TCOM 携程

Operator

Good day, ladies and gentlemen and welcome to the Quarter Two 2011 Ctrip.com International Limited Earnings Conference Call. My name is Denise and I’ll be your event manager today. Throughout the conference you’ll remain on listen-only (Operator Instructions). We will be accepting audio questions after the presentation. (Operator Instructions) We do ask that you please limit your questions to two questions per analyst. I would like to advise all parties that this conference is being recorded for replay purposes. And now I would now like to hand the presentation over to host for today’s call, Ms. Michelle Qi. Please proceed.

Michelle Qi

Thank you, Denise, and thank you for attending Ctrip’s second quarter 2011 earnings conference call. Joining me today on the call we have Mr. James Liang, Chairman of the Board; Mr. Min Fan, President and Chief Executive Officer; and Ms. Jane Sun, Chief Financial Officer. We meet you on this call to discuss our future outlook and performance, which are forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. 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, James and Jane will provide a business update, industry outlook and financial highlights for the second quarter of 2011, as well as the outlook for the third quarter of 2011. We will also have a Q&A session towards the end of this call. With that, I will turn to Min for our business update

Min Fan

Thanks, Michelle, and thank you to everyone for joining us on the call today. Despite a high comparison base, the Ctrip team delivered strong results in the second quarter. Our net revenues grew 20% year-over-year and net income grew 12% year-over-year. As always, our team worked hard to improve the customer experience in every aspect. We introduced new product to enhance the booking platforms and continued to improve our operation efficiency. Our hotel supply network was expanded to satisfy the growing demand from travelers reaching approximately 19,200 hotels by the end of June 2011 compared to 11,400 hotels at the same time in 2010. The number of hotels with guaranteed loans allotment accounted for approximately 75% of the total hotel supply. The hotel team made a great effort to meet the increasing variety of customer needs and create incremental occupancy rates for hotel partners. The hotel group buying platform has obtained significant market share in the segment since its launch in late April with extensive coverage and solid service offering. Air ticketing business continued to achieve strong results during the second quarter with doubled industry growth through excellent customer services and strong execution. Packaged-tour business achieved healthy growth despite the higher base and net impact of many uncontrollable events. (inaudible) in China suffers disastrous second flood during the second quarter. Globalized the Japanese tsunami has create a nuclear leak. The political instability in Southeast Asia and North Africa impacted tourist sentiment. Our alliance with ezTravel saw a continued success as restriction of Taiwan FIT tours for Mainland tourists were greatly softened. We were one of the first Mainland travel agency to offer Taiwan FIT tour packages. Ctrip travelers enjoyed best coverage of hotels and the best access to other travel resources in Taiwan. The Ctrip team promote new mid to high end leisure travel packages which have received a very enthusiastic response, for example our 66 day global luxury tour package took just 30 seconds to sell out. Our (inaudible) initiative with China East Airlines promoted an earning per yields introduced our customers to the concept of book only and save, this product offers FIT customers up to a 50% discount on one to three month advance booking, the concept that have been programmed on later travelers. Among other owners Ctrip was witnessing some interest by both Consulate Generals of South Korea and Japan National Tourism Organization for our special contribution to tourism in these two countries. Five years after its official launch...

Operator

Sorry for interruption, this is the operator. Can I have your company please? Mr. Martin, this is a live operator, can I have your company name please? Would you please check your mute feature?

