S-1 1 d732428ds1.htm FORM S-1 Form S-1
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As filed with the Securities and Exchange Commission on June 4, 2014

Registration No. 333-            

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

TRAVELPORT WORLDWIDE LIMITED

(Exact Name of Each Registrant as Specified in Its Charter)

Bermuda   4700   98-0505105

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. employer

identification number)

 

 

300 Galleria Parkway

Atlanta, Georgia 30339

(770) 563-7400

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Eric J. Bock, Esq.

Executive Vice President, Chief Legal Officer and Chief Administrative Officer

300 Galleria Parkway

Atlanta, Georgia 30339

(770) 563-7400

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

Copies to:

Joshua N. Korff, Esq.

Christian O. Nagler, Esq.

Kirkland & Ellis LLP

601 Lexington Avenue

New York, New York 10022

(212) 446-4800

(212) 446-4900 (facsimile)

 

Gregory A. Fernicola, Esq.

Skadden, Arps, Slate, Meagher & Flom LLP

4 Times Square

New York, New York 10036

(212) 735-3000

(212) 735-2000 (facsimile)

 

 

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as reasonably practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

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):  ¨

Large accelerated filer  ¨   Accelerated filer  ¨    Non-accelerated filer  x      Smaller reporting company  ¨

(Do not check if a smaller reporting company)

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to Be Registered

 

Proposed Maximum

Aggregate Offering Price(1)(2)

 

Amount of

Registration Fee

Common Shares, $0.0002 par value per share(2)

  $100,000,000   $12,880

 

 

(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933.
(2) Includes shares that the underwriters have the option to purchase.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

 

PROSPECTUS (Subject to Completion)

Dated June 4, 2014

             Shares

 

LOGO

COMMON SHARES

 

 

Travelport Worldwide Limited is offering                  of its common shares. This is our initial public offering and no public market currently exists for our common shares. We anticipate that the initial public offering price will be between $         and $         per share.

 

 

We expect to apply to list our common shares on the                  under the symbol TVPT.

 

 

Investing in our common shares involves risks. See “Risk Factors” beginning on page 22.

 

 

PRICE $             A SHARE

 

 

 

      

Price to
Public

      

Underwriting
Discounts
and
Commissions

      

Proceeds to
Travelport
Worldwide
Limited

 

Per Share

       $                    $                    $            

Total

       $                               $                               $                       

We have granted the underwriters the right to purchase up to an additional                  common shares.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the common shares to purchasers on or about                     , 2014.

 

 

 

MORGAN STANLEY   UBS INVESTMENT BANK   CREDIT SUISSE   DEUTSCHE BANK SECURITIES

The date of this prospectus is                     , 2014.


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TABLE OF CONTENTS

 

 

 

 

Consent under the Exchange Control Act 1972 (and its related regulations) has been obtained from the Bermuda Monetary Authority for the issue and transfer of the common shares to and between non-residents of Bermuda for exchange control purposes provided our shares remain listed on an appointed stock exchange, which includes                 . In granting such consent the Bermuda Monetary Authority does not accept any responsibility for our financial soundness or the correctness of any of the statements made or opinions expressed in this prospectus.

Through and including                     , 2014 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to any unsold allotment or subscription.

Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. Neither we nor the underwriters take any responsibility for, nor can we or they provide any assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. Our business, prospects, financial condition and results of operations may have changed since that date.

 

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PROSPECTUS SUMMARY

This summary highlights information about our business and the offering of our common shares. This is a summary of information contained elsewhere in this prospectus and is not complete and does not contain all of the information that may be important to you. For a more complete understanding of our business and the offering, you should read this entire prospectus, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as the consolidated financial statements and the related notes thereto.

Unless otherwise noted or indicated by the context, the terms “Travelport,” “Company,” “we,” “our,” and “us” refer to Travelport Worldwide Limited, a Bermuda company, and its consolidated subsidiaries. You should also see the “Glossary of Selected Terms” beginning on page 178 for definitions of certain of the terms we use to describe our business and industry and other terms used in this prospectus.

OUR COMPANY

We are a leading travel commerce marketplace providing distribution, technology, payment and other solutions for the $7 trillion global travel and tourism industry. We facilitate travel commerce by connecting the world’s leading travel providers, such as airlines and hotel chains, with online and offline travel agencies and other travel buyers in our proprietary business to business (“B2B”) travel commerce marketplace (which we refer to as our Travel Commerce Platform). We processed over $85 billion of travel spending in 2013. Our geographically dispersed footprint allows travel providers to generate high yielding and incremental global demand for their perishable and capital intensive travel inventory from customers living in non-domestic, or away, markets, in addition to serving their domestic, or home, markets. As travel industry needs evolve, we are utilizing our Travel Commerce Platform to redefine the electronic distribution and merchandising of airline core and ancillary products, as well as extending our reach into the growing world of travel commerce beyond air, including to hotel, car rental, rail, cruise-line and tour operators. In addition, we leveraged our domain expertise in the travel industry to design a unique and pioneering B2B payment solution that addresses the need of travel agencies to efficiently and securely make payments to travel providers globally. Through our global reach in over 170 countries, distinct merchandising platform with capabilities for value-added content and enhanced user experience, we offer a strong value proposition not only to travel providers, travel agencies and corporations, but also to end travelers. Our primarily transaction-based pricing model links our revenue to global travel passenger volume rather than travel spending, thus creating a stable and recurring business model with high revenue visibility.

 

 

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We have two key categories of customers: travel providers and travel buyers, the latter of which includes travel agencies, travel management companies (“TMCs”) and corporations. The diagram below illustrates our central role in global travel commerce as a provider of high value, real-time distribution services:

 

LOGO

Our Travel Commerce Platform combines state-of-the-art technology with industry leading features, functionality and innovative solutions to address the high-volume and growing transaction processing requirements for the evolving needs of the travel industry. In 2013, our systems processed up to 3 billion travel related system messages per day with 240 millisecond peak transaction frequency and approximately 8 billion API calls per month. Our cutting-edge technology aggregates global travel content, filters it through sophisticated search algorithms and presents it in a transparent and efficient workflow for travel agencies, enabling them to create and modify multi-content, multi-modular complex itineraries, issue travel documents, process millions of booking transactions and invoices and transfer secure, cost-effective and automated payments, all on a graphically rich, single user interface.

 

 

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Since 2012, we have strategically invested with a focus on redefining our Travel Commerce Platform to address the trends, inefficiencies and unmet needs of all components of the travel value chain: air travel distribution (“Air”) and beyond air products and services (“Beyond Air”), which include distribution and merchandising solutions for hotel, car rental, rail, cruise-line and tour operators, B2B travel payments, advertising and an array of additional platform services. For Air, we have transformed the traditional global distribution system (“GDS”) concept, which had very limited ancillary sales capabilities, into an open platform with extensible markup language (“XML”) connectivity and a graphically rich, single user interface to enable marketing and sales of not only full air content, but also full ancillary content. For Beyond Air, we have connected independent hotels, previously unable to reach corporate customers, to a global network of travel agencies through our meta-search technology and have given hotels the ability to display their full range of rates and packages in a one-stop booking portal. We have also pioneered a secure, cost-effective and automated B2B payment alternative to the traditional inefficient and costly methods for travel agencies to pay travel providers. Our Travel Commerce Platform creates synergies and network effects that facilitate revenue growth across the travel value chain. The chart below demonstrates the ways in which our Travel Commerce Platform has identified, addressed and redefined key elements of the travel value chain that are fully or partially unaddressed by traditional GDS providers:

 

LOGO

We provide air distribution services to approximately 400 airlines globally, including approximately 85 low-cost carriers (“LCCs”). In addition, we serve numerous Beyond Air travel providers, including approximately 580,000 hotel properties (of which approximately 480,000 are independent hotel properties), which is the largest inventory of hotel properties on any travel platform in the world, approximately 35,000 car rental locations and 55 cruise-line and tour operators. We aggregate travel content across approximately 67,000 travel agency locations representing 234,000 online and offline travel agency terminals worldwide, which in turn serve millions of end consumers globally. In 2013, we created approximately 170 million individual travel itineraries, handled approximately 350 million segments sold by travel agencies, issued 120 million airline tickets and sold over 60 million hotel room nights and 76 million car rental days. Our Travel Commerce Platform provides sophisticated and comprehensive real-time search, pricing, booking, change, payment and integrated itinerary creation for travelers who use the services of online and offline travel agencies for both leisure and business

 

 

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travel. Our access to business travelers, merchandising capabilities and ability to process complex itineraries have attracted and allowed for the full integration of several fast-growing LCCs such as AirAsia, easyJet, Ryanair and Spirit Airlines into our Travel Commerce Platform.

Through eNett, our majority-owned subsidiary and an early adopter in automated payments, we are redefining how travel agencies pay travel providers. When a consumer purchases an itinerary through a travel agency, the consumer pays using a variety of mechanisms, including cash, direct debit and credit card. Generally, the consumer makes one payment for the entire itinerary of flights, hotels and ground services, such as transfers. The travel agency then remits the individual payments to each travel provider. eNett’s core offering is a Virtual Account Number (“VAN”) payment solution that automatically generates unique MasterCard numbers used to process payments globally. Before eNett, travel payments were primarily settled in cash and exposed payers to risks of fraud, delays and costly reconciliations. The VAN solution is integrated into all of our point of sale systems and exclusively utilizes the MasterCard network pursuant to a long-term agreement. eNett’s operations currently focus on Asia Pacific and Europe, and we believe the model is highly scalable. We have expanded beyond the core hospitality sector into air travel, including LCCs, with further opportunities for growth in other sectors of the travel industry. eNett was formed in 2009, and in 2013, eNett settled over 10 million VANs.

In addition to hospitality and payments, we utilize the broad connections and extensive data managed by our Travel Commerce Platform to provide advertising solutions that allow our travel providers to easily and cost-effectively promote upgrades, ancillary products or services, package deals and other offers. We also offer other platform services, including subscription services, processing services, business intelligence data services and marketing-oriented analytical tools, to travel agencies, travel providers and other travel data users.

We provide critical hosting solutions to airlines, such as pricing, shopping, ticketing, ground handling and other services, enabling them to focus on their core business competencies and reduce costs. We also host and manage reservations, inventory management and other related critical systems for Delta Air Lines, and in May 2014, we signed a new long-term agreement to continue to run the system infrastructure for the Delta Air Lines platform in our Atlanta data center. In addition, we own 51% of IGT Solutions Private Limited (“InterGlobe”), an application development services provider based in New Delhi, India that is used for both internal and external software development. We refer to these solutions and services as “Technology Services.”

As travel providers increase their focus on distribution and merchandising, we do not believe that a travel provider’s choice of distribution and merchandising services are affected in any meaningful way by their choice of hosting solutions. For example, based on our distribution capabilities, we have the largest share of bookings in Australia and the United Kingdom even though we do not provide any hosting solutions in those countries.

We believe we are the most geographically balanced participant in the travel distribution industry. In 2013, we generated $1,959 million in Travel Commerce Platform revenue, of which 68% is international (with 19% from Asia Pacific, 30% from Europe, 4% from Latin America and Canada and 14% from the Middle East and Africa) and 32% is from the United States, closely mirroring the total GDS-processed air segments globally. Our geographically dispersed footprint helps insulate us from particular country or regional instability, allows for optimal IT efficiency and enhances our value proposition to travel providers. We are well positioned to capture higher value business from travel providers operating in away markets, which results in higher per transaction revenue for both us and the travel providers we serve. As of December 31, 2013, we served over 170 countries through our extensive global network of approximately 50 sales and marketing organizations (“SMO”) offices and a diverse workforce of approximately 3,600 full-time employees and an additional 1,100 employees at InterGlobe.

We have a recurring, primarily transaction-based, revenue model. As an asset-light company, we do not take airline, hotel or other inventory risk, and we are not directly exposed to fuel price volatility or labor unions like our travel providers. Our recurring, transaction-based revenue model is primarily driven by discreet travel events such as Air or Beyond Air segments booked rather than the price of the booking, meaning we benefit from an increase in total global travel without being exposed to price changes. For each of the three years ended December 31, 2013, over 99% of our revenue was Recurring Revenue. See “Glossary of Selected Terms” for a description of Recurring Revenue.

 

 

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Our ability to offer broad, high-quality and multi-product content on a single user interface encourages those booking travel to purchase additional products and services beyond the original Air or Beyond segment. For example, for every 100 air tickets sold in 2013, 41 hospitality segments were sold, which has grown from 34 hospitality segments sold for every 100 air tickets sold in 2010. The merchandising of additional products and services increases our revenue per transaction, and, consequently, we measure performance primarily on the basis of increases in both Reported Segments and revenue per Reported Segment (“RevPas”). We place limited reliance and emphasis on traditional publicly reported air booking share metrics as they do not appropriately reflect the profitability of our expanded Travel Commerce Platform. Our recurring, transaction-based revenue model combined with high-quality content availability (which encourages incremental services booked with each transaction), our investment in our distribution and payment solutions technology and our multi-year customer contracts have enabled us to grow our RevPas in each of the last nine quarters on a year-over-year basis. We increased our RevPas from $5.11 in the first quarter of 2011 to $5.68 in the fourth quarter of 2013. We grew Reported Segments from 347 million in 2012 to 350 million in 2013.

Our management team, led by industry veteran Gordon Wilson, our Chief Executive Officer since July 2011, spearheaded a shift in our corporate strategy to focus on the trends, inefficiencies and unmet needs of all components of the travel value chain and defined a new five-year strategy to transform our business from a traditional GDS to a next generation travel commerce marketplace. Our strategy is built on five pillars: unrivalled content, empowered selling, transforming payments, open platform and new business frontiers. Since refocusing our strategy in 2012, we have experienced revenue growth from airline fees, hospitality, advertising and payments and launched our air merchandising platform. We grew our Beyond Air revenue by 14% between 2012 and 2013. As a result, we delivered year-over-year quarterly improvements in key business metrics, such as RevPas, over the last nine consecutive quarters and Reported Segments for the last four consecutive quarters (excluding the loss of segments relating to the hosting contract from United Airlines following its merger with Continental Airlines). We also addressed legacy contracts by stabilizing our business from the 2012 loss of a contract with United Airlines following its merger with Continental Airlines, entering into a new long-term contract in February 2014 with Orbitz Worldwide and restructuring and extending our Technology Services relationship with Delta Air Lines in May 2014.

We have historically generated strong cash flows on a consistent basis with Adjusted EBITDA margins of 24.9%, 24.7% and 24.6% for the years ended December 31, 2013, 2012 and 2011, respectively. See “—Summary Consolidated Historical Financial and Other Data” for a discussion of Adjusted EBITDA. Drivers of our cash flows benefit from relatively modest capital expenditure requirements and attractive working capital dynamics. Furthermore, the diversity of our business provides us with multiple independent revenue streams from various markets and channels that lessen the impact of potential strategic and geographic shifts within the industry. These characteristics, combined with the contractual nature of our revenue and costs, our leading industry position and our long-standing customer relationships provide for a strong and predictable stream of cash flows.

For the years ended December 31, 2013 and 2012, we recorded net revenue of $2,076 million and $2,002 million, respectively, net loss of $203 million and $292 million, respectively, and Adjusted EBITDA of $517 million and $494 million, respectively, reflecting a 9.8% and 14.6% net loss margin and a 24.9% and 24.7% Adjusted EBITDA margin, respectively. See “—Summary Consolidated Historical Financial and Other Data” for a discussion of Adjusted EBITDA.

OUR INDUSTRY

The travel and tourism industry is one of the largest industries in the world, accounting for 1 in 11 jobs globally in 2013 and $7 trillion, or 9.5%, of global GDP in 2013 and is expected to increase to $11 trillion of global GDP in 2023, according to the World Travel & Tourism Council’s Economic Impact of Travel & Tourism 2013 (“WTTC”). The industry is supported by strong macroeconomic fundamentals, including an improving global economy, increasing travel supply globally, a surging middle and affluent class in many emerging markets, rising disposable income and globalization.

 

 

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The travel and tourism industry has been a fast growing segment of the global economy. Based on data from the IATA Monthly Traffic Analysis Archives (“IATA Traffic”), scheduled air passenger volume growth has outperformed global GDP growth by approximately two times since 2004. From 2013 to 2017, Euromonitor International Passport Travel and Tourism Database (“Euromonitor International”) expects a 7% compound annual growth rate (“CAGR”) in air travel and hotel spending (current terms, year on year exchange rates). Air traffic in regions such as Asia Pacific, Latin America and the Middle East is expected to grow at even faster rates of 6%, 6% and 7%, respectively, from 2012 to 2032, according to the Airbus Global Market Forecast 2013-2032 (“Airbus”). A major component of Asia Pacific growth is China, which mostly remains closed for non-domestic distribution providers such as us due to regulations that provide a de facto favored monopoly status to TravelSky, the state-controlled GDS. Technology and travel companies, such as us, are integral to industry growth given the increasing complexity created by the large, fragmented and global nature of the travel industry, and we believe the industry’s reliance on technology will only increase as the industry continues to grow and globalize. Some recent trends in the travel industry that we believe underpin growth opportunities for companies such as Travelport include:

Globalization of Air Travel: Air travel is increasingly becoming more global. Large international carriers have consistently added capacity in recent years, and a disproportionate portion of these carriers’ new capacity is targeted for sale in away markets. We believe selling air tickets to away customers is very challenging through direct distribution since airlines have weaker brand recognition in their away markets, as well as language and cultural differences, among other factors. For this reason, airlines have turned to the indirect channel to provide access to the wide, global network of travel agencies to more effectively distribute tickets outside of airlines’ home markets. Away and complex itineraries are more profitable both for airlines and for GDSs, so we believe the shift in mix towards away segments will result in increased profitability for both parties.

Growing Importance of Retailing and Ancillary Revenue for Airlines: As airlines look to maximize yields, flexible systems to distribute and merchandise their increasingly sophisticated core products and broadening offerings of ancillary products are becoming critical. Ancillary sales have grown for both network carriers and LCCs, and comprise as much as 20% of total revenue for some carriers. Global airline ancillary revenue grew from $22.6 billion in 2010 to $42.6 billion in 2013, according to CarTrawler Worldwide Estimate of Ancillary Revenue (“CarTrawler”). Enabling the sale of ancillary products is technologically complex and requires coordinated changes to multiple interdependent systems, including reservation platforms, inventory systems, point of sale locations, revenue accounting, merchandising, shopping, analytics and other systems. In recent years, we have invested in significantly enhancing our systems in order to provide these capabilities, and we expect to take further advantage of this significant opportunity going forward.

Growth of LCCs and Their Need for Expansion into the Business Travel Industry: Over the past decade, LCCs have become a substantial segment of the air travel industry, generating additional demand for air travel through low fares. LCCs have continued to grow, with LCCs’ share of global air travel volume expected to increase from 17% of revenue passenger kilometers in 2012 to 21% of revenue passenger kilometers by 2032, according to Airbus. LCCs have traditionally relied on direct distribution, but are now increasingly targeting the indirect channel to support their future growth aspirations and expand their offering into higher yield markets and to higher yield customers. Increasingly, LCCs desire to grow their away bookings, reach leisure travelers seeking complex itineraries typically booked through travel agencies and increase their access to business travelers that use corporate booking tools accessible through GDSs. In addition, LCCs desire to sell their products, including ancillaries, through the indirect channel in the same manner they sell through the direct channel. Unlike a traditional GDS, we provide XML connectivity and merchandising capabilities, and, therefore, believe we are a natural partner for LCCs. Our access to business travelers, merchandising capabilities and ability to process complex itineraries have attracted and allowed for the full integration of several prominent and fast-growing LCCs such as AirAsia, easyJet, Ryanair and Spirit Airlines into our fully integrated Travel Commerce Platform.

 

 

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Growing Demand for Independent Hotel Inventory: The hotel industry remains a fast growing industry with global hotel booking value projected to grow 6% per annum from $480 billion in 2013 to $600 billion in 2017 in current terms using year on year exchange rates, according to Euromonitor International. However, the hotel industry remains highly fragmented, with the top ten global hotel chains representing less than 20% of room revenue in every region except North America, Australasia and the Middle East and Africa, according to Euromonitor International. The majority of hotels that currently distribute through traditional GDSs consist of large chain hotels that represent a small percentage of total hotel inventory. Independent hotels, as well as small and mid-size chain hotels, have been historically left outside of the traditional GDS distribution channel primarily due to technology connectivity issues. Developments in technology and the ability to aggregate hotel content from online travel agencies (“OTAs”) through meta-search technology, however, have created a significant opportunity for growth in this area of distribution, including targeting business travelers.

Highly Attractive, Fast Growing B2B Travel Payments Solutions Industry: Every year, billions of dollars, through millions of payment transactions, are transferred from travel agencies to travel providers. We estimate that there is approximately $2 trillion of direct spending on travel annually, $780 billion of which is booked through the indirect channel, and payment is made from travel agencies to travel providers. Cash payments and electronic fund transfers (“EFTs”) often rely on manual reconciliation, creating inefficiencies and costing travel agencies over $1.5 billion annually, according to internal estimates. In addition, other settlement methods frequently expose travel agencies to risks of fraud and delays in payment. As a result, travel agencies and travel providers are forced to divert valuable resources away from their core operations to manage time consuming invoicing, payment, risk management and reconciliation processes. Due to these inefficiencies in travel industry payments, travel agencies and travel providers are increasingly seeking new secure and efficient B2B payments solutions that enable them to refocus their resources on their core operations and reduce operating costs.

Increasing Use of Data and Analytics: The travel industry was one of the first industries to capitalize on the value of customer data by developing yield management models and products, such as customer loyalty programs. Complex, analytics-driven business intelligence products are evolving to further and better utilize broader sets of data aggregated through the GDS beyond the algorithms for fares and rating searches. In addition, travel providers need sophisticated tools to customize and target travel content, such as our large-scale and data-rich Travel Commerce Platform.

