TCOM 携程

Operator

Welcome to the third quarter 2006 Ctrip.com international earnings call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session toward the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Tracy Cui, Director of Investor Relations. Please proceed, Madam.

Tracy Cui

Thank you for attending Ctrip’s third quarter 2006 conference call. Joining me on the call today, we have Mr. James Liang, Chairman of the Board; Mr. Min Fan, Chief Executive Officer; and Ms. Jane Sun, Chief Financial Officer. We may during this call discuss our future outlooks and performance, which are forward-looking statements made under the Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risk and uncertainty. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in Ctrip’s public filings with the Securities and Exchange Commission. Ctrip does not undertake any obligation to update any forward-looking statements, except as required under applicable law. Min will provide a business update on the third quarter of 2006, James will give an update on our market environment, and then Jane will give the highlights of the financial performance of the third quarter, as well as outlook for the fourth quarter. We will also have a Q&A session towards the end of this call. With that, I will turn to Min for a business update.

Min Fan

I am very pleased to report on yet another solid quarter achieved by our team. In the third quarter, revenues from the hotel reservations grew by 30% year over year. The revenues from air ticketing grew by 73% year over year, and the revenues from packaged tours grew by 97% year over year. All business lines continued healthy growth, due to our strong execution capability and our focus on delivering the best quality of service to our customers. Despite the transition from paper tickets to e-tickets, we were able to deliver another solid growth in air ticketing business. Our team has once again demonstrated the ability to take leadership in a new environment. Our supply network grew to about 4,000 hotels by the end of the third quarter of 2006, compared to about 3,300 hotels during the same period last year, and 3,800 hotels by the end of the previous quarter. The hotels with guaranteed allotment rooms increased to approximately 2,000 in the third quarter of 2006, compared to approximately 1,400 during the same period last year, and about 1,900 by the end of the previous quarter. During the third quarter, we launched a new overseas hotel reservation platform. This platform allows our customers to make convenient and cost-effective selections among over 25,000 hotels globally. This initiative largely improved our capability to serve the growing number of outbound travelers. By the end of September, 2006, we had over 2.3 million cumulative customers, representing an 11% growth over the last quarter. On average, we continued to add approximately 36,000 new customers on a monthly basis during the third quarter, compared to approximately 55,000 new customers per month in the third quarter of 2005, and 67,000 new customers per month in the previous quarter. Our dominant market leader position was further strengthened during the third quarter, demonstrated by the increase in new customers and business volume, as well as gained market share in both hotel and air ticketing sectors. Now, let me turn to James for an update on the market environment.

James Liang

Thank you, Min. We continued to witness strong industry growth in the third quarter of 2006. According to company websites, three major airline’s passenger miles have grown 15% year over year during the third quarter, while we grew 73% year on year, clearly outpacing the industry growth. In the hotel sector, relatively stable average hotel room rates and occupancy [inaudible] remain in the third quarter indicated that the supply of hotel rooms was abundant and the demand grew. Ctrip’s model continues to be an effective platform for surveying the industry players and the customers. E-ticketing has obviously gained momentum in China. However, it still takes a while before people truly adopt the paperless transaction. Our team has worked extremely hard to develop different alternatives for our customers during this transition. We remain confident to realize the e-ticketing growth potential as paperless payment and boarding become more and more popular. Now I will turn to Jane to discuss our financial results.