Michelle Qi

...and prices as will. This opens up to a large market that currently underserved by a qualified corporate travel management companies. At the end of June we launched corporate travel management system for small and medium enterprises or CTMS for SME. This program enabled SME companies to enjoy the quality and reliable services offered Ctrip and save up to 25% on a travel cost. For those kinds Ctrip would help them take advantage of our nationwide the resorts coverage and to control their travel budget. The Ctrip website demands most of visited and most reliable travel book in website in China. In addition, our mobile platform development has made significant progress with another new kind version released just several weeks ago. Its interactive features attracted considerable interest among users. Features like the ability to use the mobile device to check hotel reviews before booking and to post hotel review after checking. Ctrip’s mobile kind versions were the most downloaded travel booking apps among all similar products and booking volume is increasing respectively. Travel arrangements are way beyond just placing an order for fueling reservations using top tier service is one of our core competencies and the key to our success. For that we initiated the perfect customer services program to ensure the best quality service and experience of travelers. So the ongoing efforts of our sales and marketing team the number of our cumulative customers increased to 13.5 million by the end of the second quarter of 2011 compared to 10.3 million for the same period in 2010. Although last year’s high levels of booking due in part to the Shanghai expo have created a challenging base line, our team will increase the sales and marketing promotions to stimulate the demand and to strengthen future breadth. As a one-stop travel service provider, we always try to offer more travel options for Ctrip member. With the launch of Beijing-Shanghai high speed rail train, we have started to offer high speed train ticketing service. So Ctrip’s train ticketing channel customers in several cities and province can now book nationwide high speed train ticket online in order to continue delivering the best available services. We will increase our geographic range state by state. We recently obtained an insurance agency license from China Insurance Regularity Commission. This enables us to extend our travel related insurance offering. We’re excited to move one step further towards building a one-stop travel insurance service platform. Along with our extraordinary business development, Ctrip has and always endeavor to fulfill its corporate social possibilities implementing the commitments into daily activities. We continued our ongoing support for social values. So our volunteer through our program, caring trip, the company actively organized various events to help people in need. Our employees voluntarily devoted their time delivering the pain and support towards the community including regular visits to our local autistic children caring center. Now joint caring trip has become a great honor for Ctrip employees, their families and friends. Looking ahead, we were still praise utmost important on the quality of our product and the value for customers. Alongside, the development of the China travel market, we have a long way to go. We are pleased with a balance we have achieved between delivering profit and fueling future growth. And we’re at first every possible effort to ensure continue the success. Now, we turn to James for the industrial outlook.

James Jianzhang Liang

Thanks Min. China’s second growth quarter GDP was reported at 9.5% year-over-year exceeding market expectation. We believe the government is making the right adjustments to make – to keep the economic growth healthy and sustainable and are creating a favorable macroeconomic environment for both business and leisure travel. According to recent published by Focus Right China is already the third largest travel market in the world and in a year or two will overtake Japan to become the second largest travel market in the world. As a market leader in this fast growing market, we’re excited about our opportunities and will work hard to fully meet the future challenges and take the advantage of the future opportunities ahead. Now, let me turn to Jane for the financial updates.