Increasing Use of Technology to Provide Service for Business Travelers: Corporations require seamless integration of travel management policies, such as trip authorization, duty of care and negotiated rates, with travel providers. These services traditionally have been provided by travel management companies that provide customer service and fulfillment for business travelers. Business travelers are increasingly demanding self-service capabilities and are relying on technology providers to offer travel distribution through corporate booking tools and mobile solutions.

OUR COMPETITIVE STRENGTHS

We believe that several aspects of our strategy fundamentally differentiate us from our competitors, including our focus on redefining travel distribution and commerce instead of investing in more capital and labor intensive airline and hospitality related IT solutions, our fast growing Beyond Air portfolio, including our automated B2B payments solution with a large addressable market and our emphasis on a value-based partnership approach with travel providers that allows us to increase revenue and profitability per Reported Segment. The following attributes describe in further detail how we differentiate ourselves from our competitors.

Our Travel Commerce Platform Addresses the Evolving Needs of Travel Providers, Agencies, Corporations and Travelers

Travel providers need flexible systems to distribute and merchandise their increasingly sophisticated core products and broadening offerings of ancillary products and services. We offer them a portfolio of industry-leading, value-add tools to increase revenue, lower costs and efficiently reach travel buyers globally in every

 

 

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channel. Our global reach allows travel providers to display and sell products in over 170 countries and across approximately 67,000 travel agency locations representing 234,000 online and offline travel agency terminals worldwide. Our Travel Commerce Platform enables travel providers to (i) extend their distribution by broadening their geographic reach to away markets and connects them with higher value business travelers, (ii) access higher yielding ticket prices from long-haul segments, room rates, complex itineraries and business travelers and (iii) encourage travelers to purchase ancillary services and/or upgrade or upsell travelers through our highly-differentiated Travelport Merchandising Platform.

Our Travelport Merchandising Platform, consisting of three distinct solutions—Travelport Aggregated Shopping, Travelport Ancillary Services and Travelport Rich Content and Branding—offers a range of sophisticated travel sales and marketing capabilities in collaboration with airlines. These solutions allow airlines to promote their products and services to the right buyers, at the right time and in the right place. Travelport Aggregated Shopping allows travel agencies to efficiently and directly compare results from traditional carriers, who deliver data through the traditional industry standard Airline Tariff Publishing Company (“ATPCO”), which regularly updates traditional GDSs, with those from LCCs and others who use an application programming interface (“API”) connection to do so directly and in real time. Travelport Ancillary Services allows travel agencies to sell airline ancillaries, such as lounge passes and seats and bags, directly through their existing interface rather than needing to book separately on an airline’s website. Travelport Rich Content and Branding allows airlines to more effectively control how their flights and ancillaries are visually presented and described on travel agency screens, bringing them more in line with the airlines’ own website. This is especially valuable given the increasing importance of ancillary revenue for airline profitability. Our ability to help travel providers and travel agencies increase their revenue reinforces the value proposition of our Travel Commerce Platform when compared to alternative distribution channels, and has changed our relationship with travel providers from cost-focused to value-focused.

Our scale and global reach creates a virtuous cycle that is difficult to replicate. Our leading access to global travel provider content helps attract more travel buyers onto our platform, which in turn drives greater value for the travel providers, increasing their addressable customer base. Our leading point of sale solutions, such as Travelport Smartpoint, Universal Desktop and Travelport Mobile Agent, along with Travelport Rich Content and Branding, provide travel agencies with greater choice and detailed information on key differences between the products and services offered by travel providers, allowing them to provide more valuable insights to their customers, higher levels of customer service and improved sales productivity. Utilization of our Travel Commerce Platform simplifies highly complex, high volume operations, freeing up more time for travel agencies to focus on the selling process. In addition, our Travel Commerce Platform reduces operating costs for travel agencies by offering a single point of access to broad global travel content and by integrating critical data for back office, accounting and corporate customer reporting. Furthermore, our Travel Commerce Platform gives travelers a quick and easy way to compare a multitude of available travel options and obtain the true cost of a desired itinerary, buy ancillaries directly after the core booking has been made and provides greater control over itineraries through an option to add features at later stages in the travel process.

Fast Growing Portfolio of Beyond Air Initiatives

Our Travel Commerce Platform provides us with a foundation to offer a fast growing portfolio of additional products and services, which in turn results in additional revenue. Our Beyond Air portfolio includes distribution and merchandising solutions for hotel, car rental, rail, cruise-line and tour operators, payment solutions, advertising and other platform services.

We offer the largest inventory of hotel properties on any travel platform in the world via our innovative distribution and merchandising solutions for both chain and independent hotels. Independent hotels were largely unaddressed by the GDS industry, which we integrate on one platform by combining the content from hotels captured by the traditional GDSs with independent hotel content our system accesses through our meta-search technology. In particular, our B2B solution, Travelport Rooms and More, is a single user interface that combines

 

 

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detailed product insights with meta-search functionality to deliver a fully-integrated hotel booking platform to travel agencies. Travelport Rooms and More captures highly fragmented content in one interface (including approximately 580,000 hotel properties) by combining content from large global OTAs with that from aggregators specializing in a particular geographic area. This streamlined and efficient interface also enables travel agencies to more easily upsell hotel content in a single, consistent and efficient workflow and user experience.

We are an early adopter in automated B2B payments and are redefining payments from travel agencies to travel providers. We have pioneered a new class of payments for the unmet needs of the travel industry that is focused on replacing cash and other payment methods with secure virtual pre-funded payment cards. eNett’s innovative, cost-efficient and secure travel payment solutions offer a strong value proposition to travel agencies and travel providers, including full flexibility, elimination of credit or bankruptcy risk, lower administrative cost due to significantly reduced time spent on reconciliation, rewards to travel agencies as a percentage of rebate on payment volumes and a lower spread for foreign currency payments. eNett exclusively utilizes MasterCard under a long-term agreement for card issuance, giving unparalleled access to the payment systems of virtually all the world’s travel providers who accept MasterCard as a form of payment. eNett is already generating profits and we believe the model is highly scalable as we expand beyond the core hospitality sector into air travel, including LCCs, as well as other sectors of the travel industry. We estimate that there is approximately $2 trillion of direct spending on travel annually, of which $780 billion of which is booked through the indirect channel, and payment is made from travel agencies to travel providers.

In addition to hospitality and payments, we utilize the broad connections and extensive data managed by our Travel Commerce Platform to provide advertising solutions that allow our travel providers to easily and cost-effectively promote upgrades, ancillary products or services, package deals and other offers and, as a result, more effectively merchandise their products and services to targeted customers. We give travel providers direct access to a captive professional audience across approximately 67,000 travel agency locations representing 234,000 online and offline travel agency terminals worldwide, with a full-time focus on global travel bookings and cover all main domestic and international travel flows. Our improved, graphically rich point of sale solutions provide increased capabilities and “real estate” space to display banner advertisements, add click through functionality and market ancillary products through our user interface.

Innovative, Flexible and Scalable Open Technology Platform Tailored to Meet Evolving Industry Needs

Through our industry-leading technology platform, we have been able to maintain our position at the forefront of innovation by meeting the global demands of our customers for speed, flexibility and convergence. Our technology-enabled solutions offer rich content through accessible distribution channels, such as Travelport Smartpoint Desktop or Travelport Mobile Agent. To address unmet industry needs, we made significant strategic investments in innovative technology over the last three years, and we continue to invest in developing new technologies, platforms and ideas, all on an open and accessible platform that delivers expansive content and improves customer service. Our open connectivity approach allows for fully-flexible access to content and services across a range of delivery mechanisms, from XML protocols to more traditional industry sources such as ATPCO. Our open platform allows us to pull together content delivered from multiple sources into a cohesive display for the travel buyer, enabling search, comparison, reservation and payment across multiple providers. We deliver our content and functionality through state-of-the-art point of sale tools or via our own uAPI, which enables the flexibility for travel agencies and intermediaries to design customized user interfaces. A broad network of over 300 developers utilize our uAPI, create their own applications and increase the robustness of our systems. Our point of sale tools are device agnostic, allowing our customers to access our platform via internet connection on a desktop or a variety of mobile devices, such as smartphones and tablets. In 2013, our systems processed up to 3 billion travel related system messages per day with 240 millisecond peak transaction frequency, approximately 8 billion API calls per month with 99.994% core system uptime using over 9,700

 

 

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physical and virtual servers and had total storage capacity of over 13 petabytes. We operate our own in-house data center, which is another source of competitive advantage.

In recognition of the advantages provided by our open platform, we were the first GDS to offer Delta Air Lines full range of seating products. In addition, starting in 2013, we offered Travelport Aggregated Shopping through XML connectivity to airline content, which has enabled and encouraged leading LCCs such as AirAsia, easyJet, Ryanair and Spirit Airlines to join our fully integrated Travel Commerce Platform. In 2013, we launched an innovative Air Merchandising Platform to enhance user experience and focus on the sale of ancillary products and services, which are becoming increasingly important for airlines’ profitability. In the hospitality industry, we were the first GDS to offer a one-stop portal for hotel content distribution powered by “meta-search” technology. In 2013, we won the Gold Stevie Award for technology innovation, and in 2013 and 2014, we won the Globe Travel Award for the Best Technology Provider, presented by InformationWeek.

Resilient, Recurring, Transaction-based Business Model with High Revenue Visibility

Our operations are primarily founded on a transaction-based business model that ties our revenue to travel providers’ transaction volumes rather than the price paid by a consumer for airfare, hotel rooms or other travel products and services booked through our systems. Travel related businesses with volume-based revenue models have generally shown strong visibility, predictability and resilience across economic cycles because travel providers have historically sought to maintain traveler volumes by reducing prices in an economic downturn.

Our high proportion of Recurring Revenue, accounting for over 99% of revenue in each of the three years ended December 31, 2013, contributes to the resilience and strength of our business. In general, our business is characterized by multi-year travel provider and travel agency contracts. In 2013, we had 33 planned airline contract renewals, and we successfully renewed all such contracts. We currently have 38 and 43 planned airline contract renewals in 2014 and 2015, respectively. We also enter into contracts with travel buyers, such as travel agencies and corporate travel departments. A meaningful portion of our travel buyer agreements, representing approximately 18% of our revenue on average, are up for renewal in any given year. We did not lose any material travel buyer contract in the last three years. The length of our customer contracts, as well as the transaction-based and recurring nature of our revenue, provides high revenue visibility going forward.

Balanced Global Footprint with Long-standing Customer Relationships

We believe we are the most geographically balanced participant in the travel distribution industry. In 2013, we generated $1,959 million in Travel Commerce Platform revenue, of which 68% is international (with 19% from Asia Pacific, 30% from Europe, 4% from Latin America and Canada and 14% from the Middle East and Africa), and 32% is from the United States, closely mirroring the total GDS-processed air segments globally. Our geographically dispersed footprint helps insulate us from particular country or regional instability, allows for optimal IT efficiency and enhances our value proposition to travel providers. We are well positioned to capture higher value business from travel providers operating in away markets, which results in higher per transaction revenue for both us and the travel providers we serve. This strategically diversified geographic footprint allows us to focus on higher value transactions in the international travel segment. Our balanced network positions us well to benefit from global industry growth, while lessening the impact of potential geographic shifts within the industry. Our footprint also positions us as the challenger to the industry leader for air segments processed in each geographic region and provides us opportunities to grow our share.

We also have a highly diversified customer base and strong, long-standing relationships with both our travel provider and travel buyer customers. None of our travel buyers or travel providers accounted for more than 10% of our revenue for the year ended December 31, 2013. Our top 15 travel providers (by 2013 revenue) have been our customers for more than ten years on average.

 

 

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Proven and Motivated Management Team with Deep Travel Industry Expertise

Our management team has nearly 100 years of combined travel industry experience and is committed to improving and maintaining operational excellence by utilizing their extensive knowledge of the travel and technology industries. Their dedication and excellence has been demonstrated by improving our key business metrics and our recent capital structure improvements. Our management team’s compensation structure directly incentivizes them to improve business performance and profitability. Members of management currently own approximately 1% of our outstanding common shares (approximately 5% on a fully diluted basis assuming the vesting of existing equity awards).

Our management team is supported by a skilled, diverse, motivated and global workforce, comprised of approximately 3,600 full-time employees and an additional 1,100 employees at InterGlobe. By investing in training, skills development and rotation programs for our employees, we seek to develop leaders with broad knowledge of our company, the industry, technology and customer-specific needs. We also hire externally as needed to bring in new expertise. Our combination of deep industry and company experience combined with the fresh perspective and insight of new hires across our management team creates a solid foundation for driving our business to success, profitability and industry leadership.

OUR GROWTH STRATEGIES

We believe we are well positioned for future growth. Our balanced geographic footprint aligns us with anticipated industry growth across geographies, and we expect trends such as the increasing importance of ancillary revenue, the need by travel providers to personalize their offers to travelers, expansion by LCCs into the business travel industry, continued penetration by GDSs into hospitality distribution and growth of B2B travel advertising to further underpin our growth. We continue to leverage our domain expertise and relationships with travel providers to grow eNett. We will continue to evaluate and pursue strategic acquisition opportunities that enhance our Travel Commerce Platform. Our recent strategic capital investments, current product portfolio and strategic positioning enable us to benefit from industry trends, and we intend to capitalize further on these industry trends by focusing on the following initiatives:

Driving Beyond Air Innovation and Growth

Our Beyond Air portfolio includes fast growing hotel distribution, advertising and payment solutions. Given growth rates and the underpenetrated nature of these three areas, we believe we can grow our Beyond Air portfolio at a multiple to overall travel industry growth by continuing to strategically invest in the development of state-of-the-art capabilities in order to achieve a leading industry position.

Payments: Our strategy for eNett is to continue growing the scale of the business through further investment in operational capabilities, sales and marketing and targeted geographic expansion. We plan to capitalize on our early adopter advantage to capture “white space” given the travel industry’s previously unmet needs for a secure and efficient payment solution. Our Travel Commerce Platform allows us to leverage our extensive network of travel agencies to grow the penetration rate for eNett payments.

Hospitality: Through our leading meta-search capabilities, we are increasing our presence among independent hotels and have the largest inventory of hotel properties on any travel platform in the world. In addition, we provide superior chain hotel content to OTAs relative to our competitors by providing direct XML connection. Our strategy to grow in hospitality distribution is also focused on delivering corporate access to aggregated hotel content, including both chain and independent hotels through a single point of sale.

Advertising: Our strategy is to focus on the B2B advertising opportunity by targeting travel agencies. Hotel advertising will remain our core offering, but other advertising categories (especially air) also represent areas for growth, which we believe we are well positioned to capitalize on through our Travel Commerce Platform.

 

 

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Expand Air Platform

We are well positioned in the high-value, complex segment of air travel distribution, which is characterized by its larger number of business travelers, complex itineraries and international bookings. Our strategy to grow our Air platform focuses on providing state-of-the-art solutions to address the changing manner in which airlines are positioning and selling their products and services.

To achieve these objectives, we developed, and in April 2013, we launched, our Air Merchandising Platform that offers Rich Content and Branding capabilities and integrates XML content with traditional content in a graphically rich, single user interface. This allows for more flexible and effective distribution and merchandising of both core travel content and ancillary products and services, results in a higher value proposition for both network carriers and LCCs and allows travel agencies to upsell more content efficiently. We are also able to offer eNett payment capabilities to our travel buyers.

We intend to focus on the following strategies to drive Air growth:

Growth through Retailing and Merchandising Capabilities: In order to address the growing importance for travel providers for flexible systems to distribute and merchandise their increasingly sophisticated core products and broadening offerings of ancillary products, we have heavily invested in our Air Merchandising Platform to more effectively market and sell products and services. We have signed numerous airlines to our Rich Content and Branding solution and will continue to aggressively target additional airlines with this solution. In addition, increasing the sale of ancillaries through our platform not only results in additional transaction revenue, but also helps us attract new content from network carriers. We intend to continuously invest in our retailing and ancillary merchandising capabilities and grow by partnering with both network carriers and LCCs.

LCC Participation Growth: As LCCs continue to evolve and look for further growth opportunities, they seek to expand their offering into higher yield markets and to higher yield customers, mainly business travelers. Our access to business travelers, merchandising capabilities and ability to process complex itineraries have attracted and allowed for the full integration of several fast-growing LCCs such as AirAsia, easyJet, Ryanair and Spirit Airlines into our Travel Commerce Platform. We view the expansion of LCCs into the business travel segment as a significant growth opportunity for us, and we will continue building our offering to win their business.

Targeted Geographic Expansion: Because the ability to increase away segments provides more revenue to airlines, away segments attract a premium to home segments, a dynamic that will benefit our performance as this trend continues. Furthermore, due to our balanced global footprint, we are well placed to benefit from global airline capacity shifts and increased LCC participation. We will continue to grow our international business and will focus on expanding into new emerging regions such as Africa, Latin America and Eastern Europe.

Business Travel Growth: Our strategy to grow in the business travel space is focused on investing in products that distribute travel technology solutions directly to corporations, allowing them to easily access and book travel content that incorporates their travel management policies directly through our platform.

Focus on Distribution Technology Leadership and Differentiated Products

Achieving growth in our Travel Commerce Platform is predicated on our continued investment in developing advanced technologies and differentiated products to maintain our competitive position. We intend to continue our strong commitment to product innovation and technological excellence to maintain our state-of-the-art product portfolio and preserve our early adopter advantage in several key growth areas, such as the sale of ancillaries, B2B travel payments, hospitality merchandising and advertising. We plan to continue offering rich travel content and empowered selling capabilities on an open platform with service oriented architecture and industry leading uAPI, and plan to continue to focus on developing a diverse application set to consistently increase the value of our Travel Commerce Platform to our customers. We are exploring new adjacencies, such

 

 

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as big data, which allow us to better understand patterns and predict new behaviors and trends in the travel ecosystem. We have chosen not to focus our resources on more capital and labor intensive airline and hospitality related IT solutions. Instead, we focus on distribution products and payment related solutions. Our ability to offer differentiated, high value products and services allows us to shift the focus of our dialogue with travel providers from price to value, leading to higher RevPas.

SUMMARY RISK FACTORS

Our business is subject to numerous risks described in the section entitled “Risk Factors” and elsewhere in this prospectus. You should carefully consider these risks before making an investment. Some of these risks include:

 

    the various levels of travel activity, particularly air travel volume, including security concerns, pandemics, general economic conditions, natural disasters and other disruptions;

 

    the impact our outstanding indebtedness may have on the way we operate our business;

 

    our ability to obtain travel provider inventory from travel providers, such as airlines, hotels, car rental companies, cruise lines and other travel providers;

 

    our ability to maintain existing relationships with travel agencies and to enter into new relationships on acceptable financial and other terms;

 

    our ability to develop and deliver products and services that are valuable to travel agencies and travel providers and generate new revenue streams;

 

    the impact on travel provider capacity and inventory resulting from consolidation of the airline industry;

 

    our ability to grow adjacencies, such as eNett, in which we own a majority interest;

 

    general economic and business conditions in the markets in which we operate, including fluctuations in currencies, particularly in the U.S. dollar, and the economic conditions in the eurozone;

 

    pricing, regulatory and other trends in the travel industry;

 

    our ability to achieve expected cost savings from our efforts to improve operational efficiency;

 

    maintenance and protection of our information technology and intellectual property; and

 

    financing plans and access to adequate capital on favorable terms.

COMPANY HISTORY AND INFORMATION

In 2006, we were acquired by affiliates of The Blackstone Group (“Blackstone”), affiliates of Technology Crossover Ventures and certain existing and former members of our management. One Equity Partners acquired an economic interest in us in December 2006. In 2007, we expanded and diversified our geographic and commercial footprint by acquiring Worldspan. We currently own approximately 37% of Orbitz Worldwide Inc. (“Orbitz Worldwide”).

In 2013, we completed a comprehensive refinancing plan that extended our debt maturities and simplified our capital structure. As of the date of this prospectus, the principal owners of our common shares are investment funds associated with Angelo, Gordon and Co. (approximately 22%), investment funds associated with Q Investments (approximately 14%) and Blackstone (approximately 13%).

We were incorporated in 2006 in Bermuda. Our principal executive offices are located at 300 Galleria Parkway, Atlanta, Georgia 30339 and our telephone number is (770) 563-7400. We maintain a website at www.travelport.com. The information on our website is not a part of, or incorporated by reference into, this prospectus.

 

 

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THE OFFERING

 

Common shares offered by us

  

                shares.

Underwriters’ option to purchase additional common shares

  


                shares.

Common shares to be issued and outstanding immediately following the offering

  


                shares (or                 shares if the underwriters’ option is exercised in full).

Use of proceeds

   We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $         million (or $         million if the underwriters exercise in full their option to purchase additional common shares).
   We intend to use the net proceeds to reduce our outstanding indebtedness. See “Use of Proceeds.”

Dividend policy

   We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. The declaration and payment of all future dividends, if any, will be at the discretion of our board of directors and will depend upon our financial condition, earnings, contractual conditions, restrictions imposed by our credit facilities, the indentures governing our notes, any future indebtedness or preferred securities or applicable laws and other factors that our Board may deem relevant. See “Dividend Policy.”

Listing

  

We intend to apply to list our common shares on the                 .

Proposed symbol

  

TVPT

Risk factors

   Please read the section entitled “Risk Factors” for a discussion of some of the factors you should carefully consider before deciding to invest in our common shares.

Unless otherwise indicated, the information presented in this prospectus:

 

    assumes an initial offering price of $         per share, the midpoint of the estimated price range set forth on the cover of this prospectus;

 

    assumes that the underwriters’ option to purchase                 additional common shares from us is not exercised; and

 

    excludes                 common shares reserved for future issuance under our equity incentive plans.

