Lehman Brothers): Comment on the growth in revenue per air ticket?
Michael Adler: We actually have a fairly easy comp. We did have some timing benefits in our favor in the first, quarter and as compared to the 6%, a more normalized number is closer to 3% growth.
There is no real benefit to increased fees in that number as the tests that we ran really had an immaterial impact. Generally, we expect to there to be some unevenness in revenue per ticket, but we think that will be pretty stable on a sequential basis in 2008, but we certainly do not expect increases of this size in any of the subsequent quarters this year.
Scott Kessler (Standard and Poor’s Equity): Have you seen indications that route rationalization is starting to occur in Europe, and if so, what would the effect be on Expedia’s business?
Dara Khosrowshahi: We have not seen any kind of direct impact there. We have seen carriers talk about capacity and the same rules that apply to US will apply to Europe, which is higher ticket prices will probably result in lower demand, but we have not seen anything as of yet.
Scott Kessler (Standard and Poor’s Equity): Quantify the notion of keyword inflation in Europe?
Dara Khosrowshahi: We have seen keyword inflation. It is in the double digits. More than that we are not to quantify. As an entity, we are hedged against that. We are a big spender on search, but we are a big “spendee” as well, and in Trip-Advisor and the assets that we have there, some of the revenue growth is coming from higher CBC prices that travel companies are spending, and we certainly have not see any kind of effect on CPMs, etc. CPM in the advertising business is pretty strong.
Jennifer Watson (Goldman Sachs): Comment on the margin structure of the business longer term and where you think it will stabilize.
Dara Khosrowshahi: Over the long term, we are focused on free cash flow generation and quantum OIBDA and quantum free cash flow, so we do not measure ourselves by the specific margin.
We measure ourselves by the bottom line growth and how much cash that that company is throwing off. The international business in general is a lower margin business than the US , the vast majority of that being on the marketing side.
Over a long-term period, typically the more mature international markets have better marketing efficiencies, so over a long-term period, you might see some of that mitigated as some of the markets mature and we get more repeat passengers
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Michael Millman (Soleil Securities): What is the impact of the increase of promotional hotels in the US on the bottom line or other lines and how does that impact your packaging?
Dara Khosrowshahi: The effect on the bottom line is essentially neutral. To the effect that we are getting promotional inventory from the hotels, we make less per transaction just like the hotel makes less per transaction, so we are promoting along with the hotel.
That transaction is less profitable, but you do see it driving transaction growth. Rate is higher margin. If you get a big rate on a hotel, there are essentially no costs associated with that, so to the extent that you are making up rate with volume, there are costs associated with that, customer service costs, fulfillment costs, so maybe it might be a slight negative as far as how the bottom line goes.
Michael Millman (Soleil Securities): Particularly in Europe, comment on hotel tenuring?
Dara Khosrowshahi: In Europe, on hotel tenuring, we want our growth rates in Europe to grow consistently with our hotel inventory, and last year, the growth rates in Europe exceeded the growth in the number of hotel that we have in place.
So you would expect that the sales per hotel would be increasing, and this year, we are pretty focused on increasing the number of hotels that we have in the system as well, just to give our consumers more choice and increased breadth and depth.
Michael Millman (Soleil Securities): How long does that tenuring last typically before it sort of flattens out?
Dara Khosrowshahi: It depends on the market place. It depends on if the hotel is in a city center versus a seasonal hotel. There are certain hotels in New York, London, etc., where we do an enormous amount of business and we’re very deep partners.
The merchant business itself lends itself to driving very high volumes to strong hotel partners, and it is a relationship that takes time.
Imran Khan (J.P. Morgan): Which part of US are you seeing more weakness?
Dara Khosrowshahi: We are cautious about the US consumer. There was some economic data that came out that all of the economic issues that we are seeing, gas prices, etc., are hitting the consumer wallet.
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