Jane Sun

Thanks, James. I am very glad to report the strong results for the third fiscal quarter. Our net revenue were RMB 208 million, or $26 million in the third quarter of 2006, representing a growth of 47% year over year and 10% quarter over quarter. Revenues from hotel reservations were RMB 125 million, or $16 million in the third quarter of 2006, up 30% year over year due to higher volume and commission per room, compared to the same period last year, and up 6% quarter over quarter, due to higher volumes of rooms booked, compared to the second quarter. The total number of hotel room nights booked was approximately 1.82 million in the third quarter of 2006, compared to approximately 1.44 million in the same period last year, and 1.7 million in the second quarter of 2006. The average commission per room night increased to RMB 69, or $9 in the third quarter of 2006, from RMB 67, or $8 during the same period last year, and remained consistent with the commission in the previous quarter. The average commission margin on hotel bookings was approximately 15% during the third quarter of 2006, slightly higher than 14% from the previous quarter due to a relatively lower average room rate in the third quarter compared to the previous quarter. The revenue from the air ticketing, were RMB 81 million, or $10 million in the third quarter of 2006, up 73% year over year and 11% quarter over quarter. The total number of air tickets sold in the third quarter of 2006 was approximately 1.72 million, compared to approximately 1.02 million during the same period last year, and 1.49 million in the previous quarter. The average commission per ticket sold was RMB 46, or $6 in the third quarter of 2006, increased from RMB 45, or $6, in the same period last year, and decreased slightly from RMB 47, or $6, in the previous quarter. The average commission rate per ticket sold was 4.4% in the third quarter of 2006, down from 4.6% in the same period last year and 4.9% in the previous quarter, due to higher average ticket price, which included increased fuel surcharges that are not subject to commission during the third quarter of 2006. Revenues from packaged-tours were RMB 13 million, or $2 million, up 97% year over year and 49% quarter over quarter, due to increased FIT packaged-tour adopted. The gross margin was 79% in the third quarter of 2006, compared to 83% for the same period in 2005 and 81% in the previous quarter. This decrease was largely due to the higher cost of services as a result of increased revenue contribution from air ticketing and packaged tours. Product development expenses for the third quarter of 2006 increased by 94% to RMB 27 million, or $3 million, from the same period in 2005, and increased by 11% compared to the previous quarter, primarily due to hiring of additional product development staff. Excluding share-based compensation expenses, product development expenses accounted for 11% of net revenue, remained relatively consistent with 10% in the same period last year and 11% in the previous quarter. Sales and marketing expenses for the third quarter of 2006 increased by 61% to RMB 48 million, or $6 million, from the same period in 2005 and 15% from the previous quarter, primarily due to the hiring of new sales and marketing staff, and additional promotion efforts. Excluding share-based compensation expenses, sales and marketing expenses accounted for 22% of the net revenue, remained consistent with 21% for both the same period last year and the previous quarter. General and administrative expenses for the third quarter of 2006 increased by 141% to RMB 25 million, or $3 million, from the same period in 2005, primarily due to the hiring of additional staff and the incurrence of RMB 8 million, or $1 million, for share-based compensation charges. General and administrative expenses increased by 14% from the previous quarter, primarily due to the hiring of additional staff. Excluding share-based compensation expenses, general and administrative expenses accounted for 8% of the net revenues, remained consistent with 7% for both the same period last year and the previous quarter. Operating income in the third quarter of 2006 was RMB 64 million, or $8 million. Excluding share-based compensation expenses, operating income was RMB 78 million, or $10 million, a 23% increase from the same period last year, and remained flat from the previous quarter. Operating margin was 31% in the third quarter of 2006. Excluding share-based compensation expenses, operating margin was 38% compared to 45% in the third quarter of last year, and 42% in the previous quarter. Net income for the third quarter of 2006 was RMB 65 million, or $8 million. Excluding share-based compensation expenses, net income was RMB 79 million, or $10 million, representing a 20% increase from the same period in 2005, and a 7% increase from the previous quarter. Net margin was 31% in the third quarter of 2006. Net margin was 38%, excluding share-based compensation expenses, compared to 47% in the same period in 2005, and 39% in the second quarter of 2006. The diluted earnings per share were RMB 1.94, or $0.25. Excluding share-based compensation expenses, the diluted earnings per share were RMB 2.36, or $0.30, for the third quarter of 2006. As of September 30, 2006, the cash balance was approximately RMB 766 million, or $97 million, representing approximately 58% of our total assets. For the fourth quarter of 2006, we expect to grow our net revenue at approximately 40% year over year. With that, Operator, please open the line for questions.

Operator

(Operator Instructions) Your first question comes from the line of Safa Rashtchy with Piper Jaffray. Please proceed.

Safa Rashtchy

Thank you, and good morning, everyone. Could you give us a sense of the costs associated with the e-ticket transition? Do you expect these costs to continue, and how long do you think this transition could last? You might have covered it. I might have missed it, but if you could go over it, that would be great. How do you expect this to impact your margins in 2007? I have a quick follow-up.