 

 

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SUMMARY CONSOLIDATED HISTORICAL FINANCIAL AND OTHER DATA

The following table sets forth our summary consolidated historical financial information and other data as of the dates and for the periods indicated. The statements of operations data for the three months ended March 31, 2014 and 2013 and the balance sheet data as of March 31, 2014 are derived from our unaudited consolidated condensed financial statements and the related notes thereto included in this prospectus. The statements of operations data for the years ended December 31, 2013, 2012 and 2011 and balance sheet data as of December 31, 2013 and 2012 are derived from our audited consolidated financial statements and the related notes thereto included in this prospectus. The balance sheet data as of March 31, 2013 have been derived from our unaudited consolidated condensed financial statements and the related notes thereto that are not included in this prospectus. The balance sheet data as of December 31, 2011 are derived from our unaudited consolidated financial statements and the related notes thereto that are not included in this prospectus. Our unaudited consolidated condensed financial statements have been prepared on the same basis as our audited consolidated financial statements and, in the opinion of management, include all adjustments necessary for a fair presentation of the information set forth therein. These historical results are not necessarily indicative of future results and the unaudited interim results for the three months ended March 31, 2014 are not necessarily indicative of results that may be expected for the full year ending December 31, 2014.

In May 2011, we completed the sale of our Gullivers Travel Associates (“GTA”) business which qualified to be reported as discontinued operations. The gain from the disposal of the GTA business and the results of operations of the GTA business are presented as discontinued operations in our consolidated statements of operations and consolidated statements of cash flows.

 

 

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Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, or US GAAP. The following summary consolidated historical financial and other data are qualified in their entirety by reference to, and should be read in conjunction with, our consolidated financial statements and the related notes thereto and the information under “Selected Historical Consolidated Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

    Three Months Ended
March 31,
    Year Ended
December 31,
 
    2014     2013     2013     2012     2011  
   

(in millions, except share and per share data)

 

Statements of Operations Data:

         

Net revenue

  $ 572      $ 548      $ 2,076      $ 2,002      $ 2,035   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

         

Cost of revenue

    353        333        1,266        1,191        1,211   

Selling, general and administrative

    88        94        396        446        397   

Depreciation and amortization

    56        52        206        227        227   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    497        479        1,868        1,864        1,835   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    75        69        208        138        200   

Interest expense, net

    (83     (82     (356     (346     (364

(Loss) gain on early extinguishment of debt

    (5            (49     6          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before income taxes and equity in (losses) earnings of investment in Orbitz Worldwide

    (13     (13     (197     (202     (164

Provision for income taxes

    (10     (11     (20     (23     (29

Equity in (losses) earnings of investment in Orbitz Worldwide

    (4     2        10        (74     (18
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss from continuing operations

    (27     (22     (207     (299     (211

Loss from discontinued operations, net of tax

                                (6

Gain from disposal of discontinued operations, net of tax

                  4        7        312   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    (27     (22     (203     (292     95   

Net (income) loss attributable to non-controlling interest in subsidiaries

    (2            (3            3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to the Company

  $ (29   $ (22   $ (206   $ (292   $ 98   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income per common share—Basic and Diluted:

         

Loss per share—continuing operations

  $ (0.04   $ (0.21   $ (0.37   $ (2.94   $ (2.97

Income per share—discontinued operations

                  0.01        0.07        4.37   

Basic (loss) income per share

    (0.04     (0.21     (0.36     (2.87     1.40   

Weighted average common shares outstanding—Basic and Diluted

    791,295,443        101,661,248        569,031,330        101,623,994        70,033,916   

 

 

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     Three Months Ended
March 31,
    Year Ended
December 31,
 
     2014     2013     2013     2012     2011  
    

(in millions, except share and per share data)

 

Other Operating Metrics:

          

Adjusted Net Income/(Loss)(1)

   $ 3      $ 2      $ (48   $ (80   $ (96

Adjusted EBITDA(1)

     151        141        517        494        501   

Unlevered Adjusted Free Cash Flows(2)

     53        57        293        336        305   

Capital Expenditures

     33        27        127        108        91   

Adjusted earnings (loss) per share—Basic(3)

            0.02        (0.09     (0.79     (1.37

Travel Commerce Platform revenue:

          

Air revenue

   $ 445      $ 428      $ 1,588      $ 1,548      $ 1,577   

Beyond Air revenue

     97        89        371        326        283   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Travel Commerce Platform revenue

   $ 542      $ 517      $ 1,959      $ 1,874      $ 1,860   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of net revenue

     95     94     94     94     91

% of Air segment revenue from away bookings

     64     63     62     60     58

Travel Commerce Platform revenue by region:

          

Asia Pacific

   $ 101      $ 94      $ 369      $ 336      $ 323   

Europe

     178        164        596        549        535   

Latin America and Canada

     23        22        86        77        73   

Middle East and Africa

     72        70        277        270        257   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

International

     374        350        1,328        1,232        1,188   

% of Travel Commerce Platform revenue

     69     68     68     66     64

United States

     168        167        631        642        672   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Travel Commerce Platform revenue

   $ 542      $ 517      $ 1,959      $ 1,874      $ 1,860   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reported Segments

     97        95        350        347        355   

Travel Commerce Platform RevPas:

          

International RevPas (in dollars)

     6.84        6.66        6.81        6.55        6.32   

United States RevPas (in dollars)

     4.01        3.97        4.07        4.03        4.02   

Travel Commerce Platform RevPas (in dollars)

     5.61        5.47        5.60        5.40        5.24   

Transaction value processed on the Travel Commerce Platform

   $ 22,855      $ 22,564      $ 87,666      $ 85,250      $ 85,450   

Airline tickets issued

     32        32        120        116        120   

Hotel room nights sold

     15        14        61        58        57   

Car rentals days sold

     19        17        76        72        68   

eNett VANs settled

     3.1        2.2        10.6        3.2        0.1   

Hospitality segments per 100 airline tickets issued(a)

     37        36        41        40        38   

 

 

(a) A hospitality segment refers to one complete hospitality booking. For example, a five night hotel stay equals one hospitality segment.

 

 

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     As of March 31,     As of December 31,  
     2014     2013     2013     2012     2011  
    

(in millions)

 

Consolidated Balance Sheet Data:

          

Cash and cash equivalents

   $ 180      $ 108      $ 154      $ 110      $ 124   

Total current assets (excludes cash and cash equivalents)

     380        414        312        322        304   

Property and equipment, net

     422        402        428        416        431   

Goodwill and other intangible assets, net

     1,977        1,994        1,971        2,017        2,110   

All other non-current assets

     230        289        223        291        373   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 3,189      $ 3,207      $ 3,088      $ 3,156      $ 3,342   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     806        767        681        695        635   

Long-term debt

     3,389        3,861        3,528        3,866        3,771   

All other non-current liabilities

     195        285        190        281        321   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     4,390        4,913        4,399        4,842        4,727   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity (deficit)

     (1,201     (1,706     (1,311     (1,686     (1,385
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 3,189      $ 3,207      $ 3,088      $ 3,156      $ 3,342   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Adjusted Net Income/(Loss) and Adjusted EBITDA are supplemental measures of operating performance that do not represent and should not be considered as alternatives to net income (loss), as determined under US GAAP. In addition, Adjusted Net Income/(Loss) and Adjusted EBITDA may not be comparable to similarly named measures used by other companies. The presentation of Adjusted Net Income/(Loss) and Adjusted EBITDA have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of Travelport’s results as reported under US GAAP.

We have included Adjusted Net Income/(Loss) and Adjusted EBITDA as they are the primary metrics used by management to evaluate and understand the underlying operations and business trends, forecast future results and determine future capital investment allocations. They are also used by our Board to determine incentive compensation for future periods.

Adjusted Net Income/(Loss) is defined as net income (loss) from continuing operations excluding amortization of acquired intangible assets, gain/(loss) on early extinguishment of debt, equity in earnings/(losses) of investment in Orbitz Worldwide, the contribution from the terminated master services agreement (“MSA”) with United Airlines and items that are excluded under our debt covenants, such as non-cash equity-based compensation, certain corporate and restructuring costs, certain litigation and related costs, and other non-cash items such as foreign currency gains/(losses) on euro denominated debt and earnings hedges along with any income tax related to these exclusions.

Adjusted EBITDA is defined as Adjusted Net Income/(Loss) excluding depreciation and amortization of property plant and equipment, amortization of customer loyalty payments, interest, and income taxes.

 

 

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The following table provides a reconciliation of Adjusted Net Income/(Loss) and Adjusted EBITDA to net loss from continuing operations:

 

     Three Months Ended
March 31,
    Year Ended
December 31,
 
         2014             2013         2013     2012     2011  
     (in millions)  

Net loss from continuing operations

   $ (27   $ (22   $ (207   $ (299   $ (211

Adjustments:

          

Amortization of intangible assets(a)

     19        20        80        82        88   

Loss (gain) on early extinguishment of debt

     5               49        (6       

Equity in losses (earnings) of investment in Orbitz Worldwide

     4        (2     (10     74        18   

Loss of MSA with United Airlines(b)

                          (21     (71

Equity-based compensation

     1               6        2        5   

Corporate and restructuring costs(c)

     3        1        7        19        19   

Litigation and related costs(d)

            10        12        53        50   

Other—non cash(e)

     (2     (5     15        16        6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Net Income/(Loss)

     3        2        (48     (80     (96

Adjustments:

          

Depreciation and amortization of property and equipment

     37        32        126        145        139   

Amortization of customer loyalty payments(f)

     18        14        63        60        65   

Interest expense, net

     83        82        356        346        364   

Provision for income taxes

     10        11        20        23        29   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 151      $ 141      $ 517      $ 494      $ 501   

 

  (a)   Relates primarily to intangible assets acquired in the sale of Travelport to Blackstone in 2006 and from the acquisition of Worldspan in 2007.
  (b)   Reflects the historical contribution to operating income of a terminated MSA with United Airlines.
  (c)   Relates to costs associated with corporate development transactions and costs incurred to enhance our organization’s efficiency.
  (d)   Litigation and related costs represent costs related to various claims, legal proceedings, intellectual property and other commercial, employment and tax matters. In 2012, litigation and related costs predominately related to litigation with American Airlines and bondholders, and in 2011, to arbitration costs relating to disputes with former NDCs.
  (e)   Other—non cash includes (i) unrealized losses (gains) on foreign currency derivatives contracts and revaluation losses (gains) on our euro denominated debt ($(1) million and $(5) million for the three months ended March 31, 2014 and 2013, respectively, and $13 million, $15 million and $(1) million for the years ended December 31, 2013, 2012 and 2011, respectively), (ii) write-off and impairment of non-current assets of $1 million and $7 million for the years ended December 31, 2013 and 2011, respectively, and (iii) other items of $(1) million for the three months ended March 31, 2014 and $1 million and $1 million for the years ended December 31, 2013 and 2012, respectively.
  (f)   Excludes the amortization of customer loyalty payments related to United Airlines of $2 million and $9 million for December 31, 2012 and 2011, respectively.

 

 

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(2) We believe an important measure of our liquidity is Unlevered Adjusted Free Cash Flow. This measure is a useful indicator of our ability to generate cash to meet our liquidity demands. We believe Unlevered Adjusted Free Cash Flow provides investors with an understanding of how assets are performing and measures management’s effectiveness in managing cash. We define Unlevered Adjusted Free Cash Flow as net cash provided by (used in) operating activities of continuing operations, adjusted to remove the impact of interest payments and cash paid for other adjusting items which we believe are unrelated to our ongoing operations and to deduct capital expenditures on property and equipment additions including capital lease repayments. We believe this measure gives management and investors a better understanding of the cash flows generated by our underlying business, as our interest payments are primarily related to the debt incurred in relation to previous business acquisitions, cash paid for other adjusting items are unrelated to the underlying business and our capital expenditures are primarily related to the development of our operating platforms.

Unlevered Adjusted Free Cash Flow is a non-GAAP measure and may not be comparable to similarly named measures used by other companies. This measure should not be considered a measure of liquidity or cash flows from operations as determined under US GAAP. The following table provides a reconciliation of net cash provided by (used in) operating activities of continuing operations to Unlevered Adjusted Free Cash Flow.

We have also supplementally provided as part of this reconciliation, a reconciliation of Adjusted EBITDA, our primary key performance measure, to net cash provided by (used in) operating activities.

 

     Three Months Ended
March 31,
    Year Ended
December 31,
 
         2014             2013         2013     2012     2011  
     (in millions)  

Adjusted EBITDA

   $ 151      $ 141      $ 517      $ 494      $ 501   

Interest payments

     (57     (88     (273     (232     (267

Tax payments

     (7     (6     (29     (16     (22

Changes in Trading Working Capital(a)

     6        (26     14        39        (38

Changes in accounts payable and employee related

     (21     (12     7        19        23   

Customer loyalty payments

     (26     (12     (78     (47     (65

Defined benefit pension plan funding

                   (3     (27     (17

Changes in other assets and liabilities

     (17     (1     (8     (1     (1

United MSA

                          23        80   

Other adjusting items(b)

     (6     (17     (47     (71     (70
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     23        (21     100        181        124   

Add: other adjusting items(b)

     6        17        47        71        70   

Less: United MSA cash

                          (40     (70

Less: capital expenditures on property and equipment

     (26     (23     (107     (92     (72

Less: repayment of capital lease obligations

     (7     (4     (20     (16     (14
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted free cash flow

     (4     (31     20        104        38   

Add: interest payments

     57        88        273        232        267   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unlevered Adjusted Free Cash Flow

     53        57        293        336        305   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a)  

“Trading Working Capital” is defined as assets and liabilities directly related to our core trading operations (accounts receivables and deferred revenue from travel providers and travel agencies,

 

 

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  current prepaid travel agency incentive payments and accounts payable and accrued liabilities for commissions and incentives). For further discussion, see “Management’s Discussion and Analysis—Working Capital.”
  (b)   Other adjusting items relate to payments for costs included within operating income but excluded from Adjusted EBITDA. These include, for the interim periods (i) $6 million and $13 million of corporate cost payments during the three months ended March 31, 2014 and 2013, respectively, and (ii) $4 million of litigation and related cost payments for the three months ended March 31, 2013. These include, for the annual periods, (i) $24 million, $20 million and $16 million of corporate cost payments during the years ended December 31, 2013, 2012 and 2011, respectively, (ii) $23 million, $28 million and $6 million of litigation and related cost payments during the years ended December 31, 2013, 2012 and 2011, respectively, (iii) $15 million and $21 million payments related to a historical dispute related to a now terminated arrangement with a former distributor in the Middle East during the years ended December 31, 2012 and 2011, respectively, (iv) $7 million and $16 million in payments for the years ended December 31, 2012 and 2011, respectively, in relation to a Founding Airlines Services Agreement (“FASA”) acquired with the purchase of Worldspan in 2007, and (v) $1 million and $11 million of restructuring related payments made during the years ended December 31, 2012 and 2011, respectively.

 

(3) Adjusted earnings (loss) per share—Basic is Adjusted Net Income/(Loss) for the period divided by weighted average number of shares for the period.

 

 

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RISK FACTORS

Investing in our common shares involves substantial risks. You should carefully consider the risks described below and other information set forth in this prospectus before investing in our common shares. If any of the risks described below actually occur, our business, financial condition and results of operations could be materially adversely affected. In any such case, the trading price of our common shares could decline and you could lose all or part of your investment. Based on the information currently known to us, we believe that the following information identifies the most significant risk factors affecting us in each of these categories of risk. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business, financial condition and results of operations. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.

Risks Relating to Our Business

Market and Industry Risks

Our revenue is derived from the global travel industry and a prolonged or substantial decrease in global travel volume, particularly air travel, as well as other industry trends, could adversely affect us.

Our revenue is derived from the global travel industry. As a result, our revenue is directly related to the overall level of travel activity, particularly air travel volume, and is therefore significantly impacted by declines in, or disruptions to, travel in any region due to factors entirely outside of our control. Such factors include:

 

    global security issues, political instability, acts or threats of terrorism, hostilities or war and other political issues that could adversely affect global air travel volume;

 

    epidemics or pandemics, such as H1N1 “swine” flu, avian flu and Severe Acute Respiratory Syndrome;

 

    natural disasters, such as hurricanes, volcanic activity and resulting ash clouds, earthquakes and tsunamis, such as the November 2013 typhoon in the Philippines;

 

    general economic conditions, particularly to the extent that adverse conditions may cause a decline in travel volume, such as the crisis in the global credit and financial markets, diminished liquidity and credit availability, declines in consumer confidence and discretionary income, declines in economic growth, increases in unemployment rates and uncertainty about economic stability;

 

    the financial condition of travel providers, including airlines and hotels, and the impact of any changes such as airline bankruptcies or mergers, on the cost and availability of air travel and hotel rooms;

 

    changes to laws and regulations governing the airline and travel industry and the adoption of new laws and regulations detrimental to operations, including environmental and tax laws and regulations and carbon emissions reduction targets for flights to and from the European Union area in 2013;

 

    fuel price escalation;

 

    work stoppages or labor unrest at any of the major airlines or other travel providers or at airports;

 

    increased security, particularly airport security that could reduce the convenience of air travel;

 

    travelers’ perception of the occurrence of travel related accidents, of the environmental impact of air travel, particularly in regards to CO2 emissions, or of the scope, severity and timing of the other factors described above; and

 

    changes in hotel occupancy rates.

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.

 

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

Our business operates 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.

Our Travel Commerce Platform has two different primary categories of customers, namely travel providers, which provide travel content, 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 our ability to attract customers. If we are unable to attract a sufficient number of travel providers to provide comprehensive travel content, our ability to service travel agencies will be adversely impacted. Conversely, if we are unable to attract or retain a sufficient number of travel agencies, our ability to maintain our large base of travel providers and attract new travel providers will be impaired.

In addition to supplying sufficient content, the ability of our Travel Commerce Platform to attract travel agencies is dependent on the development of new products to enhance our Travel Commerce Platform and on the provision of adequate commissions to travel agencies. Competition to attract travel agencies is particularly intense as travel agencies, particularly larger ones, have the ability to access content from a variety of sources, including subscribing 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 commissions to travel agencies in connection with renewals of their contracts, which may in the future reduce margins. If travel agencies are dissatisfied with our Travel Commerce Platform or we do not pay adequate commissions or provide other incentives to travel agencies to remain competitive, our Travel Commerce Platform may lose a number of travel agency customers.

Our Travel Commerce Platform competes against traditional GDSs operated by Abacus International Pte Ltd (“Abacus”), Amadeus IT Group SA (“Amadeus”) and Sabre Corporation (“Sabre”), as well as against local distribution systems and alternative distribution technologies. Our Travel Commerce Platform also competes against direct distribution of travel content by travel providers, 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 Travel Commerce Platform competes against travel providers that supply content directly to travel agencies as well as new companies in the industry that are developing distribution systems without the large technology investment and network costs of a traditional GDS. The revolutionary emergence of mobile applications that link directly to providers may create a vigorous source of new competition that bypasses the GDSs.

For the year ended December 31, 2013, we accounted for 26% of global GDS-processed air segments. Our share has been impacted by (i) our acquisition of Worldspan in 2007, (ii) growth in the online travel agency channel compared to traditional travel agencies, particularly in Europe, where our products and services for OTAs during the period were less competitive, and (iii) our strategic decision to transition from an NDC operating model in certain Middle Eastern countries to using SMOs, resulting in improved margins but reduced segment volumes. Although we have taken steps to address these developments, our Travel Commerce Platform could continue to lose share or may fail to increase our share of GDS segments.

Increased competition may result in reduced operating margins, as well as loss of 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.

 

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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 customer 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 demands to attract travel agencies. The development process to design leading, sustainable and desirable products to generate new revenue streams and profits requires us to accurately anticipate technological changes and business 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 business requirements can change during the development process. There is a risk that these developments and enhancements will be late, fail to meet customer or business 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 or a failure to renew these agreements 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 Travel Commerce Platform. 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 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 GDS agrees to participate in a cost reduction program. Certain airlines have also threatened to withdraw content, in whole or in part, from an individual GDS as a means of obtaining lower booking fees or, alternatively, to charge the GDS to access their lower cost web fares or charge travel agencies for bookings generated in a GDS. Airlines also have aggressively expanded their use of the direct online distribution model for tickets in the United States and in Europe. 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 Europe, and a growing number of carriers in the Middle East and Africa, which provides us with access to the full scope of public fares and inventory which the carriers generally 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 Asia Pacific, 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 will be disadvantaged compared to our competitors, and our financial results will 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 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 full-content agreements with airlines representing approximately 11% of Travel Commerce Platform revenue for the year ended December 31, 2013 are up for renewal or are potentially terminable by such carriers in 2014. In addition, certain full-content agreements may be terminated earlier

 

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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 will also negatively affect our competitive positioning, revenue and financial condition. Although we continue to have participation agreements with these airline providers, in which they have agreed to participate in our GDSs, a material adverse impact on our business may occur if these agreements are terminated and we are unable to reach agreement with such carriers regarding new full-content agreements.

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 subscribe to more than one GDS at any given time and have the ability to access content from a variety of sources. 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 incentives or loyalty 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 GDS.

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 depend on our relationships with travel providers, 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 providers to enable us to offer our travel agency customers comprehensive access to travel services and products. The majority of our agreements remain in effect each year, with exceptions usually linked to airline mergers or insolvencies. Adverse changes in any of our relationships with travel providers or the inability to enter into new relationships with travel providers could reduce the amount of inventory that we are able to offer through our Travel Commerce Platform, and could negatively impact our results of operations and the availability and competitiveness of travel products we offer. Our arrangements with travel providers 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 providers by revenue, combined, accounted for approximately 30% of our revenue for the year ended December 31, 2013 and no single provider accounted for more than 10% of revenue. In 2013, we had 33 planned airline contract renewals, and we successfully renewed all such contracts. We currently have 38 and 43 planned airline contract renewals in 2014 and 2015, respectively.

Travel providers 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. 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 demand for our products.