Jane Jie Sun

Thanks, James. I’m pleased to report the solid results for the second quarter of 2011. For the second quarter of 2011, net revenues were RMB833 million or US$129 million, representing a 20% increase from the same period in 2010. Net revenues for the second quarter of 2011 increased by 9% from the previous quarter. In the second quarter, Wing On Travel and ezTravel together contributed 4% for the year-on-year growth for net revenues. Hotel reservation revenues amounted to RMB366 million or US$57 million for the second quarter of 2011, representing a 16% increase year-on-year and 18% increase quarter-on-quarter. Primarily driven by an increase in hotel reservation volume. Air ticketing book revenues for the second quarter of 2011 were RMB$347 million or USD64 million. Representing a 13% increase year-on-year primarily due by 21% increase in air ticketing sales volume and partially offset by a 7% decrease in commission per ticket year-on-year. Air ticketing book revenues increased 6% quarter-on-quarter. Packaged tour revenues for the second quarter of 2011 were RMB108 million or USD17 million representing 62% increase year-on-year due to the increase of leisure travel volume. Wing On Travel and ezTravel together contributed 40% for the year-on-year growth for packaged tour revenue. Packaged tour revenue decreased 13% quarter-on-quarter primarily due to seasonality. Corporate travel revenue for the second quarter of 2011 were RMB14 million or USD6 million, representing an 18% increase year-on-year and a 26% increase quarter-on-quarter, primarily driven by the increased corporate travel demand from business activities. Gross margin was 77% in the second quarter of 2011 compared to 78% in the same period in 2010 and in the previous quarter. Product development expenses for the second quarter of 2011 increased by 25% to RMB137 million or USD21 million from the same period in 2010, primarily due to an increase in product development personnel and shared based compensation charges. Product development expenses increased by 5% from the previous quarter, primarily due to an increase in share-based compensation charges. Excluding share-based compensation charges product development expenses accounted for 14% of net revenues, remain consistent with that in the same period in 2010 and in previous quarter. Sales and marketing expenses for the second quarter of 2011 increased by 33% to RMB141 million from the same period in 2010 primarily due to an increase in sales and marketing related activities and an increase in sales and marketing personnel. Sales and marketing expenses for the second quarter of 2011 increased by 13% from the previous quarter, primarily due to an increase in sales and marketing related activities. Excluding share-based compensation charges, sales and marketing expenses accounted for 16% of net revenues increased from 14% in the same period in 2010 and increased from 15% in the previous quarter. General and administrative expenses for the second quarter of 2011 increased 37% to RMB97 million or US$50 million from the same period in 2010, primarily due to an increase in administrative personnel and share-based compensation charges. General and administrative expense for the second quarter of 2011 increased by 18% from the previous quarter primarily due to an increase in shared based compensation charges. Excluding share-based compensation charges, general and administrative expenses accounted for 5% of the net revenues remaining consistent with that in the same period in 2010 and in the previous quarter. Income from operation for the second quarter of 2011 was RMB268 million or USD42 million representing an increase of 4% from the same period in 2010 and an increase of 2% from previous quarter. Excluding share-based compensation charges income from operations was RMB356 million or USD55 million, representing an increase of 13% from the same period in 2010 and an increase of 7% from the previous quarter. Operating margin was 32% in the second quarter of 2011 compared to 37% in the same period in 2010 and 34% in the previous quarter. Excluding share-based compensation charges operating margin was 43%, decrease from 45% in the same period in 2010 and a 44% in the previous quarter. The effective tax rate for the second quarter of 2011 was 16%, decrease from 19% in the same period in 2010 and 21% in the previous quarter primarily due to certain tax benefit granted by the local tax bureau in the second quarter of 2011. Net income attributable to Ctrip’s shareholder for the second quarter of 2011 was RMB264 million or US$41 million, representing a 12% increase from the same period in 2010 and from then previous quarter. Excluding share-based compensation charges, net income attributable to Ctrip’s shareholders was RMB351 million or USD54 million, representing an increase of 20% from the same period in 2010 and an increases of 15% from the previous quarter. Diluted earnings per ADS were RMB1.72 or USD0.27 for the second quarter of 2011. Excluding share-based compensation charges, diluted earnings per ADS were RMB2.29 or USD0.35 for the second quarter of 2011. As of June 30, 2011, the balance of cash, restricted cash and short-term investment was RMB4.1 billion or USD640 million. For the third quarter of 2011, the company expects to continue the net revenue growth year-on-year at a rate of approximately 15% to 20%. This forecast reflects Ctrip’s current and preliminary view, which is subject to change. With that, operator, we are opening the lines for questions.

Operator

(Operator Instructions) Your first question comes from the line of Richard Ji from Morgan Stanley. Please proceed.

Richard Ji

Hi. Good morning, Min, James and Jane. Thanks for taking my call.

Jane Jie Sun

Sure.

Richard Ji

I have two questions and let me start with your top line growth and obviously in the past quarter as well as looking at the guidance for third quarter and we are seeing some top line slow down, especially related to the growth rate of last year. Can you give us a little more color on whether that is due to the high base impact and related to World Expo last year or the competition in the market or an unfortunate a nature incident to happen during previous quarter? And also going forward, when should we expect your top line growth start to re-accelerate?

Jane Jie Sun

Sure. I think the top line growth compared to last year is about 20% for Q2 and we guided at the similar rate for Q3 for couple of reasons. The first reason is last year the World Expo really made the growth rate for the previous year a very high, so the high base is the main reason for the slowdown of the percentage of the growth for current Q2 and Q3. The secondary reason is also last year we acquired Wing On, so in last year’s number we have approximately 5% to 7% contribution from the acquisition, which in this year in particularly in Q3 will not be there. The third reason is also there are non-controllable one-time events that’s going off, particularly, in Q2 I think the Japan tsunami really impacted our vacation package business and also what’s going on in the – around the world. These things we will monitor at and better prepare our team to react to these non-controllable events very swiftly. However, they do impact our year-over-year growth. So, these are the three main reasons for us to give a conservative guidance for Q3.

Richard Ji

Thanks, Jane. My second question is regarding impact upon the high speed railroad and initially we expect some negative impact on your air ticketing business and but what we look at recently, as again – as the recent incident and the air ticketing prices start to come – start to rebound and come back (inaudible) to put price. Can you comment on the air ticketing commission gate now and then going forward and also given that you will sell railway tickets going forward. Should we expect any material revenue contributions from that business?