Jane Sun

Sure, thanks, Safa. The e-ticket transition has provided Ctrip with a lifetime opportunity for us to grab more market share. The Ctrip team is taking advantage of this initiative and we are doing a lot of efforts to educate the market to let people know the experience Ctrip has in the e-ticket initiative and make sure travelers come to our site and we can get more market share. If you look at the Q3 number, our sales and marketing increased by 1% as a percentage of total revenue. We put a lot of PR efforts to let people know how the e-ticket works, how it is going to make travel much easier for travelers. The PR effort is one of the reasons why the sales and marketing costs go up a little bit for this quarter . Also, since e-ticket is a new initiative, many travelers have questions, and when they call our cost center, our staff intentionally spend more time to educate them and to take care of them during this transition. I think this is a one-time opportunity for Ctrip, and Ctrip intentionally invests some more time and efforts during this transition. We expect in Q4 the gross margin is going to be stabilized at about 80%, and operating margin is going to be stabilized at around 40% before stock charges.

Safa Rashtchy

Second, could you give us an update on the corporate travel initiatives? I understand this is still early stages, and the e-ticketing initiative might have caused you to focus more on that, but could you give us an update on where you are and how much return have you seen from that initiative, and what are your goals for that?

Min Fan

Cost to travel right now is still relatively small, and the growth rate is very healthy. We continue to grow the corporate travel business at a very rapid pace during this year. Right now, we are still acquiring some new customers every month, but I think it is more meaningful to check the transition generated by our customers. Right now, we are putting more effort and more separate call center for our corporate traveler business. We think this part of the business will grow bigger and bigger later on.

Safa Rashtchy

Thank you. One last question, if I may. Given the new e-ticket environment, do you think this gives the airlines any advantage or at least an impetus to move faster with their direct-to-consumer initiative? Have you seen any signs of competition from the supplier to go directly to the consumer?

Min Fan

I think that with e-ticketing, both Ctrip and the airlines will benefit from the e-ticketing trend. In fact, we do not feel any real pressure from the airlines. We expect to take more market share from the traditional travel agencies. In fact, our airline companies, they are also working very hard to be more ready to sell their tickets directly from their website, but given the situation right now, I do not think that it is competition from the airline companies.

Safa Rashtchy

Thank you very much.

Operator

Your next question comes from the line of Kit Low with Goldman Sachs. Please proceed.

Kit Low

Good morning, Min. Good morning, James. Thanks for taking my question. A couple of very simple questions, actually. Starting with the air ticketing. In terms of the e-ticketing issue, not so much in terms of interested about where it is going, but I am more interested in trying to see, in terms of the psychological consumer behavior at the moment, do you see that as going to be an issue that would last probably at least two to three quarters, the gap psychological, people to shift over, or do you see that as something that you are seeing tremendous progress already, after having pushed into the program for about two-and-a-half months right now?

Jane Sun

I think when there is transition, it is understandable that consumers will feel a little bit of uneasiness, just like what happened in the United States many years ago when e-ticket first took off. It took more than one year, multiple years for consumers to get used to the paperless concept. China is going to be moving much, much faster, so we expect with the transition, it will probably take the consumers six to nine months to get total comfort with this paperless concept. But as we are putting more efforts educating them, as they personally experience the e-ticket processes, we believe more and more customers will feel more comfortable with this process. It is just the timing. Hopefully, within six to nine months, the whole market will be totally ready. There is no turning back, because the government has made such a determination that by the end of next year, 100% of the tickets will be e-ticketed. I think the trend is very clear.

Kit Low

In terms of the guidance that you just gave, on your margins. You are referring to an operating margin of 40%. I believe that is excluding share-based compensation.

Jane Sun

You are correct.

Kit Low

So in the third quarter, you are at 38%. It looks like you are seeing them go to 40%. The incremental margins expansion comes from operating leverage from the gross margin line? Because you are expanding 100 basis points on the top, and you are expecting product development costs to stay stable. How are you going to get your 300 basis points?

Jane Sun

Based on the current volume, I think the normalized gross margin probably should be somewhere around 80%, and operating margin should be somewhere around 40%. This quarter, it was 1% lower than 80%, just because consumers and travelers have more questions on this e-ticket initiatives, and they have more inquiries, and our staff definitely spend more time trying to explain it to them. So 1% lower than 80% of the gross margin, and that also impacted our operating margin. When you look at 38%, the 2% below 40%, part of it is the gross margin impact and 1% is due to the sales and marketing efforts we put in to educate the market. As time goes on, our team is continuously looking into different ways to improve the efficiency and to improve how we can better address our customers’ questions utilizing our experience. We would expect the margins to be stabilized at around 80%, and operating margin to be stabilized at around 40%.