We are in continuous dialogue with our major hotel providers about the nature and extent of their participation in our Travel Commerce Platform. If hotel occupancy rates improve to the point that our hotel

 

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providers no longer place the same value on our Travel Commerce Platform, such providers may reduce the amount of inventory they make available through our Travel Commerce Platform or the amount we are able to earn in connection with hotel transactions. A significant reduction on the part of any of our major providers of their participation in our Travel Commerce Platform for a sustained period of time or a provider’s complete withdrawal could have a material adverse effect on our business, financial condition or results of operations. In addition, we strive to increase hotel participation in our system as part of our growth strategy. If we are not successful in increasing the number of hotels participating in our system, the growth of our business may be restrained.

We are subject to a certain degree of revenue concentration among a portion of our customer base.

Orbitz Worldwide currently is the largest travel agency on our Travel Commerce Platform, accounting for 7% of our net revenue in the year ended December 31, 2013. Our next nine largest travel agency customers accounted for an additional 21% of our net revenue during the same period. Travel agency contracts representing approximately 23%, 22%, 11% and 44% of 2013 revenue are up for renewal in 2014, 2015, 2016 and beyond, respectively.

In February 2014, we entered into a new long-term agreement with Orbitz Worldwide. Due to the increase in payments payable to Orbitz Worldwide under the new agreement in 2014, we expect a negative impact on our 2014 cash flow attributable to this agreement, and no impact to our 2014 Adjusted EBITDA. From 2015 onwards, the combination of increased payments and greater flexibility for Orbitz Worldwide will have a greater impact on both our earnings and cash flow, which could be material. We expect, however, growth in other areas of our business to largely mitigate such negative impact on our financial results.

In the event Orbitz Worldwide or any other substantial customer terminates its relationships with us or such customer’s business is materially impacted for any reason, such as a travel provider withholding content from a travel agency customer, and, as a result, such travel agency loses, or fails to generate, a substantial amount of bookings that would otherwise be processed through our Travel Commerce Platform, our business and results of operations would be adversely affected.

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

Travel providers are seeking to decrease their reliance on third-party distributors, including GDSs, for distribution of their content. For example, some travel providers have created or expanded efforts to establish commercial relationships with online and traditional travel agencies to book travel with those providers 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 mobile offerings, 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 air bookings made without the use of a GDS at any stage in the chain between providers and end-customers may continue to increase. In addition, efforts by other major airlines to encourage our travel agencies to book directly rather than through our Travel Commerce Platform could adversely affect our results of operations.

Furthermore, recent trends towards disintermediation in the global travel industry could adversely affect our Travel Commerce Platform. 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 continue to 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,

 

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several travel providers have formed joint ventures or alliances that offer multi-provider 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 efficient, which they claim enables the distribution of airline tickets in a manner that is more cost-effective to the airline provider because no or lower incentive or loyalty payments are paid to travel agencies. If these trends lead to lower participation by airlines and other travel providers in our Travel Commerce Platform, 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 providers, 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 Travel Commerce Platform, 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, which exposes us to risks associated with the lack of direct management control.

Our Travel Commerce Platform utilizes third-party, independently owned and managed NDCs to market GDS products and distribute and provide GDS services in certain countries, including Austria, India, Indonesia, Kuwait, Lebanon, Pakistan, Syria, Turkey, Kazakhstan 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.

We rely on our NDCs and the manner in which they operate their business to develop and promote our global business. Our top ten NDCs generated approximately 11% of revenue in 2013 and no single NDC accounted for more than 5% of revenue. We pay each of our NDCs a commission relative to the number of segments booked by travel agencies 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 providers, including airline mergers and alliances, may increase competition from distribution channels related to those travel providers and place more negotiating leverage in the hands of those travel providers to attempt to lower booking fees further and to lower commissions. Examples include the merger of United and Continental Airlines, the merger of American Airlines and US Airways, the acquisition of AirTran Airways by Southwest Airlines and the merger of British Airways and Iberia. 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 providers 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 and higher fares, which may adversely affect the ability of our 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 providers, such as airlines, to travel agencies contribute to travel agencies having a greater dependency on traveler-paid service fees and GDS-paid incentive or loyalty payments and may

 

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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 incentives or loyalty payments. 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 business, particularly in regions in which our GDS is a significant source of bookings for an airline choosing to impose such surcharges. To compete effectively, we may need to increase incentives or loyalty payments, pre-pay incentives, discount or waive product or service fees or increase spending on marketing or product development.

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

Our business is subject to the risks of non-payment and non-performance by travel providers, 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 Travel Commerce Platform. 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.

In addition, we are exposed to risk and potential liability from travel agency fraudulent booking activity resulting from travel agencies’ use of our Travel Commerce Platform for fraudulent purposes. We contractually disclaim all liability for any such loss, but periodically incur claims from airlines who allege that we should have more responsibility for any third-party fraud.

Some of our customers, NDCs counterparties and providers 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. A lack of liquidity in the capital markets or the continued weak performance in the economy 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.

Economic conditions in the global travel industry could impact our business and results of operations.

As a participant in the global travel industry, our business and operating results are impacted by global economic conditions, including the 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 past 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 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 business 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.

 

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Operational Risks

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

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 providers 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 Smartpoint and the Travelport Merchandising Platform, including rich content and branding. 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 rely primarily on a single data center to conduct our business.

Our 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 effect 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 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.

eNett, our majority-owned subsidiary, depends on critical service providers, may be subject to regulatory requirements and may experience conflicts.

eNett, our majority-owned subsidiary, operating in the payment solutions business, is exposed to operational, regulatory and governance risks. eNett is enabled to provide its virtual card solution pursuant to virtual card issuers licensed by MasterCard and, in particular, has a material relationship with a European-based issuer licensed by MasterCard. An extended service failure by eNett’s primary issuer or MasterCard would greatly harm eNett’s current business and growth opportunities. Due to its innovative solutions, the regulatory environment for eNett is not clearly defined in certain jurisdictions, and in other jurisdictions, laws or regulations may be modified or adopted that may impact how eNett’s solutions are provided, including an increase in costs to eNett to provide such solutions. Financial services regulators in any of the jurisdictions of the eNett customer

 

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base may construe potentially applicable requirements in a manner that results in eNett loss of business, slower growth, financial penalties and operational burdens. In addition, the minority shareholder of eNett may have economic or business interests or goals that are inconsistent with ours, take actions contrary to our objectives, undergo a change of control or be unable or unwilling to fulfill its obligations in support of eNett, which may affect eNett’s and our financial conditions or results of operations.

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. 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:

 

    power losses, computer systems failure, internet and telecommunications or data network failures, operator error, losses and corruption of data and similar events;

 

    computer viruses, penetration by individuals seeking to disrupt operations, misappropriate information or perpetrate fraudulent activity and other physical or electronic breaches of security;

 

    the failure of third-party software, systems or services that we rely upon to maintain our own operations; and

 

    natural disasters, pandemics, wars and acts of terrorism.

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 business and generate revenue. We could incur financial liability from fraudulent activity perpetrated on our systems.

In addition, the secure transmission of confidential information over the internet is essential in maintaining travel provider 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 providers 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 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 providers and travel agencies to lose confidence in our data security, which would have a negative effect on the demand for our products and services.

We have 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.

 

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

We provide hosting solutions and IT subscription services to airlines and the technology companies that support them. We primarily host and manage the reservations systems for Delta Air Lines, and provide IT subscription services for critical applications in fares, pricing and e-ticketing, directly and indirectly, to 297 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 affect our business, financial condition or results of operations. 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.

For example, as a result of the integration of the United-Continental systems in early March 2012, we no longer service United’s reservation system as United Airlines now uses the system previously used by Continental Airlines. The loss of the MSA with United Airlines resulted in a decline in Reported Segments and a decline of $27 million of net revenue and $21 million of operating income for the year ended December 31, 2013 compared to 2012.

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 business. 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 business, 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 the failure 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 are subject to additional risks as a result of having global operations.

We have customers in over 170 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 the countries in which our services are provided:

 

    delays in the development, availability and use of the internet as a communication, advertising and commerce medium;

 

    difficulties in staffing and managing operations due to distance, time zones, language and cultural differences, including issues associated with establishing management systems infrastructure;

 

    differences and changes in regulatory requirements, including anti-bribery rules, trade sanctions, data privacy requirements, labor laws and anti-competition regulations;

 

    exposure to local economic and political conditions;

 

    changes in tax laws and regulations, and interpretations thereof;

 

    limitations on repatriation of earnings, which may limit our ability to transfer revenue from our non-U.S. operations and result in substantial transaction costs;

 

    increased risk of piracy and limits on our ability to enforce our intellectual property rights, particularly in the Middle East, Africa and Asia;

 

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    diminished ability to enforce our contractual rights;

 

    exchange rate fluctuations and cost and risks inherent in hedging such exposures; and

 

    withholding and other taxes on remittances and other payments by subsidiaries.

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 travel industry. Any of these individuals may choose to terminate their employment with us at any time. 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 may not effectively integrate or realize anticipated benefits from future acquisitions.

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.

Financial and Taxation Risks

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

As of March 31, 2014, our total indebtedness, excluding capital leases, was $3,380 million, including $1,522 million of term loans under our first lien senior secured credit agreement, $879 million of term loans under our second lien credit agreement and approximately $929 million of senior and senior subordinated notes. If our second lien term loans due in January 2016 or December 2016, our senior notes due in March 2016 or our senior subordinated notes due in September 2016 are not repaid or refinanced prior to their maturity dates, the term loans under our first lien senior secured credit agreement will become due prior to their June 2019 maturity. We may not have the ability to repay the debt when it becomes due.

We and our subsidiaries may be able to incur substantial indebtedness in connection with an acquisition or for other purposes in the future so long as we are in compliance with the financial covenants under our senior secured credit agreements. As of March 31, 2014, we had an additional $70 million available for borrowing under our revolving credit facility. In addition, we may incur obligations that do not constitute indebtedness. If we were to incur such additional indebtedness, the risks associated with our substantial level of indebtedness would increase, which could further limit our financial and operational flexibility.

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

 

    requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our capital expenditure and future business opportunities;

 

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    exposing us to the risk of higher interest rates because certain of our borrowings, including our secured borrowings and our senior notes due 2016, are at variable rates of interest;

 

    restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

 

    limiting our ability to obtain additional equity or debt financing for general corporate purposes, acquisitions, investments, capital expenditures or other strategic purposes;

 

    limiting our ability to adjust to changing business conditions and placing us at a competitive disadvantage to our less highly leveraged competitors; and

 

    making us more vulnerable to general economic downturns and adverse developments in our business.

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 first lien senior secured credit agreement, second lien 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:

 

    incur additional indebtedness;

 

    pay dividends on, repurchase or make distributions in respect of equity interests or make other restricted payments;

 

    make certain investments;

 

    sell certain assets;

 

    create liens on certain assets to secure debt;

 

    consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;

 

    enter into certain transactions with affiliates; and

 

    designate our subsidiaries as unrestricted subsidiaries.

In addition, under our first lien senior secured credit agreement and our second lien credit agreement, we are required to satisfy and maintain compliance with a maximum total leverage ratio and a total senior secured leverage ratio, as well as maintain a minimum cash balance at the end of each fiscal quarter. Our ability to meet these requirements can be affected by events beyond our control and, in the longer term, we may not be able to meet such requirements. A breach of any of these covenants could result in a default under our first lien senior secured credit agreement, our second lien credit agreement and our indentures. Upon the occurrence of an event of default under our senior secured credit agreements, the lenders could elect to declare all amounts outstanding under our senior secured credit agreements 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 our senior secured credit agreements 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 our senior secured credit agreements. If the lenders under our senior secured credit agreements accelerate the repayment of borrowings, we cannot provide assurance that we will have sufficient assets to repay amounts outstanding under our senior secured credit agreements, as well as our other secured borrowings or unsecured indebtedness.

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 have customers and for which we provide travel inventory. We cannot be certain that these interpretations are

 

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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. 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, which, among other reasons, may arise from ongoing inter-governmental and Organization for Economic Cooperation and Development (OECD)-led proposals on international corporate taxation, could result in an increase in the effective tax rate applicable to all or a portion of our income which would reduce our profitability.

We may become subject to taxes in Bermuda after March 31, 2035, which may have a material adverse effect on our results of operations and your investment.

The Bermuda Minister of Finance, under the Exempted Undertakings Tax Protection Act 1966 of Bermuda, as amended, has given us an assurance that if any legislation is enacted in Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax will not be applicable to us or any of our operations, shares, debentures or other obligations until March 31, 2035, except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by us in respect of real property owned or leased by us in Bermuda. See “Taxation—Bermuda Tax Considerations.” Given the limited duration of the Bermuda Minister of Finance’s assurance, we cannot assure you that we will not be subject to any Bermuda tax after March 31, 2035.

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 our euro denominated debt, is denominated in other currencies, such as British pound, 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.

We have significant operations in Europe which may be adversely affected by the economic conditions in the eurozone.

We own and operate subsidiaries in substantially all of the countries in the eurozone. Due to the deterioration of credit and economic conditions in the eurozone, the future of the euro is uncertain. Certain countries in which we operate, including Greece and Portugal, have received financial aid packages from the European Union, or E.U., in the form of loans and restructuring of their sovereign debt and have introduced comprehensive fiscal austerity measures.

 

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It is possible that certain eurozone countries could leave the euro currency in the future. The resulting macroeconomic impact of this remains unknown. For the year ended December 31, 2013, we recorded revenue of $148 million derived from operations within the southern eurozone countries, which are comprised of Greece, Italy, Spain and Portugal. This represents approximately 7% of our net revenue for the year ended December 31, 2013.

Risks Related to Our Relationship with Orbitz Worldwide

We have recorded a significant charge to earnings in previous years, and may in the future be required to record additional significant charges to earnings relating to Orbitz Worldwide.

On May 29, 2014, our ownership interest in Orbitz Worldwide was reduced to approximately 37% after we consummated an underwritten public offering of shares of Orbitz Worldwide. We recorded earnings of $10 million related to our investment in Orbitz Worldwide for the year ended December 31, 2013 and losses of $4 million for the three months ended March 31, 2014.

We evaluate our equity investment in Orbitz Worldwide for impairment on a quarterly basis. As of March 31, 2014, the fair market value of our investment in Orbitz Worldwide was approximately $381 million and the carrying value of our investment was $13 million. The results of Orbitz Worldwide for the year ended December 31, 2013 were adversely affected by a $3 million impairment charge recorded by Orbitz Worldwide in relation to its property and equipment.

Legal and Regulatory Risks

We may not be able to protect our technology and intellectual property 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.

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 providers for claims made against them. Any claims against us or such providers 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

 

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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.

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. 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 and politicized 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. Our business could be affected by public concerns in some parts of the world about US-based data processing following revelations of National Security Agency surveillance activities, even though these revelations and activities did not involve Travelport. These and other privacy concerns, including security breaches, could adversely impact our business, financial condition and results of operations.

Our business is 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 business, 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.

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. and in Europe.

In Europe, computerized reservation systems, or CRS, regulations or interpretations of them may increase our cost of doing business or lower our revenue, 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 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 GDS. We can display direct point to point rail services in our GDS principal displays, for those rail operators that participate in our GDS. Given the lack of standardization in the rail industry, displaying rail connections in a similar way to airline connections is extremely complex, particularly in relation to journey planning, fare quotation, ticketing

 

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and booking systems. We are working towards a solution that will include functionality to search, shop and book connected rail alternatives at such time as the rail industry in Europe agrees on and provides a standard framework to do so.

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 business 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.

We may be classified as a passive foreign investment company, which could result in adverse United States federal income tax consequences to United States Holders of our common shares.

Based on the current and anticipated value of our assets and the composition of our income and assets, we do not expect to be treated as a passive foreign investment company (“PFIC”) for United States federal income tax purposes for our current taxable year ending December 31, 2014. However, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure you that the United States Internal Revenue Service will not take a contrary position. A non-United States corporation will be a PFIC for any taxable year if either (i) at least 75% of its gross income for such year is passive income or (ii) at least 50% of the value of its assets (based on an average of the quarterly value of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income. A separate determination must be made after the close of each taxable year as to whether we were a PFIC for that year. Because the value of our assets for purposes of the PFIC test generally will be determined by reference to the market price of our common shares, a significant decrease in the market price of our common shares may cause us to become a PFIC. If we are a PFIC for any taxable year during which a United States Holder holds a common share, certain adverse United States federal income tax consequences could apply to such United States Holder. See “Taxation—Material United States Federal Income Tax Considerations to United States Holders—Passive Foreign Investment Company.”

From time to time, we may be involved in legal proceedings and may experience unfavorable outcomes.

We are, and in the future may be, 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 may 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.

Risks Related to This Offering

An active market for our common shares may not develop or be sustained.

Prior to this offering, there has been no public market for our common shares. An active trading market for our common shares may never develop or be sustained following this offering. If an active trading market does not develop, you may have difficulty selling your common shares at an attractive price, or at all. The initial public offering price for our common shares will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell your common shares at or above the initial

 

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public offering price or at any other price or at the time that you would like to sell. An inactive market may also impair our ability to raise capital by selling our common shares and may impair our ability to acquire other companies, products or technologies by using our common shares as consideration.

The market price and trading volume of our common shares may be volatile, which could result in rapid and substantial losses for our shareholders.

Even if an active trading market develops, the market price of our common shares may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume in our common shares may fluctuate and cause significant price variations to occur. If the market price of our common shares declines significantly, you may be unable to sell your common shares at or above your purchase price, if at all. The market price of our common shares may fluctuate or decline significantly in the future. Some of the factors that could negatively affect the price of our common shares or result in fluctuations in the price or trading volume of our common shares include: variations in our quarterly operating results; failure to meet our earnings estimates; publication of research reports about us or the travel industry or the failure of securities analysts to cover our common shares after this offering; additions or departures of our executive officers and other key management personnel; adverse market reaction to any indebtedness we may incur or securities we may issue in the future; actions by shareholders; changes in market valuations of similar companies; speculation in the press or investment community; changes or proposed changes in laws or regulations or differing interpretations thereof affecting our business or enforcement of these laws and regulations, or announcements relating to these matters; adverse publicity about the travel industry generally or individual scandals, specifically; and general market and economic conditions.

Our common share price may decline due to the large number of shares eligible for future sale.

The market price of our common shares could decline as a result of sales of a large number of shares of our common shares or the perception that such sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and price that we deem appropriate.

Upon completion of this offering we will have a total of                  common shares issued and outstanding (or                  common shares if the underwriters exercise in full their option to purchase additional shares of common shares). Of these shares, all common shares sold in this offering, except for any shares held by our affiliates, will be eligible for sale in the public market and substantially all of our other common shares will be subject to a 180-day contractual lock-up with the underwriters. Morgan Stanley & Co. LLC may permit our officers, directors, employees and shareholders who are subject to the contractual lock-up to sell shares prior to the expiration of the lock-up agreements. Upon expiration of the contractual lock-up agreements with the underwriters, substantially all of our outstanding shares will be eligible for sale in the public market.

Holders of substantially all of our outstanding common shares have demand and/or piggyback registration rights to require us to register with the SEC approximately              million of our issued and outstanding common shares following the closing of this offering and expiration of the lock-up agreements. If we register these common shares, the shareholders would be able to sell those shares freely in the public market. In addition, immediately following this offering, we intend to file a registration statement registering under the Securities Act the common shares reserved for issuance in respect of incentive awards to our directors, officers and employees. If any of these holders cause a large number of securities to be sold in the public market, the sales could reduce the trading price of our common shares. These sales also could impede our ability to raise capital in the future. See “Common Shares Eligible for Future Sale” for further details regarding the shares eligible for sale in the public market after this offering.

Investors in this offering will suffer immediate and substantial dilution.

If you purchase common shares in this offering, you will pay more for your shares than the amounts paid by existing shareholders for their shares. As a result, you will incur immediate and substantial dilution of $         per

 

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                 share, representing the difference between the initial public offering price of $         per share (the mid-point of the estimated price range set forth on the cover page of this prospectus) and our as adjusted net tangible book value per share after giving effect to this offering. See “Dilution.”

If we do not pay any cash dividends in the foreseeable future, the price of our common shares may be depressed.

We currently intend to reinvest any earnings in our business. The declaration and payment of all future dividends, if any, will be at the discretion of our Board and will depend upon our financial condition, earnings, contractual conditions, restrictions imposed by our credit facilities, the indentures governing our notes, any future indebtedness or preferred securities or applicable laws and other factors that our Board may deem relevant. In addition, pursuant to Bermuda law and our bye-laws, no dividends may be declared or paid if there are reasonable grounds for believing that: (i) we are, or would after the payment be, unable to pay our liabilities as they become due or (ii) that the realizable value of our assets would thereby be less than our liabilities. As a result, you may not receive any return on an investment in our common shares unless you sell our common shares for a price greater than that which you paid for it.

Anti-takeover provisions in our bye-laws may delay, discourage or prevent a change in control.

Our bye-laws contain provisions that may delay, discourage or prevent a merger or acquisition that a shareholder may consider favorable. As a result, shareholders may be limited in their ability to obtain a premium for their shares. See “Description of Share Capital.”

We are a Bermuda company, and it may be difficult for you to enforce judgments against us or certain of our directors or officers.

We are a Bermuda limited liability exempted company. We have been advised by our Bermuda counsel that there is no treaty in force between the United States and Bermuda providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. As a result, whether a U.S. judgment would be enforceable in Bermuda depends on whether the U.S. court that entered the judgment is recognized by a Bermuda court as having jurisdiction over it, as determined by reference to Bermuda conflict of law rules. The courts of Bermuda would recognize as a valid judgment, a final and conclusive judgment in personam obtained in a U.S. court pursuant to which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty). The courts of Bermuda would recognize such a U.S. judgment as long as (1) the U.S. court had proper jurisdiction over the parties subject to the judgment, (2) the U.S. court did not contravene the rules of natural justice of Bermuda, (3) the U.S. judgment was not obtained by fraud, (4) the enforcement of the U.S. judgment would not be contrary to the public policy of Bermuda, (5) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of Bermuda and (6) there is due compliance with the correct procedures under the laws of Bermuda.