Jane Jie Sun

Okay, for the high speed rail, I think right now what we can see its impact is very limit to air ticketing business right now and recently the air ticketing – air fare going a little bit, I think it’s can be a kind of normal situation, because right now it’s kind of high season for the summer time and I think in the near future, the high speed rail revenue will contribute very small insignificantly to our total revenue although recently we have already provided the high speed rail ticketing reservations on our Ctrip website and we’ll provide several cities with the high speed rail ticketing service. In the future, I think we will cover more cities to provide with those service to fit for our customers’ needs.

Richard Ji

Yeah. Thank you.

Jane Jie Sun

Thank you.

Operator

And your next question comes from the line of Catherine Leung from Goldman Sachs. Please proceed.

Catherine Leung

Hi, morning.

Jane Jie Sun

Hi, Good morning.

Catherine Leung

My first question is on your sales and marketing activities, could you discuss a little bit where you see increased advertising expenses are going and whether we should expect customer acquisition growth to accelerate in the remainder of the year as a result. And secondly as whether you could walk through some of the mechanics of the high speed rail booking system and how we should think about the margins for this segment? Thank you.

Jane Jie Sun

Okay. So for the first question of sales and marketing, I think despite of the high base from last year our team is prepared to increase our sales and marketing efforts to stimulate the hidden demand, and so far the result is very good. So well, keep it up with the balance of generating more revenue that also maintain cautious and prudent on the investment to return. So we do plan to increase the sales and marketing efforts with a more balanced view. The second one is on the mechanics for the high speed rail, we have opened a channel on our website during the quarter and so far I think it’s very well received. Right now the site is very small, because we only spotted with Shanghai and gradually we will try to develop network similar to air tricking business, make it more convenient for our customers.

Catherine Leung

What are the commission rates that you’re charging for the rail tickets, please?

Jane Jie Sun

The commission rate for each issuance, each ticket issuance, you can charge RMB5 and then for your delivery, you can charge reasonable delivery fee depending on the distance.

Catherine Leung

Okay. Thank you.

Jane Jie Sun

Sure. Thank you.

Operator

And your next question comes from the line of Jin Yoon from Nomura. Please proceed.

Jin Yoon

Hi. Good morning, everyone. Jane –

Jane Jie Sun

Hi.

Jin Yoon

Hi. I think in the past you’ve mentioned that the whole Japan issue, the issues in the Middle East and Egypt has have impacted your travel or travel plans from on your customers. Now that was approximately five, six months ago. The guidance that you provided and the results of we saw tonight, have you seen some of the remnants of that come through now where you’ve seen some of those delayed travels actually kick again? And how do you account for that? If someone actually book a vacation package and decided to cancel, is that a credit on your balance sheet on your liabilities, and do you recoup that when they travel or do you just give their money back?

Jane Jie Sun

Okay. So the first point is the Japan, the impact, yes, it does impact our vacation package. I think Japan, North Korea or these Asian related countries, in the North Asia area accounts for approximately 15% of the total revenue for vacation package, so they do impact our revenue. If there is natural disaster that took place or a refund to the customer and the net-net impact on revenue should be zero.

Jin Yoon

But Jane, have you seen some of those customers now come back because they delay their trip or the fact that we have not so many of those customers come back in the guidance that you gave?

Jane Jie Sun

For Japan, I think the recovery is taking place gradually and slowly. I think if it is just a tsunami, the recovery would be much faster, but now you have a nuclear beak, so people tend to be more cautious going back to the disastrous area. However, what we are hoping is, if the customers who have the ability to spend, they either will go back to Japan in some region or they will change the destination to other region. So, our sales and the market team efforts is intended to stimulate these delayed demands so that they can go somewhere with us.

Jin Yoon

Okay, all right, thank you, Jame.

Jane Jie Sun

Thanks, Jin.

Operator

And your next question comes from the line of Wendy Huang from RBS. Please proceed.

Wendy Huang

Thanks for taking my question, First, Jane can you give us a comprehensive outlook for your Q3 guidance including the ARPU volume for each segment and also the operating margins?