Kit Low

Okay, great. Just a related question there. Do you expect your product development staff hiring to continue at the pace that you have been doing it, or will you be slowing down after this last four quarters of hiring?

Jane Sun

Our business model is very much a variable cost model. Basically, on a per person basis, you can generate so much revenue. Since we are still in a fast-growing market, and the opportunities presented before us are still great, we really have to capture all the opportunities. Therefore, we expect, as a percentage of total revenue, product development will remain consistent from quarter to quarter.

Kit Low

Great. Thank you so much.

Operator

Your next question comes from the line of Richard Ji with Morgan Stanley. Please proceed.

Richard Ji

I actually have two questions. The first question is regarding your packaged tour sales. Clearly we saw robust growth in that segment. Could you help us understand a little better about the gross margin trend in that business, given that the margin is lower compared with some of your traditional legacy lines? Also, what is the growth outlook going forward?

Jane Sun

Sure. The tour package definitely has enjoyed very rapid growth in the past quarter, because it is our visits to [inaudible]. The gross margin, because tour package is a combination of hotel and airline ticket, so the gross margin, when they reach the normalized volume, it should be in between the hotel gross margin and the air ticket gross margin, so it is a combination of both. In terms of the growth rate, we still expect the growth rate of the FIT package to be 100% year over year growth.

Richard Ji

Very good. The second question is regarding your hotel room sales. We saw some slow growth for the quarter versus last quarter. What do you think this business line is going to accelerate at some point, especially given your marketing efforts to penetrate to the second-tier and the third-tier cities?

Min Fan

For the hotel business, in fact, this year the overall hotel business in first-tier is not so tight as before, but still we are within reach of some quite good results. Starting from this year, we penetrate into second-tier cities, and it turns out quite encouraging. Hotel business among second-tier cities grew even faster than the first-tier cities. Generally speaking, I think the hotel business still will be growing at a similar growth rate.

Richard Ji

Thank you.

Operator

Your next question comes from the line of Jason Brueschke with Citigroup. Please proceed.

Jason Brueschke

Thank you. Let me add my congratulations also on the quarter. I think a lot of the big questions have been asked. Let me ask more of a detailed question. Jane, could you maybe share with us how the e-ticketing volume tracked in July, August, September, and October, so that we can maybe get a sense of although this may be a six- or nine-month psychological fit, as you indicated to Kit, that it is nonetheless the trend and patterns are in the right direction?

Jane Sun

Sure. The e-ticketing really started to take off in June, later June. Then, as of the end of last quarter, 25% of the tickets were e-ticketing. As of Q3 end, 50% of tickets are e-ticketed. As of October, that number has already increased to 70%, since Travel Sky has converted their tickets to 100% e-ticket. That trend is moving very fast. I think definitely the government has made a determination to improve the efficiency of the airline tickets, and that is one of the steps they are taking, to push the e-ticket really fast and move forward. From a consumer side, regardless of if they like it or not, they have to go with this trend. What Ctrip is doing is working very hard to develop different alternatives to take good care of our customers during this transition and make sure they understand that Ctrip is the strongest player in this market. We are very confident that the e-ticket transition, from a long-term perspective, will be very beneficial for Ctrip.

Jason Brueschke

Great, and my final question is just the traditional question on competition. Could you maybe update us -- you mentioned in the prepared remarks, or James did, that you think you extended your lead over your competition. Could you maybe address specifically Mango City? We have had a couple of questions. They know they have been spending quite a bit on sales and marketing -- just how you think they are faring in the market vis-à-vis you guys. Thank you.

James Liang

I think recently, Mango City has quite a burst in marketing campaigns, but I think we always believe that to ultimately win the customers, you need to provide high-quality service and better products to your customers, and the consistency. If a company can deliver very interesting marketing campaigns, but if you cannot deliver very good products and service, and valued products, I do not think it will have success. I think our robust population technology made our product ties and our market share bigger. Right now, there are no indications that Mango City is gaining market share from Ctrip. Still we are gaining more market share from smaller and other players in the market. If you are talking about eLong, I think what we are doing, we are getting more market share from the smaller and traditional players, so we do not think right now those kinds of competition will give Ctrip any big problem.

Jason Brueschke

Great, that is what I expected. Again, congratulations, everyone.

Operator

Your next question comes from the line of William Bean with Deutsche Bank.