In addition to and irrespective of jurisdictional issues, Bermuda courts will not enforce a provision of the United States federal securities law that is either penal in nature or contrary to public policy. It is the advice of our Bermuda counsel that an action brought pursuant to a public or penal law, the purpose of which is the enforcement of a sanction, power or right at the instance of the state in its sovereign capacity, is unlikely to be entertained by Bermuda courts. Specified remedies available under the laws of U.S. jurisdictions, including specified remedies under United States federal securities laws, would not be available under Bermuda law or enforceable in a Bermuda court, as they are likely to be contrary to Bermuda public policy. Further, no claim may be brought in Bermuda in the first instance for a violation of United States federal securities laws because these laws have no extraterritorial application under Bermuda law and do not have force of law in Bermuda.

 

 

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Persons who own our shares may have more difficulty in protecting their interests than persons who are shareholders of a U.S. corporation.

The Companies Act 1981, as amended, of Bermuda, which applies to us, differs in certain material respects from laws generally applicable to U.S. corporations and their shareholders. As a result, persons who own our shares may have more difficulty in protecting their interests than persons who are shareholders of a U.S. corporation. See “Comparison of Shareholders Rights.”

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and stock exchange rules promulgated in response to the Sarbanes-Oxley Act. The requirements of these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. While one of the Company’s subsidiaries currently files annual, quarterly and current reports with respect to our business and financial condition with the SEC, the Company does not currently file annual, quarterly and current reports and will have to file proxy statements pursuant to Section 14(a) of the Exchange Act as a public company. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls for financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required, and management’s attention may be diverted from other business concerns. These rules and regulations could also make it more difficult for us to attract and retain qualified independent members of our Board. Additionally, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance. We may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. Furthermore, because we have not operated as a company with equity listed on a national securities exchange in the past, we might not be successful in implementing these requirements. The increased costs of compliance with public company reporting requirements and our potential failure to satisfy these requirements could have a material adverse effect on our financial condition.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. The forward-looking statements contained herein involve risks and uncertainties. Many of the statements appear, in particular, in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” 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.

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

 

    factors affecting the level of travel activity, particularly air travel volume, including security concerns, pandemics, general economic conditions, natural disasters and other disruptions;

 

    the impact our outstanding indebtedness may have on the way we operate our business;

 

    our ability to obtain travel provider inventory from travel providers, such as airlines, hotels, car rental companies, cruise lines and other travel providers;

 

    our ability to maintain existing relationships with travel agencies and to enter into new relationships on acceptable financial and other terms;

 

    our ability to develop and deliver products and services that are valuable to travel agencies and travel providers and generate new revenue streams;

 

    the impact on travel provider capacity and inventory resulting from consolidation of the airline industry;

 

    our ability to grow adjacencies, such as eNett, in which we own a majority interest;

 

    general economic and business conditions in the markets in which we operate, including fluctuations in currencies, particular in the U.S. dollar, and the economic conditions in the eurozone;

 

    pricing, regulatory and other trends in the travel industry;

 

    our ability to achieve expected cost savings from our efforts to improve operational efficiency;

 

    maintenance and protection of our information technology and intellectual property; and

 

    financing plans and access to adequate capital on favorable terms.

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 prospectus 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 prospectus, as well as any other cautionary language in this prospectus, provide examples

 

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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 prospectus 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.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $         million (or $         million if the underwriters exercise in full their option to purchase additional common shares).

We intend to use the net proceeds to reduce our outstanding indebtedness.

A $1.00 increase or decrease in the assumed initial public offering price of $         per share would increase or decrease the net proceeds we receive from this offering by approximately $         million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same. Similarly, each increase or decrease of one million common shares offered by us would increase or decrease the net proceeds we receive from this offering by approximately $         million, assuming the assumed initial public offering price remains the same.

Pending use of the net proceeds from this offering as described above, we may invest the net proceeds in short- and intermediate-term interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the United States government.

 

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DIVIDEND POLICY

We currently intend to reinvest any earnings in our business. The declaration and payment of all future dividends, if any, will be at the discretion of our Board and will depend upon our financial condition, earnings, contractual conditions, restrictions imposed by our credit facilities, the indentures governing our notes, any future indebtedness or preferred securities or applicable laws and other factors that our Board may deem relevant. In addition, pursuant to Bermuda law and our bye-laws, no dividends may be declared or paid if there are reasonable grounds for believing that: (i) we are, or would after the payment be, unable to pay our liabilities as they become due or (ii) that the realizable value of our assets would thereby be less than our liabilities.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2014:

 

    on a historical basis; and

 

    on an as adjusted basis after giving effect to this offering, including the application of the proceeds from this offering as described in “Use of Proceeds” as if such transactions occurred on March 31, 2014.

You should read this table together with the information contained in this prospectus, including “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and related notes included elsewhere in this prospectus.

 

     As of March 31, 2014  
     Actual     As Adjusted  
     (in millions)  

Cash and cash equivalents

   $ 180      $     
  

 

 

   

 

 

 

Secured debt

   $ 2,451      $     

Unsecured debt

     929     

Capital leases

     105     
  

 

 

   

 

 

 

Total long-term debt, including current portion

   $ 3,485      $     

Shareholders’ equity:

    

Common shares, par value $0.0002 per share, 1,250,000,000 shares authorized, 848,394,873 shares issued and outstanding actual,              shares authorized as adjusted and              shares issued and outstanding as adjusted

         

Additional paid in capital

     1,874     

Accumulated deficit

     (3,013  

Accumulated other comprehensive loss

     (83  
  

 

 

   

 

 

 

Total shareholders’ equity

     (1,222  

Equity attributable to non-controlling interest in subsidiaries

     21     
  

 

 

   

 

 

 

Total capitalization

   $ 2,284      $                
  

 

 

   

 

 

 

 

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DILUTION

If you invest in our common shares, your interest will be diluted to the extent of the difference between the initial public offering price per common share and the net tangible book value per common share immediately after this offering. Our historical net tangible book value as of March 31, 2014 was $         million, or $         per common share. Net tangible book value per share is determined by dividing our total tangible assets less our total liabilities by the number of common shares issued and outstanding.

After giving effect to the sale by us of              common shares at an assumed initial public offering price of $         per share, the mid-point of the price range set forth on the cover page of this prospectus in this offering, after deducting the underwriting discounts and commissions, estimated offering expenses and other related transaction costs payable by us, and the use of the estimated net proceeds as described under “Use of Proceeds,” our as adjusted net tangible book value as of March 31, 2014 would have been $         million or $         per common share. This amount represents an immediate increase in net tangible book value to our existing shareholders of $         per share and an immediate dilution to new investors of $         per share. The following table illustrates this per share dilution:

 

Assumed initial public offering price per share

   $     

Historical net tangible book value per share as of March 31, 2014

   $     

As adjusted net tangible book value per share after giving effect to this offering

   $     

Dilution in as adjusted net tangible book value per share to investors in this offering

   $                

A $1.00 increase (decrease) in the assumed initial public offering price per share would (decrease) increase our as adjusted net tangible book value by approximately $         million, or approximately $         per share, and the dilution per share to investors in this offering by approximately $         per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated expenses payable by us and the application of the net proceeds therefrom as described under “Use of Proceeds.” We may also increase or decrease the number of shares we are offering. An increase of 1.0 million shares in the number of shares offered by us would result in an as adjusted net tangible book value (calculated as described above) of approximately $         million, or $         per share, and the dilution per share to investors in this offering would be $         per share. Similarly, a decrease of 1.0 million shares in the number of shares offered by us would result in an as adjusted net tangible book value (calculated as described above) of approximately $         million, or $         per share, and the dilution per share to investors in this offering would be $         per share. The as adjusted information discussed above is illustrative only and will change based on the actual public offering price and other terms of this offering determined at pricing.

The following table summarizes as of March 31, 2014, on an as adjusted basis, the number of common shares issued by us, the book value of the total consideration received by us and the average book value per share received by us from our existing shareholders and by investors participating in this offering, based upon an assumed initial public offering price of $         per share, the mid-point of the estimated price range set forth on the cover page of this prospectus, and before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Issued     Total Consideration     Average
Price Per
Share
 
     Number    Percentage     Amount    Percentage    

Existing shareholders

             $     

Investors participating in this offering

             $     
  

 

  

 

 

   

 

  

 

 

   

 

 

 

Total

        100.0        100.0   $                
  

 

  

 

 

   

 

  

 

 

   

 

 

 

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The following table sets forth our selected consolidated historical financial information and other data as of the dates and for the periods indicated. The statements of operations data for the three months ended March 31, 2014 and 2013 and the balance sheet data as of March 31, 2014 are derived from our unaudited consolidated condensed financial statements and the related notes thereto included in this prospectus. The statements of operations data for the years ended December 31, 2013, 2012 and 2011 and balance sheet data as of December 31, 2013 and 2012 are derived from our audited consolidated financial statements and the related notes thereto included in this prospectus. The balance sheet data as of March 31, 2013 have been derived from our unaudited consolidated condensed financial statements and the related notes thereto that are not included in this prospectus. The statements of operations data for the years ended December 31, 2010 and 2009 and the balance sheet data as of December 31, 2011, 2010 and 2009 are derived from our unaudited consolidated financial statements and the related notes thereto that are not included in this prospectus. Our unaudited consolidated condensed financial statements have been prepared on the same basis as our audited consolidated financial statements and, in the opinion of management, include all adjustments necessary for a fair presentation of the information set forth therein. These historical results are not necessarily indicative of future results and the unaudited interim results for the three months ended March 31, 2014 are not necessarily indicative of results that may be expected for the full year ending December 31, 2014.

In May 2011, we completed the sale of our GTA business which qualified to be reported as discontinued operations. The gain from the disposal of the GTA business and the results of operations of the GTA business are presented as discontinued operations in our consolidated statements of operations and consolidated statements of cash flows. The assets and liabilities of the GTA business are classified as discontinued operations on our consolidated balance sheets for periods presented prior to such sale.

 

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Our financial statements are prepared in accordance with US GAAP. The following selected consolidated historical financial and other data are qualified in their entirety by reference to, and should be read in conjunction with, our consolidated financial statements and the related notes thereto and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

    Three Months Ended
March 31,
    Year Ended
December 31,
 
      2014         2013       2013     2012     2011     2010     2009  
    (in millions, except share and per share data)  

Statements of Operations Data:

             

Net revenue

    $572        $548        $2,076        $2,002        $2,035        $1,996        $1,981   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

             

Cost of revenue

    353        333        1,266        1,191        1,211        1,119        1,049   

Selling, general and administrative

    88        94        396        446        397        393        412   

Depreciation and amortization

    56        52        206        227        227        210        187   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    497        479        1,868        1,864        1,835        1,722        1,648   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    75        69        208        138        200        274        333   

Interest expense, net

    (83     (82     (356     (346     (364     (323     (350

(Loss) gain on early extinguishment of debt

    (5            (49     6               2        313   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations before income taxes and equity in (losses) earnings of investment in Orbitz Worldwide

    (13     (13     (197     (202     (164     (47     296   

Provision for income taxes

    (10     (11     (20     (23     (29     (47     (23

Equity in (losses) earnings of investment in Orbitz Worldwide

    (4     2        10        (74     (18     (28     (162
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income from continuing operations

    (27     (22     (207     (299     (211     (122     111   

(Loss) income from discontinued operations, net of tax

                                (6     27        (741

Gain from disposal of discontinued operations, net of tax

                  4        7        312                 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    (27     (22     (203     (292     95        (95     (630

Net (income) loss attributable to non-controlling interest in subsidiaries

    (2            (3            3        1        (2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to the Company

    $(29     $(22     $(206     $(292     $98        $(94     $(632
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income per common share—Basic and Diluted:

             

Loss per share—continuing operations

    $(0.04     $(0.21     $(0.37     $(2.94     $(2.97     $(2.02     $1.83   

Income per share—discontinued operations

                  0.01        0.07        4.37        0.45        (12.35

Basic (loss) income per share

    $(0.04     $(0.21     $(0.36     $(2.87     $1.40        $(1.57     $(10.52

Weighted average common shares outstanding—Basic and Diluted

    791,295,443        101,661,248        569,031,330        101,623,994          70,033,916          60,000,000          60,000,000   

 

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    As of March 31,     As of December 31,  
    2014     2013     2013     2012     2011     2010     2009  
    (in millions)  

Consolidated Balance Sheet Data:

             

Cash and cash equivalents

  $ 180      $ 108      $ 154      $ 110      $ 124      $ 105      $ 124   

Total current assets (excluding cash and cash equivalents and assets of discontinued operations)

    380        414        312        322        304        303        265   

Assets of discontinued operations

                                       1,066        1,091   

Property and equipment, net

    422        402        428        416        431        484        410   

Goodwill and other intangible assets, net

    1,977        1,994        1,971        2,017        2,110        2,210        2,270   

All other non-current assets

    230        289        223        291        373        355        192   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 3,189      $ 3,207      $ 3,088      $ 3,156      $ 3,342      $ 4,523      $ 4,352   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities (excluding liabilities of discontinued operations)

    806        767        681        695        635        569        538   

Liabilities of discontinued operations

                                       555        526   

Long-term debt

    3,389        3,861        3,528        3,866        3,771        4,370        4,144   

All other non-current liabilities

    195        285        190        281        321        257        241   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    4,390        4,913        4,399        4,842        4,727        5,751        5,449   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity (deficit)

    (1,201     (1,706     (1,311     (1,686     (1,385     (1,228     (1,097
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

  $ 3,189      $ 3,207      $ 3,088      $ 3,156      $ 3,342      $ 4,523      $ 4,352   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our results of operations and financial condition for the three months ended March 31, 2014 and 2013 and each of the years ended December 31, 2013, 2012 and 2011 should be read in conjunction with the financial statements and related notes reported in accordance with US GAAP and included elsewhere in this prospectus. The following discussion and analysis 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 prospectus, particularly under the headings “Risk Factors” and “Forward-Looking Statements.”

Overview

We are a leading travel commerce marketplace providing distribution, technology, payment and other solutions for the $7 trillion global travel and tourism industry. We facilitate travel commerce by connecting the world’s leading travel providers, such as airlines and hotel chains, with online and offline travel agencies and other travel buyers in our proprietary B2B travel commerce marketplace. We processed over $85 billion of travel spending in 2013. Since 2012, we have strategically invested with a focus on redefining our Travel Commerce Platform to address the trends, inefficiencies and unmet needs of all components of the travel value chain.

We have one reporting segment, and we further classify revenue according to its source as either Travel Commerce Platform revenue (comprised of Air and Beyond Air) or Technology Services revenue. For the year ended December 31, 2013, Air, Beyond Air and Technology Services represented 76%, 18% and 6%, respectively, of our net revenue.

Travel Commerce Platform

Our Travel Commerce Platform combines state-of-the-art technology with industry leading features, functionality and innovative solutions to address the high-volume and growing transaction processing requirements for the evolving needs of the travel industry.

Air

We provide sophisticated and comprehensive real-time search, pricing, booking, change, payment and integrated itinerary creation for travelers who use the services of online and offline travel agencies for both leisure and business travel. We provide such services to approximately 400 airlines globally, including approximately 85 LCCs. Our access to business travelers, merchandising capabilities and ability to process complex itineraries have attracted and allowed for the full integration of several fast-growing LCCs such as Air Asia, easyJet, Ryanair and Spirit Airlines into our Travel Commerce Platform.

Beyond Air

We have expanded our Travel Commerce Platform with a fast growing portfolio of Beyond Air initiatives. Our Beyond Air portfolio includes hospitality, payment solutions, advertising and other platform services.

For the hospitality sector of the travel industry, we provide innovative distribution and merchandising solutions for hotel, car rental, rail, cruise-line and tour operators. We offer the largest inventory of hotel properties on any travel platform in the world via our innovative distribution and merchandising solutions for both chain and independent hotels.

We are an early adopter in automated B2B payments and are redefining payments from travel agencies to travel providers. eNett’s core offering is a VAN payment solution that automatically generates unique MasterCard numbers used to process payments globally. eNett’s operations currently focus on Asia Pacific and

 

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Europe, and we believe the model is highly scalable. We have expanded beyond the core hospitality sector into air travel, including LCCs, with further opportunities for growth in other sectors of the travel industry. eNett was formed in 2009, and in 2013, eNett settled over 10 million VANs.

In addition to hospitality and payments, we utilize the broad connections and extensive data managed by our Travel Commerce Platform to provide advertising solutions that allow our travel providers to easily and cost-effectively promote upgrades, ancillary products or services, package deals and other offers. We also offer other platform services, including subscription services, processing services, business intelligence data services and marketing-oriented analytical tools, to travel agencies, travel providers and other travel data users.

Technology Services

We provide critical hosting solutions to airlines, such as pricing, shopping, ticketing, ground handling and other services, enabling them to focus on their core business competencies and reduce costs. We also host and manage reservations, inventory management and other related critical systems for Delta Air Lines and in May 2014, we signed a new long-term agreement to continue to run the system infrastructure for the Delta platform in our Atlanta data center. In addition, we own 51% of InterGlobe, an application development services provider used for internal and external software development based in New Delhi, India that is used for both internal and external software development.

Management Performance Metrics

Our management team monitors the performance of our operations against our strategic objectives. We assess our performance using both financial and non-financial measures. See “Prospectus Summary—Summary Consolidated Historical Financial and Other Data.” As a Travel Commerce Platform, we measure performance primarily on the basis of increases in both Reported Segments and RevPas. Travel Commerce Platform RevPas is computed by dividing Travel Commerce Platform revenue by the total number of Reported Segments. Travel Commerce Platform revenue is generated from a wide portfolio of products and services, including traditional air bookings, ancillaries, hospitality, payment solutions, advertising and other platform services. We place limited reliance and emphasis on traditional publically reported Marketing Information Data Tapes (“MIDT”) air booking share metrics as they do not appropriately reflect the profitability of our expanded Travel Commerce Platform. Our operating decisions give priority to maximizing our profitability rather than gaining MIDT share of air bookings.

Factors Affecting Our Results of Operations

Factors Affecting Our Industry Generally

Factors affecting our industry generally and our results of operations include:

 

    Macroeconomic and Travel Industry Conditions: Our business model is primarily transaction based and is not based on end-user pricing. Our business and results of operations are, therefore, dependent upon travel volumes, particularly air passengers, and, to an increasing degree, non-air travel volumes, that are affected by general macroeconomic conditions. These conditions include the rate of growth in GDP, the availability and cost of consumer finance, interest and exchange rates, unemployment levels, fuel prices and terrorism, as well as other factors that may affect the travel and tourism industry. The overall impact on the travel and tourism industry of these and other factors can also be influenced by travelers’ perception of, and reaction to, the scope, severity and timing of such conditions. The travel industry has historically shown strong and resilient growth, typically outperforming general macroeconomic performance. Based on IATA Traffic data, scheduled air passenger volume growth has outperformed global GDP growth by approximately two times since 2004.

 

   

Pricing Trends for Air Travel Distribution: In recent years, the airline industry, especially in the United States and Europe, has undergone a rapid wave of consolidation, resulting in capacity moderation and increased pricing power for airlines. Airlines around the world also are addressing factors such as increased fuel and labor and operating costs, which are putting pressure on their margins. Although network airlines are focused on reducing overhead costs such as the cost of distribution through a

 

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traditional GDS, they are also looking for ways to increase their yield through sales of ancillaries, sales to higher-yield passengers, such as business travelers, and growing the number of higher value bookings outside of their home markets. Our Travel Commerce Platform enables airlines to substantially increase their distribution reach through away bookings, which we price at a premium to home bookings. As this part of our business grows, our financial performance will benefit. Our Travel Commerce Platform offers a broad portfolio of value-added functionalities that enables airlines to effectively pursue these revenue enhancing initiatives. The ability of our platform to add this value is unique in the indirect distribution channel, which allows us to enter into value-linked pricing of airline contracts that shift the focus of the negotiation away from cost and onto value creation. As a result, we have been able to grow our RevPas over the last two years even when traditional GDS air segment fees have been under pressure.

We believe that securing the content of the world’s leading airlines is value-enhancing for our Travel Commerce Platform, and as a result, we have entered into full content agreements with an increasing number of airlines over recent years. We have full content or distribution parity agreements with approximately 110 airlines, including LCCs, worldwide. These agreements accounted for 74% of our Air revenue for the year ended December 31, 2013. We offer airlines a discount for giving us access to this content. Contracts with airlines that do not provide us with this preferential access include terms that generally allow us to increase segment fees on thirty days notice. The mix of types of airline agreements on our Travel Commerce Platform will continue to impact our revenue. Our value-based pricing model has been instrumental in driving RevPas growth in recent years.

Travel agency commissions constitute a large portion of our operating costs and continue to increase due to competitive factors. As experienced in recent years, we expect to stem the average rate of increase in commissions as a result of the industry leading features, functionality and innovative solutions offered on our Travel Commerce Platform.

 

    Increasing Expansion and Importance of LCCs: Over the past decade, LCCs have become a substantial segment of the air travel industry, generating additional demand for air travel through low fares. LCCs have continued to grow, with LCCs’ share of global air travel volume expected to increase from 17% of revenue passenger kilometers in 2012 to 21% of revenue passenger kilometers by 2032, according to Airbus. LCCs have traditionally relied on direct distribution, but are now increasingly targeting the indirect channel to support their future growth aspirations and expand their offering into higher yield markets and to higher yield customers.