Jane Jie Sun

Sure, for the equity guidance is 15% to 20%. So, let me walk you through each segment. For hotel, the revenue guidance is also somewhere around 15% to 20%, which is mainly driven by the volume growth. We forecast that the commission rate as well as the price remain consistent on the year-over-year basis. For air ticket we’ve forecast that the volume growth is somewhere around 10% to 15% and the price increase is about 5% and the commission rate on the year-over-year basis is flat. And if you add the three elements together the revenue growth will have somewhere around 15% to 20%, and package tour and corporate travel we also forecasted revenue to grow at about 15% to 20%.

Wendy Huang

Okay. Then my second question is although the high speed railway between Shanghai and Beijing was operated for just one month, but it seems that airline ticket price has been very sensitive to the operational condition of high speed railways. So have you seen the airlines adjusting the commission rate based on their ticket price over the past few months and how would you look like, how will you look to commission rate changes for the agencies? Thank you.

Jane Jie Sun

For the air ticketing commission, so far we have seen very stabilized year-over-year commission rate. The airlines is very sensitive to the operation for the high speed railway which is good for our customer. I think is there are two alternatives for customers to chose, the quality for these true service provide will improve going forward.

Wendy Huang

Does that mean that your air tickets commission will be under pressure in the near term given that the air ticket prices are sensitive.

Jane Jie Sun

So far it’s very stable on the year-over-year basis.

Wendy Huang

Okay. By the way for the Q3 outlook, I guess you haven’t provided the operating margin guidance yet?

Jane Jie Sun

Yes. For gross margin I think somewhere around the 75% to 76% is very much achievable. Operating margin before stock compensation at the rate of 40% to 41% is achievable.

Wendy Huang

Okay. Thank you very much.

Jane Jie Sun

Thank you.

Operator

And you next question comes from the line of Yu Jin from CICC. Please proceed.

Yu Jin

Hi. Good morning and thank you for taking my question. I have a quick question on SPC cost difference. Within that in the second quarter, the SPC accounted for around 10% of the net revenue. So I’d like to know – understand how the SPC are attributed such as what percentages through stock options and at what percentage is through restricted shares? Thank you.

Jane Jie Sun

Sure. The SPC remain at fairly consistent percentage of total revenue which is about 10%. The majority as stock options; I think the most of the number related to share based compensation i.e. stock options.

Yu Jin

Okay, thank you. And I have a strategic question on our future strategy. Given that (inaudible) so it seems that online travel players are looking forward some bigger platform to acquire users and traffic. So my question is, do we have any strategic plan to outsize those potential impact and further strengthen our Ctrip ecosystem? Thank you.

Jane Jie Sun

Sure.

Min Fan

Recently, some big hotels they invest in some travel related companies and I think it’s good because they are approaching the market then customer can have more choice and they will – they will then divert to the best service company if they compare among different payers. I think by two Qunar I think Ctrip and Qunar operating differently, we have different business models and while Ctrip is a travel service procurement company and Qunar is more vertical searching engines, which normally will not fulfill orders, so I think the competition methods are not the same. I think for Ctrip our competitive advantage is still centralized standard procurement system with high quality control, which will give most support and more one stop solution to our customers. So I think the competition that is there, but anyhow I think most of the clients will choose one-stop solution to fulfill their booking needs. And for Tansen they invested in Qunar. I think is a model is quite familiar to the Ctrip, I think for (inaudible) we’ll have more comprehensive competition advantage compared with eLong who’ll provide more product lines and I think we have a very good service branding among our customers. So far we don’t see there is any big change in terms of the competition landscape.

Yu Jin

Okay. Thank you.

Jane Jie Sun

Thank you.

Operator

And your next question comes from the line of Eddie Leung from Merrill Lynch. Please proceed.

Eddie Leung

Hi, good morning everyone. Thank you for taking my question. I have a couple of questions. To start with, just I’m just wondering if Jane, can you give us the ASP of hotel and air in the second quarter?

Jane Jie Sun

Sure. ASP is fairly consistent from previous quarter, which is around 450 to 500 range. The air ticket price is similar between 900 to 1,000.

Eddie Leung

Got that. Following that, I have a question Jane, as you mentioned that the commission rate was stable in the second quarter and however, we also see kind of a drop in commission in the second quarter. And then you also mentioned that the ASP count consistent. What’s the reason for the decrease in commission is it because of mix shift to lower price tickets?