William Bao Bean

I just wanted to kick off with the usual housekeeping. Could you just give us for the quarter the percentage of repeat customers?

Jane Sun

Yes, it is about 80%.

William Bao Bean

In terms of sales from the top cities, top five cities?

Jane Sun

Top five cities, for hotels, it is around 50% for the top five cities. For ticketing, it is about 80%, and almost 100% for the tour package. On an overall basis, it is between 60% to 65%.

William Bao Bean

Okay. Just going down, guaranteed allotment bookings?

Jane Sun

Around 75%.

William Bao Bean

Hotel bookings by international customers?

Jane Sun

That is less than 5%.

William Bao Bean

Then, customers added by your brand, or word of mouth?

Jane Sun

Word of mouth, the natural customer is around 35% this quarter.

William Bao Bean

Why did that go up? Any sense?

Jane Sun

I think we put some PR efforts into the market, as we are expanding into the second-tier cities, and that is giving us good results in the natural customer growth.

William Bao Bean

Online transactions?

Jane Sun

About 30%.

William Bao Bean

Finally, outbound tickets as a percentage of total?

Jane Sun

From a volume perspective, it is about 7%, but from a dollar perspective, about 15% for the tickets.

William Bao Bean

Your call center staff?

Jane Sun

I’m sorry?

William Bao Bean

Call center staff?

Jane Sun

Call center staff, about 2,400.

William Bao Bean

Okay. Could you just give us your gross margin for air and hotel? I think you just gave it for the --

Jane Sun

Very consistent, very consistent from previous quarters. It is about 90% for hotels and about 70% for the air ticket. I think we share a lot of costs. Sometimes it is very hard to distinguish these two. We do our best to give the information to our investors so they have a better picture.

William Bao Bean

Okay, and then I was just curious, in terms of the -- are you seeing more business customers come to you post the e-ticketing switch because the pricing on the ticket is now more consistent, paper ticket versus paper receipt? Is that something that you are capitalizing on?

Jane Sun

Your question is do we see more business travelers coming to our site?

William Bao Bean

Yes, with the move to e-ticket, now that the receipts and the face value on the paper tickets, well, now that they are the same on an e-ticket. I mean, is that the major driver?

Jane Sun

Business travelers definitely are still our major customers. They still represent about 80% of the tickets. You are right. I think as it becomes more standard, and the receipt and the face value and the receipt is consistent, I am sure more and more business travelers will feel more comfortable to travel with us. In the old days, people for convenience reasons, there is a reason why they want to visit neighbourhood travel agencies. But now, since the e-ticket, people just need to make a phone call, make a reservation and show up at the airport with their IDs. So who do you want to call? Do you call a small travel agency, or do you call Ctrip with the best branding? I think the choice is very clear for people, and for business travelers particularly. I am sure over time they will choose Ctrip over other travel agencies.

William Bao Bean

Thank you.

Operator

Your next question comes from the line of Ming Zhao with SIG. Please proceed.

Ming Zhao

Thank you. Good morning. A couple of questions. First question, maybe a little bit of detail. I just want to get some color on the margin trend on the air ticket. You said 70% of the ticket already is e-ticket. Of that, what is the percentage of that where the receipt is mailed? I am assuming mailing the receipt would cost much less than you pay for the motorcyclist to deliver the ticket, right?

Jane Sun

Yes, you are correct. You are correct. Obviously, our team has investigated different alternatives that are satisfying to our customer to meet their needs, but on the other hand, it is the most cost-effective for our company. Mailing definitely is one of the new methods we are exploring. Right now, I think it is increasing, the percentage of the total mailing is increasing. In the process, I think it takes some time for our customer to get used to this new method, because a lot of people still would like to use the traditional method. During the process of getting the mail out, we are still required to get the mailing information from our customer, so the initial investment in terms of timing is pretty high. Once you get the correct information -- mailing address, telephone number from the customer, it will be better going forward.

James Liang

Also, I think in the long run, for this kind of receipt will be gone away. We know that the government is buying a lot of check-in machines to be placed in all the major airports. In that way, that will definitely save our costs.

Ming Zhao

You mean we have not seen any trend of that 70% gross margin going up yet? Could we say next year, second-half of next year we are going to see that increasing?