Increasingly, LCCs desire to grow their away bookings, reach leisure travelers seeking complex itineraries typically booked through travel agencies and increase their access to business travelers that use corporate booking tools accessible through GDSs. In addition, LCCs desire to sell their products, including ancillaries, through the indirect channel in the same manner they sell through the direct channel. Unlike a traditional GDS, we provide XML connectivity and merchandising capabilities, and, therefore, believe we are a natural partner for LCCs. Our access to business travelers, merchandising capabilities and ability to process complex itineraries have attracted and allowed for the full integration of several prominent and fast-growing LCCs such as AirAsia, easyJet, Ryanair and Spirit Airlines into our fully integrated Travel Commerce Platform.

 

    Consolidations Within the Airline Industry: The airline industry has experienced consolidation. Examples include the merger between Delta Air Lines and Northwest Airlines in 2008, the merger between United Airlines and Continental Airlines in 2010, the merger between British Airways and Iberia in 2011 and the merger between American Airlines and US Airways in 2013. Further consolidation among airlines could increase our customer concentration, reduce airline seat capacity and increase the negotiating ability of airline travel providers.

We have been impacted by consolidations within the airline industry in the past. As a result of the merger of United Airlines with Continental Airlines in 2010, we discontinued servicing the United Airlines reservation system in March 2012 as they migrated to the Continental Airlines system. United Airlines,

 

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the surviving airline in the merger between United Airlines and Continental Airlines, remains a full content travel provider on our Travel Commerce Platform.

 

    Growing Demand for Improved Distribution in the Fragmented Hotel Industry: The hotel industry remains highly fragmented, with the top ten global hotel chains representing less than 20% of room revenue in every region except North America, Australasia and the Middle East and Africa, according to Euromonitor International. The majority of hotels that currently distribute through traditional GDSs consist of large chain hotels that represent a small percentage of total hotel inventory. Independent hotels, as well as small and mid-size chain hotels, have been historically left outside of the traditional GDS distribution channel primarily due to technology connectivity issues. Developments in technology and the ability to aggregate hotel content from OTAs through meta-search technology, however, have created a significant opportunity for growth in this area of distribution, including targeting business travelers. We have already seen the impact of these trends through the growth in our hotel bookings and believe we are well positioned to meet the growing needs of independent hotels and small- to medium-sized chain hotels through our specifically tailored technology solutions.

 

    Growth in Technology Enabled B2B Payment Solutions: Traditionally, travel payments from travel agencies to travel providers have been settled through a variety of methods, such as cash, EFTs, corporate cards, lodge cards and other methods. All of these traditional payment methods bear numerous inefficiencies as well as significant credit-related and fraud-related risks that are costly and time consuming leaving a “white space” for an alternative innovative model, such as VANs.

Growth in technology enabled B2B payment solutions benefits us directly through our majority ownership of eNett. In 2013, we settled over 10 million VANs, representing an approximately 230% increase from 2012. We expect eNett to rapidly increase its penetration rate in the travel industry and continue to increase its share of our revenue growth.

Factors Affecting the Company

Factors affecting our results of operations, but not necessarily our entire industry, include:

 

    Geographic Mix: We believe we are the most geographically balanced participant in the travel distribution industry. Our geographically dispersed footprint helps insulate us from particular country or regional instability, allows for optimal IT efficiency and enhances our value proposition to travel providers. We are well positioned to capture higher value business from travel providers operating in away markets, which results in higher per transaction revenue for both us and the travel providers we serve. The table below sets forth revenue by region for our Travel Commerce Platform for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31,
 

(in $ millions)

   2013      2012      2011  

Asia Pacific

   $ 369       $ 336       $ 323   

Europe

     596         549         535   

Latin America and Canada

     86         77         73   

Middle East and Africa

     277         270         257   
  

 

 

    

 

 

    

 

 

 

International

     1,328         1,232         1,188   

United States

     631         642         672   
  

 

 

    

 

 

    

 

 

 

Travel Commerce Platform

   $ 1,959       $ 1,874       $ 1,860   
  

 

 

    

 

 

    

 

 

 

We expect some of the regions in which we currently operate, such as Asia Pacific, Latin America and the Middle East, to experience growth in travel that is greater than the global average due to factors such as economic growth and a growing middle class, while more mature regions, such as the United States, remain stable. As these emerging travel regions may grow at a higher rate than mature regions, the geographic distribution of our revenue may similarly shift.

 

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    Customer Mix: We believe our customer mix is broadly diversified, supporting our stable and recurring business model with high revenue visibility. We provide air distribution services to approximately 400 airlines globally, including approximately 85 LCCs. In addition, we serve numerous Beyond Air travel providers, including approximately 580,000 hotel properties (of which approximately 480,000 are independent hotel properties), approximately 35,000 car rental locations and 55 cruise-line and tour operators. We aggregate travel content across approximately 67,000 travel agency locations representing 234,000 online and offline travel agency terminals worldwide, which in turn serve millions of end consumers globally. None of our travel buyers or travel providers accounted for more than 10% of our revenue for the year ended December 31, 2013.

In general, our business is characterized by multi-year travel provider and travel agency contracts. In 2013, we had 33 planned airline contract renewals, and we successfully renewed all such contracts. We currently have 38 and 43 planned airline contract renewals in 2014 and 2015, respectively. Travel agency contracts representing approximately 23%, 22%, 11% and 44% of 2013 revenue are up for renewal in 2014, 2015, 2016 and beyond, respectively. We did not lose any material travel buyer contract in the last three years. We cannot guarantee that we will be able to renew our travel provider or travel agency agreements in the future on favorable economic terms, or at all.

 

    Renegotiated Legacy Contracts: Orbitz Worldwide is currently the largest travel agency on our Travel Commerce Platform, accounting for 7%, 8% and 8% of our net revenue in the years ended December 31, 2013, 2012 and 2011, respectively. In February 2014, we entered into a new long-term agreement under which Orbitz Worldwide will use our services in the United States and other countries. Under the new agreement, which replaced our existing agreement with Orbitz Worldwide, we will pay incremental benefits in 2014 and further increased fees in later years for each air, car and hotel segment. In addition, Orbitz Worldwide will receive wider flexibility to use traditional GDS providers for services beginning in 2015. In exchange for the enhanced payments, Orbitz Worldwide agreed to generate a minimum specified book of business through our Travel Commerce Platform and pay a shortfall payment if the minimum volume is not met. Due to the increase in payments payable to Orbitz Worldwide under the new agreement, we expect a negative impact on our 2014 cash flow and no impact to our 2014 Adjusted EBITDA. From 2015 onwards, the combination of increased payments and greater flexibility for Orbitz Worldwide will have a greater impact on both our earnings and cash flow.

In May 2014, we restructured and extended our Technology Services relationship with Delta Air Lines. Delta Air Lines will reacquire the data and intellectual property rights central to its passenger service and flight operations systems. We will continue to run the systems infrastructure and hosting for the Delta Air Lines platform in our Atlanta data center on our hardware and with our systems monitoring and support. We will see a reduction in both revenue and costs, effective July 1, 2014, when we transition approximately 175 employees to Delta Air Lines, and we estimate there will be a minor impact to our Adjusted EBITDA in 2015.

 

    Seasonality: Our revenue can experience seasonal fluctuations, reflecting seasonal demand trends for the products and services we offer. These trends generally cause our revenue to be higher in the first and second quarters as compared to the third and fourth quarters of the calendar year. Revenue typically peaks during these times as travelers plan and book their upcoming spring and summer travel.

 

    Foreign Exchange Fluctuations: We are exposed to movements in currency exchange rates that impact our operating results. While substantially all of our revenue is denominated in US dollars, a portion of our operating cost base, primarily commissions, is transacted in non-U.S. dollar currencies (principally, the British pound, euro and Australian dollar), and a portion of our debt is euro denominated. See “—Quantitative and Qualitative Disclosure About Market Risks.”

 

    Sale of GTA Business: In May 2011, we completed the sale of our GTA business which qualified to be reported as discontinued operations. The gain from the disposal of the GTA business and the results of operations of the GTA business are presented as discontinued operations in our consolidated statements of operations and consolidated statements of cash flows.

 

 

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Components of Revenue and Expenses

Revenue Model

Travel Commerce Platform

 

    Transaction Volume Model: This is our core model and is used broadly across our Travel Commerce Platform. The fee we charge per segment is not dependent on the transaction value of the segment, but is affected by other factors such as whether the booking was made in the travel providers’ home market or in an away market. We also receive revenue for cancellations of bookings previously made on our system and when tickets are issued by us that were originally booked on an alternative system. Revenue for air travel reservations is recognized at the time of the booking, net of estimated cancellations. Revenue for car and hotel reservations in Beyond Air is recognized upon fulfillment of the reservation.

 

    Transaction Value Model: eNett earns revenue as a percentage of total transaction value in the form of interchange fees payable by banks. Revenue is recognized when the payment is processed.

 

    Subscription Fee Model: We collect subscription fees from travel agencies, internet sites and other subscribers to access the applications on our Travel Commerce Platform, including providing the ability to access schedule and fare information, book reservations and issue tickets. Revenue is recognized when earned.

Technology Services

We collect fees, generally on a monthly basis under long-term contracts, for providing critical hosting solutions and other services to airlines such as pricing, shopping, ticketing, ground handling and other solutions. Revenue is recognized when earned.

Cost of Revenue

Cost of revenue consists primarily of:

 

    Commissions: Payments or other consideration to travel agencies and NDCs for reservations made on our Travel Commerce Platform that accrue on a monthly basis. Commissions are provided in two ways depending on the terms of the contract: (i) variable per segment on a periodic basis over the term of the contract and (ii) upfront at the inception or modification of contracts, which is capitalized and amortized over the expected life of the contract and includes customer loyalty payments. The variable and amortized portion of the upfront incentive consideration is recorded to cost of revenue. Cost of revenue also includes incentive considerations to travel agencies and bank service charges for eNett.

 

    Technology Costs: The direct technology costs related to revenue production, consisting of the maintenance and development costs for the mainframes, servers and software that is the shared infrastructure used to run our Travel Commerce Platform and Technology Services. Such costs consist of:

 

    service contracts with IBM, Cisco and other technology service providers, including on-site around-the-clock support for computer equipment and the cost of software licenses used to run our Travel Commerce Platform and our data center;

 

    other operating costs associated with running our Travel Commerce Platform, including facility and other running costs of our data center;

 

    telecommunication and technology costs related to maintaining the networks between us and our travel providers and our hosting solutions; and

 

 

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    salaries and benefits paid to employees for the development, delivery and implementation of software; the maintenance of mainframes, servers and software used in our data center; and customer support, including call center operations.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of (i) workforce-related expenses for sales, finance, legal, human resources and administrative support employees and (ii) non-workforce expenses, including accounting, tax and other professional services fees, legal related costs, bad debt expense and other miscellaneous items.

Depreciation and Amortization

Depreciation and amortization consists of depreciation expense on property and equipment and amortization expense on certain intangible assets. Property and equipment is primarily comprised of internally developed software, purchased software licenses and computer equipment. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

Definite-lived intangible assets are amortized, and such assets relate to customer and vendor contracts acquired in the sale of Travelport to Blackstone in 2006 and from our acquisition of Worldspan in 2007. Amortization is computed using the straight-line method over the estimated useful lives of the assets, unless another method is more appropriate.

Interest Expense, net

Interest expense, net is primarily comprised of (i) interest expense on our borrowings, financial expense on hedging derivatives and the amortization of deferred financing fees, less (ii) financial income received from our hedging derivatives and interest earned from short-term investments and bank deposits, plus / less (iii) the change in the fair value of derivatives that do not qualify for hedge accounting.

(Loss) Gain on Early Extinguishment of Debt

(Loss) gain on early extinguishment of debt is primarily comprised of (i) loss on extinguishment of debt, (ii) unamortized debt finance costs and debt discounts written-off and (iii) early repayment penalties related to our financial arrangements.

Provision of Income Taxes

Our tax provision differs significantly from the U.S. Federal statutory rate primarily as a result of (i) being subject to income tax in numerous non-U.S. jurisdictions with varying income tax rates, (ii) a valuation allowance established in the US due to the historical losses in that jurisdiction, and (iii) certain expenses that are not deductible for tax or do not secure an effective tax deduction under the relevant jurisdictions.

Equity in Earnings (Losses) of Investment in Orbitz Worldwide

We record earnings (losses) in relation to our proportional share of ownership of Orbitz Worldwide. As of March 31, 2014, we had a 44% ownership interest in Orbitz Worldwide. On May 29, 2014, our ownership interest in Orbitz Worldwide was reduced to approximately 37% after we consummated an underwritten public offering of shares of Orbitz Worldwide.

 

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Results of Operations

Three Months Ended March 31, 2014 compared to Three Months Ended March 31, 2013

 

     Three Months Ended
March 31,
  Change

(in $ millions)

   2014   2013   $   %

Net revenue

     $ 572       $ 548         24         4  
    

 

 

     

 

 

     

 

 

     

 

 

 

Costs and expenses

                

Cost of revenue

       353         333         20         6  

Selling, general and administrative

       88         94         (6 )       (6 )

Depreciation and amortization

       56         52         4         6  
    

 

 

     

 

 

     

 

 

     

 

 

 

Total costs and expenses

       497         479         18         4  
    

 

 

     

 

 

     

 

 

     

 

 

 

Operating income

       75         69         6         9  

Interest expense, net

       (83 )       (82 )       (1 )       (1 )

Loss on extinguishment of debt

       (5 )               (5 )       *  
    

 

 

     

 

 

     

 

 

     

 

 

 

Loss before income taxes and equity in (losses) earnings of investment in Orbitz Worldwide

       (13 )       (13 )                

Provision for income taxes

       (10 )       (11 )       1         6  

Equity in (losses) earnings of investment in Orbitz Worldwide

       (4 )       2         (6 )       *  
    

 

 

     

 

 

     

 

 

     

 

 

 

Net loss

     $ (27 )     $ (22 )       (5 )       (23 )
    

 

 

     

 

 

     

 

 

     

 

 

 

 

* Not meaningful

Net Revenue

Net revenue is comprised of:

 

     Three Months Ended
March 31,
   Change

(in $ millions)

   2014    2013    $   %

Air

     $ 445        $ 428          17         4  

Beyond Air

       97          89          8         9  
    

 

 

      

 

 

      

 

 

     

 

 

 

Travel Commerce Platform

       542          517          25         5  

Technology Services

       30          31          (1 )       (1 )
    

 

 

      

 

 

      

 

 

     

 

 

 

Net revenue

     $ 572        $ 548          24         4  
    

 

 

      

 

 

      

 

 

     

 

 

 

For the three months ended March 31, 2014, net revenue increased by $24 million, or 4%, compared to the three months ended March 31, 2013. This increase was primarily driven by an increase in Travel Commerce Platform revenue of $25 million, or 5%.

Travel Commerce Platform

The table below sets forth Travel Commerce Platform RevPas and Reported Segments:

 

     Three Months Ended
March 31,
     Change  
         2014              2013          $      %  

Travel Commerce Platform RevPas (in $)

   $ 5.61       $ 5.47         0.14         3   

Reported Segments (in millions)

     97         95         2         2   

 

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The increase in Travel Commerce Platform revenue of $25 million, or 5%, was due to a $17 million, or 4%, increase in our Air revenue and an $8 million, or 9%, increase in our Beyond Air revenue. Overall, there was a 3% increase in Travel Commerce Platform RevPas and a 2% increase in Reported Segments.

Our Travel Commerce Platform continues to benefit from growth in Air revenue and Beyond Air revenue. The value of transactions processed on the Travel Commerce Platform increased to $22.9 billion for the three months ended March 31, 2014 from $22.6 billion for the three months ended March 31, 2013. We issued 32 million airline tickets in each period and our percentage of Air segment revenue from away bookings increased to 64% from 63%. We increased our hospitality segments per 100 airline tickets issued to 37 from 36 and we increased our hotel rooms nights sold to 15 million from 14 million, our car rental days sold to 19 million from 17 million and our eNett VANs settled to 3.1 million from 2.2 million.

The table below sets forth Travel Commerce Platform revenue by region:

 

     Three Months Ended
March 31,
     Change  

(in $ millions)

   2014      2013      $      %  

Asia Pacific

   $ 101      $ 94        7        7  

Europe

     178        164        14        8  

Latin America and Canada

     23        22        1        4  

Middle East and Africa

     72        70        2        3  
  

 

 

    

 

 

    

 

 

    

 

 

 

International

     374        350        24        7  

United States

     168        167        1         
  

 

 

    

 

 

    

 

 

    

 

 

 

Travel Commerce Platform

   $ 542      $ 517        25        5  
  

 

 

    

 

 

    

 

 

    

 

 

 

The table below sets forth Reported Segments and RevPas by region:

 

     Segments (in millions)     RevPas (in $)  
     Three Months
Ended

March 31,
     Change     Three Months
Ended

March 31,
     Change  
     2014      2013     

 

     %     2014      2013      $      %  

Asia Pacific

     16         15         1         3      $ 6.71       $ 6.43         0.28         4   

Europe

     25         24         1         5        6.97         6.78         0.19         3   

Latin America and Canada

     4         4                 3        5.75         5.71         0.04         1   

Middle East and Africa

     10         10                 3        7.12         7.10         0.02           
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

International

     55         53         2         4        6.84         6.66         0.18         3   

United States

     42         42                 (1     4.01         3.97         0.04         1   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Travel Commerce Platform

     97         95         2         2      $ 5.61       $ 5.47         0.14         3   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

International

Our International Travel Commerce Platform revenue increased $24 million, or 7%, due to a 4% increase in Reported Segments and a 3% increase in RevPas. The RevPas increase across the regions was a result of growing our ancillary Air revenue, including our premium functionality services, and Beyond Air offerings, including growth in payment solutions, hospitality and advertising. Our International Travel Commerce Platform revenue as a percentage of Total Travel Commerce Platform revenue increased from 68% for the three months ended March 31, 2013 to 69% for the three months ended March 31, 2014.

 

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Asia Pacific

Revenue in Asia Pacific increased $7 million, or 7%, due to a 3% increase in Reported Segments and a 4% increase in RevPas. Reported Segments increased primarily due to increased segments in South Korea and Australia. RevPas increased due to Beyond Air growth, including increased revenue from eNett.

Europe

Revenue in Europe increased $14 million, or 8%, due to a 5% increase in Reported Segments and a 3% increase in RevPas. Reported Segments increased primarily due to increased segments in Western Europe, with strong growth in the United Kingdom, Italy and Greece. RevPas increased due to Beyond Air growth, including increased revenue from eNett.

Latin America and Canada

Revenue in Latin America and Canada increased $1 million, or 4%, due to a 3% increase in Reported Segments and a 1% increase in RevPas. Reported Segments increased due to continued expansion of our content offerings in Canada.

Middle East and Africa

Revenue in the Middle East and Africa increased $2 million, or 3%, due to a 3% increase in Reported Segments, with RevPas remaining flat. Reported Segments increased due to growth in volumes in the Middle East.

United States

Revenue in the United States increased $1 million, or less than 1%, primarily due to a 1% increase in RevPas with minor increases in both Air and Beyond Air revenue.

Technology Services

Technology Services revenue decreased by $1 million, or 1%, due to a decline in revenue from our development operations.

Cost of Revenue

Cost of revenue is comprised of:

 

     Three Months Ended
March 31,
     Change  

(in $ millions)

     2014          2013        $      %  

Commissions

   $ 277      $ 258        19        7  

Technology costs

     76        75        1        1  
  

 

 

    

 

 

    

 

 

    

 

 

 

Cost of revenue

   $ 353      $ 333        20        6  
  

 

 

    

 

 

    

 

 

    

 

 

 

Cost of revenue increased by $20 million, or 6%, primarily as a result of a $19 million, or 7%, increase in commission costs. Commissions paid to travel agencies increased due to a 5% increase in travel distribution cost per segment, a 2% increase in Reported Segments and incremental commission costs from our payments business. Commissions include amortization of customer loyalty payments of $18 million and $14 million for the three months ended March 31, 2014 and 2013, respectively. Technology costs across the shared infrastructure that runs our Travel Commerce Platform and Technology Services increased by $1 million, or 1%.

 

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Selling, General and Administrative (SG&A)

SG&A is comprised of:

 

     Three Months Ended
March 31,
     Change  

(in $ millions)

   2014      2013      $     %  

Workforce

   $ 75      $ 75                 

Non-workforce

     11        13         (2     (15
  

 

 

    

 

 

    

 

 

   

 

 

 

Sub-total

     86        88         (2     (2

Non-core corporate costs

     2        6         (4     (67
  

 

 

    

 

 

    

 

 

   

 

 

 

SG&A

   $  88      $  94         (6     (6
  

 

 

    

 

 

    

 

 

   

 

 

 

SG&A expenses decreased by $6 million, or 6%, during the three months ended March 31, 2014 compared to March 31, 2013. SG&A expenses include $2 million and $6 million charges for the three months ended March 31, 2014 and 2013, respectively, for non-core corporate costs that are removed from Adjusted EBITDA. Excluding these items, our SG&A expenses for the three months ended March 31, 2014 compared to the three months ended March 31, 2013 decreased by $2 million, or 2%. Workforce expenses, which include the wages and benefits of our selling, marketing, advertising, finance and legal personnel remained flat. Non-workforce expenses, which include costs of finance and legal professional fees, communications, marketing and foreign exchange related costs, decreased by $2 million, or 15%.

Non-core corporate costs of $2 million and $6 million for the three months ended March 31, 2014 and 2013, respectively, represent costs related to strategic transactions and restructurings, equity-based compensation, certain legal and related costs and foreign currency gains and losses related to euro denominated debt and derivatives. The decrease of $4 million is due to a $10 million reduction in legal and related costs, offset by a $4 million lower unrealized foreign exchange gain on euro denominated debt and derivatives and a $2 million increase in corporate costs.