Jane Sun

The e-ticket will help Ctrip to gain more market share in terms of top-line growth, in terms of revenue. For gross margin though, if it is two terms of e-ticket, when people check in with the airlines, the airlines should be able to print out the receipt along with the boarding pass. If that happens, we will be able to eliminate the delivery costs. That would be a good savings for us. However, for the e-ticket, most of the people are going to use credit card, and there is a credit card charge associated with each booking. These two costs ideally will offset each other. From a margin perspective, probably we will not have too much savings in the long run. Maybe a little, marginal savings.

Ming Zhao

Also, on the package tour business, the growth obviously is very tremendous. My question is, I think you have six cities. Is that going to double next year?

James Liang

You mean double the --

Ming Zhao

Double the cities where you are starting --

Min Fan

Yes, next year, we will have more departure cities. This year, still the volume from the small, from the second-tier departure cities, right now the volume is not so big. We are still just committed for our product there, so I think next year definitely will contribute more to our total revenue.

Ming Zhao

So the 100% year-over-year growth surge is mainly the organic growth within the existing cities? Is that correct?

Jane Sun

I think it will be a combination. Definitely, the existing cities are expanding very fast. We are reaching out to more travelers. But on the other hand, our team is also exploring the opportunities to have more departure cities going forward. It is an ongoing process.

Ming Zhao

Final question, still on the ticket. It seems like the third quarter, the ticket volume is bigger, is pretty significantly bigger than previously expected. Is that because your September month had a big jump?

Jane Sun

I think our team has been working really hard to make sure we grasp this opportunity. I think the team has also invented a lot of new methods for our customers, so that they have different choices in terms of receiving their ticket, receiving their receipt. I think those efforts are really paying off, because during this transition, I think a customer really knows who can take good care of them during this transition. Therefore, a lot of customers, we attracted a lot of potential customers originally who did not want to come to us. I think the hard work our team has put in has paid off.

Ming Zhao

Thank you. Good quarter.

Jane Sun

Hello? Operator?

Ming Zhao

Is this still on?

Jane Sun

Yes.

Ming Zhao

There seems to be some technology issue, so maybe I will ask some more questions, just to take advantage of this thing. I want to get a broad view on what we would expect the year-over-year growth next year and in 2008. Is there any color on that?

Jane Sun

Our team right now is going through the end-year process for the 2007 forecast. We will be able to provide you with 2007 forecast by the end of the year.

Ming Zhao

Okay. Also, the other thing is, the Home Inn has just launched its IPO, and there are more economy hotels emerging in China. I believe they have the ability to book hotels themselves. Do you see the direct booking will hurt your hotel business? What is the percentage of your hotel business from that budget hotel chain?

Min Fan

As you know, our main customers are business travelers, so the low budget hotels, we do provide booking service to our clients, but this portion is relatively not so big. It is quite small. For example, for Home Inn, we can say it is still insignificant compared to our overall hotel room nights booked every month. The hotel marketing channel right now is very fragmented, and still those kinds of budget or economy hotel groups are not strong. Home Inn is the leading one in China. We do see the trend that those kind of budget hotel groups will be growing bigger and bigger. Also, we think we will see, we will put more of their products within our hotel booking pool to create further demand of our customers.

Ming Zhao

I guess the same question on this industry value chain. Recently, we have heard Xinjiang Airline and also Air China, they have deployed some new technology to let people book their tickets directly, connecting the call center to the -- my question is, do you see that more active behavior from the airline carriers will eventually make your growth slower?

Min Fan

Yes, right now the airline companies, they are working very hard to update their booking call center and also to make their website more efficient. We do see more volume, generally, from those sites, or their call centers. But if you are talking about the overall market, those parts of production is still very small. I think one of the major reasons is with only one airline company for those frequent fliers is not enough. At least with Xinjiang Airlines, the coverage is not so wide. We do see the trend there, but I think for Ctrip we have more advantage to provide qualified service to our customers, especially for those frequent business travelers.

Ming Zhao

Thank you, guys, very much. I do not have any questions.

Jane Sun

Thank you. Is the operator on?

Operator

Yes, ma’am.

Jane Sun

Great.

Operator

Your next question comes from the line of Lin Chi with Lehman Brothers. Please proceed. Lin Chi – Lehman Brothers: Good morning. This is Lin on behalf of Lu Sun. We have a question on e-ticketing. Can you give us the month-to-month growth trend going into the fourth quarter, especially after Travel Sky completed its system upgrade?

Jane Sun

I think the trend is very much in line with our expectations. Obviously we are still in the process of Q4, so Q4 it is hard for us to do any comment yet. But definitely I think the impact of the e-ticket transition will have less impact in Q4 than it did in the previous quarter. Lin Chi – Lehman Brothers: I also noticed that you have a commission in percentage terms, it came down a bit from last year and last quarter. Does it have any indication that after the e-ticketing transition, the airline might cap the commission paid to agents?

Jane Sun

No, not really. I think the normal range for a ticket based on our current volume is about 4.5% to 5%. This quarter, because the fuel surcharge increased quite a lot, that is the reason why you see our overall ticket price, it is about 4.4%. But if you take out the fuel surcharge, the commission rate is still within the range at about 4.6%. So I think it is still pretty normal. Lin Chi – Lehman Brothers: Okay, great. For your packaged tours, we understand last quarter you did quite the promotion. For the strong growth in this quarter, how do you interpret this growth? Where does it come from? Is it mainly the legacy from the promotion over the last quarter, or is it organic growth?

Min Fan

I think for the promotion of last quarter, it does have some contribution to our overall production, but our organic growth is most of the production. We will see this quarter the growth is very rapid, and mainly because of our good product and better service. Lin Chi – Lehman Brothers: Okay, that is great. Thank you.

Operator

Your next question comes from the line of Ashish Thadhani with Gilford Securities. Please proceed. Ashish Thadhani - Gilford Securities: Good morning. Given that the market is still very under penetrated, would it be reasonable to expect the current growth trajectory to continue for the foreseeable future? One asks only because there has been some reference to the law of large numbers in recent times. Just a broad take on what you might expect over the intermediate term?

Jane Sun

In China, the GDP is growing still very strongly, and the travel industry, among all of the industries, is also growing at double-digits every year. Ctrip definitely is a very strong player in the travel industry, so as long as the economy is growing, the travel industry is growing, the Ctrip team is very strong in execution and also very strong in capitalizing these opportunities. We expect for the long-term, Ctrip is a fast-growing company going forward still. Ashish Thadhani - Gilford Securities: Right, and no particular reasons to see any deviation from recent trends, right?

Jane Sun

From our visibility, for everything we can control, we control very well. As long as the economy grows strongly, the industry is still growing at a faster pace. We do not see any trend otherwise. But obviously, there are uncontrollable events that we have no control of, those kinds of things nobody can predict and nobody can really control very well. But for everything else, I think our team is very much ready. Ashish Thadhani - Gilford Securities: Understood. The customer adds per month rose I believe more than 40% year on year, which represents a significant acceleration from recent periods. Was there any overriding reason for this jump?

Jane Sun

Customer adds, what did you mean? Ashish Thadhani - Gilford Securities: The customer additions per month was 76,000. Is that right?

Jane Sun

Yes. Ashish Thadhani - Gilford Securities: And if we compare the year-on-year trends, typically it has been rising roughly about 30% to 35% at best.

Min Fan

I think, among those new customers, some portion are generally from our leisure products, that means our packaged tour business. Right now, our packaged tour business, the new customer is quite similar to those kinds of users, the new users who did not use our hotel booking or airline tickets before, maybe those kind of travelers, they have their own travel agency before. But some of them will tend to use our leisure products. This is one small reason. I think most, a big contribution was still from our co-branding channel and our direct sales channel. Ashish Thadhani - Gilford Securities: Very good. Finally, for modeling purposes, what kind of tax range can we expect during the next couple of years? Also, are you expecting any meaningful government subsidies in the December quarter?

Jane Sun

Right now, our team is going through our annual planning process, so at the end of the year, we will be able to provide you with prudent guidance in terms of tax rates as well as the government subsidy. I think the government still is finalizing their policy for the next year, so we will wait until we have all of the information ready and give you prudent guidance at the end of the year. Ashish Thadhani - Gilford Securities: Thank you very much.

Jane Sun

It looks like there is a technical issue again from the operator. Operator? Yes. Given that it is already 10:00, let’s wait for a couple of minutes. If the operator doesn’t come back, we probably have to conclude this call. Let’s wait for another couple of minutes. I think we are still on the line. We have to conclude at this time. Hello everyone, I apologize for this technical issue. We cannot take your call and the operator doesn’t seem to come back. Therefore, we will conclude this call. If you have any questions, please call us back or email us and we will be more than happy to answer your questions. Thank you.