Depreciation and Amortization

Depreciation and amortization is comprised of:

 

     Three Months Ended
March 31,
     Change  

(in $ millions)

   2014      2013      $     %  

Depreciation on property and equipment

   $ 37      $ 32        5       16  

Amortization of acquired intangible assets

     19        20        (1     (5
  

 

 

    

 

 

    

 

 

   

 

 

 

Total depreciation and amortization

   $ 56      $ 52        4       6  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total depreciation and amortization increased by $4 million, or 6%. Depreciation on property and equipment increased $5 million primarily due to a higher capitalized cost of internally developed software as we continued to develop our systems to enhance our Travel Commerce Platform. Amortization of acquired intangible assets decreased by $1 million as the useful lives expired on a portion of the assets acquired on the sale of Travelport to Blackstone in 2006 and the acquisition of Worldspan in 2007.

Interest Expense, Net

Interest expense, net, increased by $13 million due to higher effective interest rates on our debt, offset by a $12 million reduction due to the extinguishment of payment-in-kind (“PIK”) term loans, both of which resulted from our comprehensive refinancing and exchange offer transactions in the second quarter of 2013.

Loss on Extinguishment of Debt

During the three months ended March 31, 2014, we cancelled $135 million of our senior subordinated notes, which resulted in a loss on extinguishment of debt of $5 million.

 

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Provision for Income Taxes

Our tax provision differs significantly from the U.S. Federal statutory rate primarily as a result of (i) being subject to income tax in numerous non-U.S. jurisdictions with varying income tax rates, (ii) a valuation allowance established in the US due to the historical losses in that jurisdiction, and (iii) certain expenses that are not deductible for tax or do not secure an effective tax deduction under the relevant jurisdictions.

Equity in (Losses) Earnings of Investment in Orbitz Worldwide

Our share of equity in losses (earnings) of investment in Orbitz Worldwide was $4 million for the three months ended March 31, 2014 compared to earnings of $2 million for the three months ended March 31, 2013. These (losses) earnings reflect our 44% (46% in 2013) ownership interest in Orbitz Worldwide.

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

 

     Year Ended
December 31,
    Change  

(in $ millions)

   2013     2012     $     %  

Net revenue

   $ 2,076      $ 2,002        74        4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

        

Cost of revenue

     1,266        1,191        75        6   

Selling, general and administrative

     396        446        (50     (11

Depreciation and amortization

     206        227        (21     (9
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     1,868        1,864        4          
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     208        138        70        51   

Interest expense, net

     (356     (346     (10     (3

(Loss) gain on early extinguishment of debt

     (49     6        (55     *   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before income taxes and equity in earnings (losses) of investment in Orbitz Worldwide

     (197     (202     5        2   

Provision for income taxes

     (20     (23     3        11   

Equity in earnings (losses) of investment in Orbitz Worldwide

     10        (74     84        *   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss from continuing operations

     (207     (299     92        31   

Gain from disposal of discontinued operations, net of tax

     4        7        (3     (34
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (203   $ (292     89        30   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

* Not meaningful

Net Revenue

Net revenue is comprised of:

 

     Year Ended
December 31,
     Change  

(in $ millions)

   2013      2012      $     %  

Air

   $ 1,588       $ 1,548         40        3   

Beyond Air

     371         326         45        14   
  

 

 

    

 

 

    

 

 

   

 

 

 

Travel Commerce Platform

     1,959         1,874         85        5   

Technology Services

     117         128         (11     (9
  

 

 

    

 

 

    

 

 

   

 

 

 

Net revenue

   $ 2,076       $ 2,002         74        4   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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For the year ended December 31, 2013, net revenue increased by $74 million, or 4%, compared to the year ended December 31, 2012. This increase was driven by an increase in Travel Commerce Platform revenue of $85 million, or 5%, offset by a decrease of $11 million, or 9%, in Technology Services revenue.

As a result of the merger of United Airlines and Continental Airlines, we discontinued servicing the United Airlines reservation system in March 2012 when they migrated to the Continental Airlines system. United Airlines, the surviving airline in the merger between United Airlines and Continental Airlines, remains a full content travel provider on our Travel Commerce Platform. In 2012, the MSA with United contributed $19 million to Technology Services revenue and $8 million to Travel Commerce Platform revenue. Excluding the impact of the loss of the United Airlines MSA, Net revenue would have increased by $101 million, or 5%, with a $93 million increase in Travel Commerce Platform revenue and an $8 million increase in Technology Services revenue.

Travel Commerce Platform

The table below sets forth Travel Commerce Platform RevPas and Reported Segments:

 

     Year Ended
December 31,
     Change  
     2013      2012     

 

     %  

Travel Commerce Platform RevPas (in $)

   $ 5.60       $ 5.40       $ 0.20         4   

Reported Segments (in millions)

     350         347         3         1   

The increase in Travel Commerce Platform revenue of $85 million, or 5%, was due to a $40 million, or 3%, increase in Air revenue and a $45 million, or 14%, increase in Beyond Air revenue. Overall, there was a 4% increase in Travel Commerce Platform RevPas and a 1% increase in Reported Segments. Excluding the loss of the MSA with United Airlines, Air revenue would have increased by $48 million, or 3%. The loss of the MSA with United Airlines did not impact Beyond Air revenue.

Our Travel Commerce Platform continues to benefit from growth in Air revenue and Beyond Air revenue. The value of transactions processed on the Travel Commerce Platform increased to $87.7 billion for the year ended December 31, 2013 from $85.3 billion for the year ended December 31, 2012. We increased our airline tickets sold to 120 million from 116 million and our percentage of Air segment revenue from away bookings increased to 62% from 60%. We increased our hospitality segments per 100 airline tickets issued to 41 from 40 and we increased our hotel rooms nights sold to 61 million from 58 million, our car rental days sold to 76 million from 72 million and our eNett VANs settled to 10.6 million from 3.2 million.

The table below sets forth Travel Commerce Platform revenue by region:

 

     Year Ended
December 31,
     Change  

(in $ millions)

   2013      2012      $     %  

Asia Pacific

   $ 369       $ 336         33        10   

Europe

     596         549         47        9   

Latin America and Canada

     86         77         9        12   

Middle East and Africa

     277         270         7        3   
  

 

 

    

 

 

    

 

 

   

 

 

 

International

     1,328         1,232         96        8   

United States

     631         642         (11     (2
  

 

 

    

 

 

    

 

 

   

 

 

 

Travel Commerce Platform

   $ 1,959       $ 1,874         85        5   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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The table below sets forth Reported Segments and RevPas by region:

 

     Segments (in millions)     RevPas (in $)  
     Year Ended
December 31,
     Change     Year Ended
December 31,
     Change  
     2013      2012     

 

    %     2013      2012      $     %  

Asia Pacific

     56         54         2        4      $ 6.58       $ 6.21         0.37        6   

Europe

     85         82         3        4        6.96         6.67         0.29        5   

Latin America and Canada

     15         13         2        14        5.88         6.02         (0.14     (2

Middle East and Africa

     39         39                       7.15         6.98         0.17        3   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

International

     195         188         7        4        6.81         6.55         0.26        4   

United States

     155         159         (4     (3     4.07         4.03         0.04        1   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Travel Commerce Platform

     350         347         3        1      $ 5.60       $ 5.40         0.20        4   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

International

Our International Travel Commerce Platform revenue increased $96 million, or 8%, due to a 4% increase in Reported Segments and a 4% increase in RevPas. The RevPas increase across the regions was a result of growing our ancillary Air revenue, hospitality and advertising revenue and an approximately 230% increase in eNett VANs settled. Our International Travel Commerce Platform revenue as a percentage of Total Travel Commerce Platform revenue increased from 66% for the year ended December 31, 2012 to 68% for the year ended December 31, 2013.

Asia Pacific

Revenue in Asia Pacific increased $33 million, or 10%, due to a 4% increase in Reported Segments and a 6% increase in RevPas. Reported Segments increased by 2 million primarily due to strong volume growth of 23% in Australia driven by the increase in seats sold on Virgin Australia, partially offset by declining volumes in India primarily as a result of Kingfisher Airlines ceasing operations in October 2012. RevPas growth of 6% was primarily due to growth in our Beyond Air business due to increased revenue at eNett.

Europe

Revenue in Europe increased $47 million, or 9%, due to a 4% increase in Reported Segments and a 5% increase in RevPas. Reported Segment growth was particularly strong in Eastern Europe with 2 million incremental segments booked in Russia and the Ukraine. RevPas growth of 5% was primarily driven by an increase in higher yielding away segments and an increase in revenue from eNett.

Latin America and Canada

Revenue in Latin America and Canada increased $9 million, or 12%, due a 14% increase in Reported Segments, partially offset by a 2% decrease in RevPas. Reported Segments increased by 2 million primarily due to higher volumes in Canada resulting from the expansion of our Air Canada content offerings. The 2% decrease in RevPas was driven by the change in mix of volumes among our travel providers.

Middle East and Africa

Revenue in the Middle East and Africa increased $7 million, or 3%, due to a 3% increase in RevPas, with Reported Segments remaining constant. Growth in volumes in Africa were offset by declines in the Middle East. RevPas growth of 3% was primarily driven by an increase in higher yielding away segments.

 

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United States

Revenue in the United States decreased $11 million, or 2%, due to a 3% decrease in Reported Segments, partially offset by a 1% increase in RevPas. The 3% decrease in Reported Segments was primarily due to the loss of 2 million segments booked through the United Airlines hosting system, which we no longer host as United Airlines now uses the system previously used by Continental Airlines. Excluding the impact of the loss of the United Airlines MSA, revenue in the United States would have decreased by $3 million.

Technology Services

Technology Services revenue decreased by $11 million, or 9%, primarily as a result of the loss of $19 million as a result of the loss of hosting revenue earned in 2012 through the MSA with United Airlines. Excluding the loss of the loss of the MSA with United Airlines, Technology Services revenue would have increased by $8 million, or 7%, primarily as a result of an increase in third-party revenue from our development operations.

Cost of Revenue

Cost of revenue is comprised of:

 

     Year Ended
December 31,
     Change  

(in $ millions)

   2013      2012      $      %  

Commissions

   $ 978       $ 919         59         6   

Technology costs

     288         272         16         6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Cost of revenue

   $ 1,266       $ 1,191         75         6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Cost of revenue increased by $75 million, or 6%, as a result of a $59 million, or 6%, increase in commission costs and a $16 million, or 6%, increase in technology costs. Commissions paid to travel agencies increased due to a 1% increase in Reported Segments, a 3% increase in travel distribution costs per segment and incremental commission costs for eNett. Commissions include amortization of customer loyalty payments of $63 million in 2013 and $62 million in 2012. Technology costs across the shared infrastructure that runs our Travel Commerce Platform and Technology Services increased by $16 million, or 6%. This increase was due to the continued expansion of our operations and investment in technology to meet the increased processing capacity required to operate our Travel Commerce Platform. Excluding the impact of the loss of the United Airlines MSA, cost of revenue would have increased by $81 million, or 7%.

Selling, General and Administrative (SG&A)

SG&A is comprised of:

 

     Year Ended
December 31,
     Change  

(in $ millions)

   2013      2012      $     %  

Workforce

   $ 294       $ 285         9        3   

Non-Workforce

     62         71         (9     (13
  

 

 

    

 

 

    

 

 

   

 

 

 

Sub-total

     356         356                  

Non-core corporate costs

     40         90         (50     (56
  

 

 

    

 

 

    

 

 

   

 

 

 

SG&A

   $ 396       $ 446         (50     (11
  

 

 

    

 

 

    

 

 

   

 

 

 

SG&A expenses decreased by $50 million, or 11%. SG&A expenses for the years ended December 31, 2013 and 2012 include $40 million and $90 million charges, respectively, for non-core corporate costs that are

 

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removed from Adjusted EBITDA. Excluding these items, our SG&A expenses remained flat. Workforce expenses, which include wages and benefits of our selling, marketing, advertising, finance and legal personnel, increased by $9 million, or 3%, primarily as a result of a 1% increase in headcount and an increase in merit pay. Non-Workforce expenses decreased by $9 million, or 13%, primarily as a result of a reduction in legal costs and outsourced customer support costs.

Non-core corporate costs represents costs related to strategic transactions and restructurings, equity-based compensation, legal and related costs and foreign currency gains (losses) related to our euro denominated debt and derivatives. Non-core corporate costs decreased by $50 million in 2013, primarily as a result of a $41 million reduction in litigation costs and a $12 million reduction in other non-core corporate costs.

Depreciation and Amortization

Depreciation and amortization is comprised of:

 

     Year Ended
December 31,
     Change  

(in $ millions)

   2013      2012      $     %  

Depreciation of property and equipment

   $ 126       $ 145         (19     (13

Amortization of acquired intangible assets

     80         82         (2     (2
  

 

 

    

 

 

    

 

 

   

 

 

 

Total Depreciation and Amortization

   $ 206       $ 227         (21     (9
  

 

 

    

 

 

    

 

 

   

 

 

 

Total depreciation and amortization decreased by $21 million, or 9%. Depreciation of property and equipment decreased $19 million primarily due to assets that were acquired in 2007 in connection with our acquisition of Worldspan reaching the end of their five year useful life. Amortization of acquired intangible assets decreased by $2 million, as the useful lives expired on a portion of the assets acquired on the sale of Travelport to Blackstone in 2006 and the acquisition of Worldspan in 2007.

Interest Expense, Net

Interest expense, net, increased by $10 million, or 3%, primarily due to higher effective interest rates on our debt, offset by a reduction in debt due to the extinguishment of our PIK term loans in 2013.

(Loss) Gain on Early Extinguishment of Debt

During 2013, we amended our senior secured credit agreement, repaid dollar denominated term loans under our senior secured credit agreement and refinanced senior notes resulting in a $49 million loss on extinguishment of debt comprised of $39 million of unamortized debt finance costs written-off, $5 million of unamortized debt discount written-off and $5 million of early repayment penalty.

During 2012, we repurchased $26 million of euro and dollar denominated senior notes at a discount, resulting in a $6 million gain from early extinguishment of debt.

Provision for Income Taxes

Our tax provision differs significantly from the U.S. Federal statutory rate primarily as a result of (i) being subject to income tax in numerous non-US jurisdictions with varying income tax rates, (ii) a valuation allowance established due to forecasted losses in certain jurisdictions and (iii) certain expenses that are not deductible for tax or do not secure an effective deduction in the relevant jurisdiction.

Equity in Earnings (Losses) of Investment in Orbitz Worldwide

Our share of equity in earnings (losses) of investment in Orbitz Worldwide was $10 million for the year ended December 31, 2013 compared to $(74) million for the year ended December 31, 2012. These earnings (losses) reflect our 45% ownership interest (46% ownership in 2012) in Orbitz Worldwide.

 

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Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

 

     Year Ended
December 31,
    Change  

(in $ millions)

   2012     2011     $     %  

Net revenue

   $ 2,002      $ 2,035        (33     (2
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

        

Cost of revenue

     1,191        1,211        (20     (2

Selling, general and administrative

     446        397        49        12   

Depreciation and amortization

     227        227                 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     1,864        1,835        29        2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     138        200        (62     (31

Interest expense, net

     (346     (364     18        5   

Gain on early extinguishment of debt

     6               6        *   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before income taxes and equity in losses of investment in Orbitz Worldwide

     (202     (164     (38     (23

Provision for income taxes

     (23     (29     6        22   

Equity in losses of investment in Orbitz Worldwide

     (74     (18     (56     *   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss from continuing operations

     (299     (211     (88     42   

Loss from discontinued operations, net of tax

            (6     6        *   

Gain from disposal of discontinued operations, net of tax

     7        312        (305     *   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (292   $ 95        (387     *   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

* Not meaningful

Net Revenue

Net revenue is comprised of:

 

     Year Ended
December 31,
     Change  

(in $ millions)

   2012      2011      $     %  

Air

   $ 1,548       $ 1,577         (29     (2

Beyond Air

     326         283         43        15   
  

 

 

    

 

 

    

 

 

   

 

 

 

Travel Commerce Platform

     1,874         1,860         14        1   

Technology Services

     128         175         (47     (26
  

 

 

    

 

 

    

 

 

   

 

 

 

Net revenue

   $ 2,002       $ 2,035         (33     (2
  

 

 

    

 

 

    

 

 

   

 

 

 

For the year ended December 31, 2012, net revenue decreased by $33 million, or 2%, compared to the year ended December 31, 2011. This decrease was driven by a decrease of $47 million, or 26%, in Technology Services revenue, offset by an increase in Travel Commerce Platform revenue of $14 million, or 1%.

As a result of the merger of United Airlines and Continental Airlines, we discontinued servicing the United Airlines reservation system in March 2012 when they migrated to the Continental Airlines system. United Airlines, the surviving airline in the merger between United Airlines and Continental Airlines, remains a full content travel provider on our Travel Commerce Platform. The MSA contributed $27 million and $96 million to our total net revenue, $8 million and $35 million to our Travel Commerce Platform revenue and $19 million and $61 million to our Technology Services revenue for the years ended December 31, 2012 and 2011, respectively. Excluding the impact of the loss of the United Airlines MSA, net revenue would have increased by $36 million, or 2%, with a $41 million, or 2%, increase in Travel Commerce Platform revenue and a $5 million, or 4%, decrease in Technology Services revenue.

 

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Travel Commerce Platform

The table below sets forth Travel Commerce Platform RevPas and Reported Segments:

 

     Year Ended
December 31,
     Change  
     2012      2011     

 

    %  

Travel Commerce Platform RevPas (in $)

   $ 5.40       $ 5.24       $ 0.16        3   

Reported Segments (in millions)

     347         355         (8     (2

The increase in Travel Commerce Platform revenue of $14 million, or 1%, was due to a $43 million, or 15%, increase in Beyond Air revenue, offset by a $29 million, or 2%, decrease in Air revenue. Overall, there was a 3% increase in Travel Commerce Platform RevPas and a 2% decrease in Reported Segments. Excluding the loss of the MSA with United Airlines, Air revenue would have decreased by $2 million. The loss of the MSA with United Airlines did not impact Beyond Air.

Our Travel Commerce Platform continues to benefit from growth in Air revenue and Beyond Air revenue. The value of transactions processed on the Travel Commerce Platform decreased to $85.3 billion for the year ended December 31, 2012 from $85.5 billion for the year ended December 31, 2011. Airline tickets sold decreased to 116 million from 120 million and our percentage of Air segment revenue from away bookings increased to 60% from 58%. We increased our hospitality segments per 100 airline tickets issued to 40 from 38 and we increased our hotel rooms nights sold to 58 million from 57 million, our car rental days sold to 72 million from 68 million and our eNett VANs settled to 3.2 million from 0.1 million.

The table below sets forth Travel Commerce Platform revenue by region:

 

     Year Ended
December 31,
     Change  

(in $ millions)

   2012      2011      $     %  

Asia Pacific

   $ 336       $ 323         13        4   

Europe

     549         535         14        3   

Latin America and Canada

     77         73         4        6   

Middle East and Africa

     270         257         13        5   
  

 

 

    

 

 

    

 

 

   

 

 

 

International

     1,232         1,188         44        4   

United States

     642         672         (30     (5
  

 

 

    

 

 

    

 

 

   

 

 

 

Travel Commerce Platform

   $ 1,874       $ 1,860         14        1   
  

 

 

    

 

 

    

 

 

   

 

 

 

The table below sets forth Reported Segments and RevPas by region:

 

     Segments (in millions)     RevPas (in $)  
     Year Ended
December 31,
     Change     Year Ended
December 31,
     Change  
     2012      2011     

 

    %     2012      2011      $     %  

Asia Pacific

     54         56         (2     (3   $ 6.21       $ 5.80         0.41        7   

Europe

     82         83         (1     (1     6.67         6.44         0.23        4   

Latin America and Canada

     13         11         2        12        6.02         6.37         (0.35     (6

Middle East and Africa

     39         38         1        2        6.98         6.76         0.22        3   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

International

     188         188                       6.55         6.32         0.23        4   

United States

     159         167         (8     (5     4.03         4.02         0.01          
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Travel Commerce Platform

     347         355         (8     (2   $ 5.40       $ 5.24         0.16        3   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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International

Our International Travel Commerce Platform revenue increased $44 million, or 4%, due to a 4% increase in RevPas, with Reported Segments flat. The RevPas increase across the regions is a result of growing our ancillary Air revenue, hospitality and advertising revenue and a significant increase in eNett VANs settled. Our International Travel Commerce Platform revenue as a percentage of total Travel Commerce Platform revenue increased from 64% for the year ended December 31, 2011 to 66% for the year ended December 31, 2012.

Asia Pacific

Revenue in Asia Pacific increased $13 million, or 4%, due to a 7% increase in RevPas, partially offset by 3% decrease in Reported Segments. Reported Segments decreased 3%, or 2 million, primarily due to a 20% decrease in Reported Segments in India, partially offset by volume increases in other countries, including a 7% increase in Australia. The Reported Segment decreases in India in 2012 were primarily a result of the onset of financial and operating difficulties and the ultimate suspension of services of Kingfisher Airlines in October 2012. The 7% increase in RevPas was primarily driven by the change in mix of Reported Segments among our travel providers along with increased revenue from eNett.

Europe

Revenue in Europe increased $14 million, or 3%, due to a 4% increase in RevPas, partially offset by a 1% decrease in Reported Segments. Reported Segments decreased 4% in Western Europe, primarily as a result of the economic situation in Southern Europe driving lower segment volumes in Spain and Portugal. The decline in Western Europe was partially offset by a 20% increase in Reported Segments in Eastern Europe primarily driven by strong volume growth in Russia and the Ukraine. RevPas growth of 4% was driven by an increase in higher yielding away segments and an increase in eNett revenue.

Latin America and Canada

Revenue in Latin America and Canada increased $4 million, or 6%, due to a 12% increase in Reported Segments, partially offset by a 6% decrease in RevPas. Reported Segments increased by 2 million, primarily as a result of the expansion of our distribution network in Canada. The 6% decrease in RevPas was primarily driven by the change in mix of Reported Segments among our travel providers.

Middle East and Africa

Revenue in the Middle East and Africa increased $13 million, or 5%, due to a 3% increase in RevPas and a 2% increase in Reported Segments. The 2% increase in Reported Segments is primarily driven by an increase in volumes in South Africa as we continued our distribution expansion onto the African continent. The volume increases were partially offset by lower volumes in the Middle East. The 3% increase in RevPas is primarily driven by an increase of higher yielding away segments along with the change in mix of Reported Segments among our travel providers.

United States

Revenue in the United States decreased $30 million, or 5%, due to a 5% decrease in Reported Segments, primarily related to the loss of 6 million Reported Segments booked through the United hosting system, which we no longer host as a result of its merger with Continental Airlines. Excluding the impact of the loss of the MSA with United Airlines, revenue in the United States would have decreased by $3 million, or 1%.

 

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Technology Services

Technology Services revenue decreased by $47 million, or 26%, primarily due to a $42 million decrease as a result of the loss of the MSA with United Airlines. The MSA with United contributed $19 million to Technology Services revenue for the year ended December 31, 2012 compared to $61 million in 2011. Excluding the loss of the MSA with United Airlines, Technology Services revenue would have decreased by $5 million, or 4%.

Cost of Revenue

Cost of revenue is comprised of:

 

     Year Ended
December 31,
     Change  

(in $ millions)

   2012      2011      $     %  

Commissions

   $ 919       $ 935         (16     (2

Technology costs

     272         276         (4     (2
  

 

 

    

 

 

    

 

 

   

 

 

 

Cost of revenue

   $ 1,191       $ 1,211         (20     (2
  

 

 

    

 

 

    

 

 

   

 

 

 

Cost of revenue decreased by $20 million, or 2%, as a result of a 2% decrease in commissions paid to travel agencies and NDCs and a 2% decrease in technology costs. The decrease in commissions is primarily due to a 2% decline in Reported Segments, partially offset by a 1% increase in travel distribution cost per Reported Segment along with incremental commission costs for eNett. Commissions include amortization of customer loyalty payments of $62 million in 2012 and $74 million in 2011. Technology costs across the shared infrastructure that runs our Travel Commerce Platform and Technology Services decreased by $4 million, or 2%, reflecting the decline in Technology Services revenue and flat Travel Commerce Platform volumes. Excluding the impact of the loss of the United Airlines MSA, cost of revenue would have decreased by $1 million, or less than 1%.

Selling, General and Administrative (SG&A)

SG&A is comprised of:

 

     Year Ended
December 31,
     Change  

(in $ millions)

   2012      2011      $      %  

Workforce

   $ 285       $ 267         18         7   

Non-Workforce

     71         58         13         22   
  

 

 

    

 

 

    

 

 

    

 

 

 

Sub-total

     356         325         31         10   

Non-core corporate costs

     90         72         18         25   
  

 

 

    

 

 

    

 

 

    

 

 

 

SG&A

   $ 446       $ 397         49         12   
  

 

 

    

 

 

    

 

 

    

 

 

 

SG&A expenses increased by $49 million, or 12%. SG&A expenses for the years ended December 31, 2012 and 2011 include $90 million and $72 million charges, respectively, for non-core corporate costs that are removed from Adjusted EBITDA. Excluding these items, our SG&A expenses increased $31 million, or 10%. Workforce expenses increased $18 million, or 7%, due to (i) a $5 million increase in salaries and wages as a result of a 5% increase in headcount and an increase in merit pay, (ii) a $6 million increase in pension expense and (iii) a $2 million increase in travel costs. Non-Workforce expenses increased by $13 million, or 22%, primarily as a result of an $11 million impact on operating costs from unfavorable foreign exchange movements.

Non-core corporate costs represents costs related to strategic transactions and restructurings, equity-based compensation, legal and related costs, and foreign currency gains (losses) related to our euro denominated debt

 

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and derivatives. Non-core corporate costs increased by $18 million primarily as a result of a $17 million increase in unrealized losses on foreign currency derivative contracts and euro denominated debt.

Depreciation and Amortization

Depreciation and amortization is comprised of:

 

     Year Ended
December 31,
     Change  

(in $ millions)

   2012      2011      $     %  

Depreciation on property and equipment

   $ 145       $ 139         6        4   

Amortization of acquired intangible assets

     82         88         (6     (7
  

 

 

    

 

 

    

 

 

   

 

 

 

Total Depreciation and Amortization

   $ 227       $ 227                  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total depreciation and amortization remained flat at $227 million. Depreciation of property and equipment increased $6 million as a result of increased investment in software and capacity to enhance our Travel Commerce Platform. Amortization of acquired intangible assets decreased by $6 million as useful lives expired on a portion of the assets acquired on the sale of Travelport to Blackstone in 2006 and the acquisition of Worldspan in 2007.

Interest Expense, Net

Interest expense, net, decreased by $18 million, primarily due to the extinguishment of PIK term loans in October 2011.

Gain on Early Extinguishment of Debt

During 2012, we repurchased $26 million of euro and dollar denominated senior notes at a discount, resulting in a $6 million gain from early extinguishment of debt.

Provision for Income Taxes

Our tax provision differs significantly from the US Federal statutory rate primarily as a result of (i) being subject to income tax in numerous non-US jurisdictions with varying income tax rates, (ii) a valuation allowance established due to forecast losses in certain jurisdictions and (iii) certain expenses that are not deductible for tax or do not secure an effective tax deduction in the relevant jurisdiction.

Equity in Losses of Investment in Orbitz Worldwide

We have recorded losses of $74 million and $18 million in relation to our investment in Orbitz Worldwide for the years ended December 31, 2012 and 2011, respectively. These losses reflect our 46% (48% ownership in 2011) ownership interest in Orbitz Worldwide. Orbitz Worldwide recorded an impairment charge on certain of its intangible assets amounting to $321 million and $50 million for the years ended December 31, 2012 and 2011, respectively.

Liquidity and Capital Resources

Our principal sources of liquidity are (i) cash and cash equivalents, (ii) cash flows generated from operations and (iii) borrowings under our revolving credit facility. As of March 31, 2014 and December 31, 2013, 2012 and 2011, our cash and cash equivalents, cash held as collateral and revolving credit facility availability were as follows:

 

     As
of March 31,

2014
     As of December 31,  

(in $ millions)

      2013      2012      2011  

Cash and cash equivalents

   $ 180       $ 154       $ 110       $ 124   

Cash held as collateral

     79         79         137         137   

Revolving credit facility availability

     70         120         98         146   

 

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With the cash and cash equivalents on our consolidated balance sheet, our ability to generate cash from operations and access to our revolving credit facility and other lending sources, we believe we have sufficient liquidity to meet our ongoing needs for at least the next 12 months.

Working Capital

Our cash flows from operations are significantly impacted by revenue derived from, and commissions paid to, travel providers and travel agencies. The end of period balance sheet items related to this activity is referred to as “Trading Working Capital” and consists of accounts receivables and deferred revenue from travel providers and travel agencies, current prepaid travel agency incentive payments and accrued liabilities for commissions. We view Trading Working Capital as a key liquidity measure to understanding our cash sources and uses from operations.

The table below sets out our Trading Working Capital as of March 31, 2014 and December 31, 2013, which is then reconciled to our Working Capital.

 

(in $ millions)

   March 31,
2014
Total Asset
(Liability)
    December 31,
2013
Total Asset

(Liability)
    Change  

Accounts receivable, net

   $ 233      $ 177      $ 56   

Accrued commissions and incentives

     (308     (253     (55

Deferred revenue and prepaid incentives, net

     (17     (10     (7
  

 

 

   

 

 

   

 

 

 

Trading Working Capital

     (92     (86     (6

Cash and cash equivalents

     180        154        26   

Accounts payable and employee related

     (131     (152     21   

Accrued interest

     (87     (73     (14

Current portion of long-term debt

     (96     (45     (51

Taxes

     (8     (8       

Other assets (liabilities), net

     (12     (5     (7
  

 

 

   

 

 

   

 

 

 

Working Capital

   $ (246   $ (215   $ (31
  

 

 

   

 

 

   

 

 

 

Consolidated Balance Sheets:

      

Total current assets

     560        466     

Total current liabilities

     (806     (681  
  

 

 

   

 

 

   

Working Capital

   $ (246   $ (215  
  

 

 

   

 

 

   

As of March 31, 2014, we had a Working Capital net liability of $(246) million, compared to $(215) million as of December 31, 2013, an increase of $31 million. The $31 million increase in net liability is primarily due to a $6 million increase in Trading Working Capital net liability, as described below, with offsetting changes to accounts payable and employee related, accrued interest and other assets and liabilities. Cash and cash equivalents increased by $26 million as discussed in “Cash Flows” and current portion of long-term debt increased due to revolver borrowings of $50 million.

As our business grows and our revenue and corresponding commissions and incentives expenses increase, our receivables and accruals increase. The fluctuations in these balances are the primary contributors to the changes to our Trading Working Capital. As of March 31, 2014 and December 31, 2013, our Trading Working Capital as a percentage of net revenue was (3)%.

 

     March 31,
2014
    December 31,
2013
    Change  

Accounts receivable, net (in $ millions)

     233        177        56   

Accounts receivable, net—Days Sales Outstanding (“DSO”)

     37        38        (1

Trading Working Capital as a percentage of net revenue

     (3 )%      (3 )%   

 

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Substantially all of our Air revenue within our Travel Commerce Platform is collected through the Airline Clearing House (“ACH”) and other similar clearing houses. ACH requires participants to deposit certain balances into their demand deposit accounts by certain deadlines, which facilitates a timely settlement process. For the three months ended March 31, 2014, Air revenue accounts for approximately 78% of our revenue, however, only 53% of our outstanding receivables relate to customers using ACH as of March 31, 2014. The ACH receivables are collected on average in 31 days. Beyond Air revenue is generally not collected through the ACH process and takes longer to collect. Our average net collection period was 37 days of sales outstanding (“DSO”) for total accounts receivable, net at March 31, 2014, as compared to 38 days at December 31, 2013. We pay commissions to travel agencies on varying contractual terms, including payments made on a monthly, quarterly, semi-annual and annual basis.

Our revenue can experience seasonal fluctuations, reflecting seasonal trends for the products and services we offer. Our accounts receivable balance increased by $56 million from December 31, 2013 to March 31, 2014, and our accrued commissions and incentives increased by $55 million from December 31, 2013 to March 31, 2014, reflecting the seasonality in our business. Seasonality trends generally cause our revenue to be higher in the first and second quarters as compared to the third and fourth quarters of the calendar year. Revenue and related cost of revenue typically peaks during these times as travelers plan and book their upcoming spring and summer travel.

The table below sets out our Trading Working Capital as of December 31, 2013 and 2012, which is then reconciled to our Working Capital.

 

(in $ millions)

   2013
Total Asset
(Liability)
    2012
Total Asset
(Liability)
    Change  

Accounts receivable, net

   $ 177      $ 150      $ 27   

Accrued commissions and incentives

     (253     (211     (42

Deferred revenue and prepaid incentives, net

     (10     (11     1   
  

 

 

   

 

 

   

 

 

 

Trading Working Capital

     (86     (72     (14

Cash and cash equivalents

     154        110        44   

Accounts payable and employee related

     (152     (145     (7

Accrued interest

     (73     (69     (4

Current portion of long-term debt

     (45     (38     (7

Taxes

     (8     (12     4   

Other assets (liabilities), net

     (5     (37     32   
  

 

 

   

 

 

   

 

 

 

Working Capital

   $ (215   $ (263   $ 48   
  

 

 

   

 

 

   

 

 

 

Consolidated Balance Sheets:

      

Total current assets

     466        432     

Total current liabilities

     (681     (695  
  

 

 

   

 

 

   

Working Capital

   $ (215   $ (263  
  

 

 

   

 

 

   

As of December 31, 2013, we had a Working Capital net liability of $(215) million, compared to $(263) million as of December 31, 2012, a decrease of $48 million. The $48 million decrease in net liability is primarily due to a $14 million increase in Trading Working Capital net liability activities as described below, offset by a $32 million decrease in other assets (liabilities), net primarily due to the resolution of certain litigation related liabilities and disposal of assets held for sale and a $44 million increase in cash as discussed in “Cash Flows.”

As our business grows and our revenue and corresponding commissions and incentives expenses increase, our receivables and accruals increase. The fluctuations in these balances are the primary contributors to the changes to

 

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our Trading Working Capital. As of December 31, 2013 and 2012, our Trading Working Capital as a percentage of net revenue was (3)%.

 

     December 31,     Change  
     2013     2012    

Accounts receivable, net (in $ millions)

     177        150        (27

Accounts receivable, net—DSO

     38        35        (3

Trading Working Capital as a percentage of net revenue

     (3 )%      (3 )%   

Substantially all of our Air revenue within our Travel Commerce Platform is collected through the ACH and other similar clearing houses. ACH requires participants to deposit certain balances into their demand deposit accounts by certain deadlines, which facilitates a timely settlement process. For the years ended December 31, 2013 and 2012, Air revenue accounted for 76% and 77% of our revenue, respectively, however only 50% of our outstanding receivables were due from customers using ACH. The ACH receivables are collected on average in 31 days. Beyond Air revenue is generally not collected through the ACH process and take a longer period of time to collect. Our average net collection period was 38 DSO for total accounts receivable, net at December 31, 2013, as compared to 35 days at December 31, 2012. The increase in our DSO is primarily due to the growth of our Beyond Air revenue, which along with growth in our Air revenue in the month of December 2013 compared to December 2012, contributed to the increase in our accounts receivable balance.

We pay commissions to travel agencies on varying contractual terms, including payments made on a monthly, quarterly, semi-annual and annual basis. For the year ended December 2013, our commissions increased by $59 million, or 6%, resulting in an increased balance in accrued commissions and incentives of $42 million.

The table below sets out our Trading Working Capital as of December 31, 2012 and 2011, which is then reconciled to our working capital:

 

     2012
Total
Asset
(Liability)
    2011
Total
Asset
(Liability)
    Change  

(in $ millions)

      

Accounts receivable, net

   $ 150      $ 180      $ (30

Accrued commissions and incentives

     (211     (213     2   

Deferred revenue and prepaid incentives

     (11            (11
  

 

 

   

 

 

   

 

 

 

Trading Working Capital

     (72     (33     (39

Cash and cash equivalents

     110        124        (14

Accounts payable and employee related

     (145     (126     (19

Accrued interest

     (69     (71     2   

Current portion of long-term debt

     (38     (50     12   

Taxes

     (12     (38     26   

Other assets (liabilities), net

     (37     (13     (24
  

 

 

   

 

 

   

 

 

 

Working Capital

   $ (263   $ (207   $ (56
  

 

 

   

 

 

   

 

 

 

Consolidated Balance Sheets:

      

Total current assets

     432        428     

Total current liabilities

     (695     (635  
  

 

 

   

 

 

   

Working Capital

   $ (263   $ (207  
  

 

 

   

 

 

   

As of December 31, 2012, we had a Working Capital net liability of $(263) million, compared to $(207) million as of December 31, 2011, an increase of $56 million. The $56 million increase in net liability is primarily due to a $39 million increase in Trading Working Capital net liability activities as described below, a $19 million increase in accounts payable and employee related, a $26 million decrease in taxes due to reclassification of non-current deferred tax assets and a $24 million increase in other assets and liabilities.

 

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As our business grows and our revenue and corresponding commissions and incentives expenses increase, our receivables and accruals increase. The fluctuations in these balances are the primary contributors to the changes to our Trading Working Capital. As of December 31, 2012 and 2011, our Trading Working Capital as a percentage of net revenue was (3)% and (1)%, respectively.

 

     December 31,     Change  
     2012     2011    

Accounts receivable, net (in $ millions)

     150        180        (30

Accounts receivable, net—DSO

     35        40        (5

Trading Working Capital as a percentage of net revenue

     (3 )%      (1 )%   

Substantially all of our Air revenue within our Travel Commerce Platform is collected through the ACH and other similar clearing houses. ACH requires participants to deposit certain balances into their demand deposit accounts by certain deadlines, which facilitates a timely settlement process. For the years ended December 31, 2012 and 2011, Air revenue accounted for 77% and 78% of our revenue, respectively, however only 50% of our outstanding receivables were due from customers using ACH. The ACH receivables are collected on average in 31 days. Beyond Air revenue is generally not collected through the ACH process and take a longer period of time to collect. Our average net collection period was 35 DSO for total accounts receivable, net at December 31, 2012, as compared to 40 days at December 31, 2011. The decrease in our DSO is primarily due improvements in Beyond Air revenue collections in 2012 and the impact of United Airlines cash receipts, which did not clear through ACH.

We pay commissions to travel agencies on varying contractual terms, including payments made on a monthly, quarterly, semi-annual and annual basis. For the year ended December 2012, our commissions costs decreased by $16 million, or 2%, resulting in a decreased balance in accrued commissions and incentives of $2 million.

Cash Flows

The following table summarizes the changes to our cash flows provided by (used in) operating, investing and financing activities for the three months ended March 31, 2014 and 2013 and the years ended December 31, 2013, 2012 and 2011:

 

     Three Months
Ended March 31,
    Year Ended December 31,  

(in $ millions)

     2014         2013         2013         2012         2011    

Cash provided by (used in):

          

Operating activities of continuing operations

   $ 23      $ (21   $ 100      $ 181      $ 124   

Operating activities of discontinued operations

                                 (12

Investing activities

     (36     (23     (96     (89     556   

Financing activities

     39        42        40        (106     (802

Effects of exchange rate changes

                                 5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ 26      $ (2   $ 44      $ (14   $ (129
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

We believe an important measure of our liquidity is Unlevered Adjusted Free Cash Flow. This measure is a useful indicator of our ability to generate cash to meet our liquidity demands. We believe Unlevered Adjusted Free Cash Flow provides investors with an understanding of how assets are performing and measures management’s effectiveness in managing cash. We define Unlevered Adjusted Free Cash Flow as net cash provided by (used in) operating activities of continuing operations, adjusted to remove the impact of interest payments and cash paid for other adjusting items which we believe are unrelated to our ongoing operations and to deduct capital expenditures on property and equipment additions including capital lease repayments. We believe this measure gives management and investors a better understanding of the cash flows generated by our underlying business, as our interest payments are primarily related to the debt incurred in relation to previous business acquisitions, cash paid for other adjusting items are unrelated to the underlying business and our capital expenditures are primarily related to the development of our operating platforms.

 

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Unlevered Adjusted Free Cash Flow is a non-GAAP measure and may not be comparable to similarly named measures used by other companies. This measure should not be considered a measure of liquidity or cash flows from operations as determined under US GAAP. The following table provides a reconciliation of net cash provided by (used in) operating activities of continuing operations to Unlevered Adjusted Free Cash Flow.

We have also supplementally provided as part of this reconciliation, a reconciliation of Adjusted EBITDA, our primary key performance measure, to net cash provided by (used in) operating activities.

 

     Three Months
Ended March 31,
    Year Ended December 31,  

(in $ millions)

     2014         2013         2013         2012         2011    

Adjusted EBITDA

   $ 151      $ 141      $ 517      $ 494      $ 501   

Interest payments

     (57     (88     (273     (232     (267

Tax payments

     (7     (6     (29     (16     (22

Changes in Trading Working Capital

     6        (26     14        39        (38

Changes in accounts payable and employee related

     (21     (12     7        19        23   

Customer loyalty payments

     (26     (12     (78     (47     (65

Defined benefit pension plan funding

                   (3     (27     (17

Changes in other assets and liabilities

     (17     (1     (8     (1     (1

United MSA

                          23        80   

Other adjusting items(1)

     (6     (17     (47     (71     (70
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     23        (21     100        181        124   

Add: other adjusting items(1)

     6        17        47        71        70   

Less: United MSA cash

     —          —          —          (40     (70

Less: capital expenditures on property and equipment additions

     (26     (23     (107     (92     (72

Less: repayment of capital lease obligations

     (7     (4     (20     (16     (14
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted free cash flow

     (4     (31     20        104        38   

Add: interest payments

     57        88        273        232        267   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unlevered Adjusted Free Cash Flow

   $ 53      $ 57      $ 293      $ 336      $ 305   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Other adjusting items relate to payments for costs included within operating income but excluded from Adjusted EBITDA. These include, for the interim periods, (i) $6 million and $13 million of corporate cost payments during the three months ended March 31, 2014 and 2013, respectively, and (ii) $4 million of litigation and related cost payments for the three months ended March 31, 2013. These include, for the annual periods, (i) $24 million, $20 million and $16 million of corporate cost payments during the years ended December 31, 2013, 2012 and 2011, respectively, (ii) $23 million, $28 million and $6 million of litigation and related cost payments during the years ended December 31, 2013, 2012 and 2011, respectively, (iii) $15 million and $21 million payments related to a historical dispute related to a now terminated arrangement with a former distributor in the Middle East during the years ended December 31, 2012 and 2011, respectively, (iv) $7 million and $16 million in payments for the years ended December 31, 2012 and 2011, respectively, in relation to the FASA acquired with the purchase of Worldspan in 2007, and (v) $1 million and $11 million of restructuring related payments made during the years ended December 31, 2012 and 2011, respectively.

Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013

As of March 31, 2014, we had $180 million of cash and cash equivalents, an increase of $26 million compared to December 31, 2013. The following discussion summarizes changes to our cash flows from operating, investing and financing activities for the three months ended March 31, 2014 compared to the three months ended March 31, 2013.

Operating activities: For the three months ended March 31, 2014, cash provided by operating activities was $23 million compared to cash used in operating activities of $21 million for the three months ended March 31, 2013. The increase of $44 million is primarily a result of (i) a $32 million increase in cash from Trading Working Capital in 2014 compared to 2013, (ii) a decrease in interest payments of $31 million in 2014 and