Jane Jie Sun

I think if we’re talking about the air ticketing revenue, the volume growth was about 21% compared to the industry growth was only 8%. However, it’s partially offset by the commission per ticket of 7% decrease in commission per ticket. Decrease in commission per ticket is mainly driven by the commission rate decrease from last year to this year. If you remember, Q3 of last year the commission rate decreased and ever since then the rate has been on a quarter-over-quarter basis has been fairly consistent.

Eddie Leung

Got that, very helpful. And then on last question on the – on your online transaction percentage of total.

Jane Jie Sun

It’s exceeding 40%.

Eddie Leung

Thank you.

Jane Jie Sun

Sure.

Operator

And your next question comes from the line of Chenyi Lu from Cowen & Company. pleased proceed. Chenyi Lu – Cowen & Company: All right, great, thank you. I have two questions. First question regarding your gross margin this quarter. This quarter probably is the weakest amount probably over the last six or seven quarters. Can you give us a reason why this quarter is relatively weak and then also can you tell us as to going forward what do you think the gross margin could be?

Jane Jie Sun

Sure. Gross margin last quarter was about 78%, which is very high and this quarter it decreased to modestly by 1% mainly due to the increase in the labor cost. I think in relative terms, our team probably is very well preparing ourselves by establishing the second core center in Nantong, which is outside of Shanghai, but I think the increase in labor cost is impacting every company. We will contract to the extent we can to the best we can. Going forward conservatively I think gross margin somewhat between 75% to 76% is very much achievable and operating margin between 40% to 41% is achievable. Chenyi Lu – Cowen & Company: Okay. So just between the second and third quarter, do you think whom are you think is going to be relatively at senior level compared to the second quarter?

Jane Jie Sun

I think there are positive and negative factors. The positive factor is as our volume is growing stronger, there is more scale we can achieve and efficiency will improve. The negative factors is first labor cost in China is impacting every company. The second thing is also in order to stimulate certain hidden demand, we plan to strengthen our sales and marketing campaign, but we’ll do it in a very disciplined way, so a very consistent margin is still achievable. Chenyi Lu – Cowen & Company: Okay. So given that the this quarter has relative weak gross margin also you planned to spend a little bit more sales marketing, can you give us a view in terms of your operating margin in 2011, also 2012? Thank you.

Jane Jie Sun

2011 last quarter was about 43% in operating margin before stock comp and this quarter is 42%; still maintain a very healthy and high level. Next quarter, I think we forecasted at about 40% to 41%. So for the full year somewhere around, if you takes four quarters average, I think above 40% is very much achievable and going forward that is our goal as well. Chenyi Lu – Cowen & Company: Okay, great. Thank you. Thank you.

Operator

and you next question comes from the line of Alex Yao from Deutsche Bank. Please proceed.

Alex Yao

Good morning everyone and I thank you very for taking my question.

Jane Jie Sun

Good morning.

Alex Yao

I have two questions, the fist one is regarding the sales and marketing strategy, can you elaborate more on the your general sales and marketing strategy, what are main channels you leverage to promote the products and to acquired the new users. And also can you talk about the sales and marketing activities in the second half, how we should think about the financial impact, and also the impact from cooperation between Qunar and Baidu, would that effect your decision to leverage some of the in general the changing of the sales and marketing channel? Thank you.

Jane Jie Sun

I think historically we always take prudent approach to diversify sales and marketing channel to a very balanced level. So if you go to the airport, you’ll see our sales and marketing employees. If you work with big corporations you will also have as a joint alliance with the corporation. And we also run key efforts, radio ads, TV ads, news paper and also online ads. So every channel contribute positively to our sales and marketing effort and we will maintain a very balanced view when we increase our sales and marketing effort. Regarding by Baidu, Qunar alliance I think it’s always our goal to work every supplier and to maximize the investment to return for our sales marketing strategy. So we are very open to work with other players in the market.

Alex Yao

Okay, got it. And second question is regarding the market share. According to some third party research house, the market share of the smaller telco operated call center such as 12580 or 114 is gaining market share in the online travel market. How do you think about the competition from these guys? Thank you.

Jane Jie Sun

Yes, I think in fact (inaudible) is zero, offline players they are not really OTI players and I think the volume from those players, they have some growth but we don’t think those far ahead of other OTIs. I just say the overall the landscape is now changed and as we just said for homeland (inaudible) was due to see very healthy growth and I think for the whole market right now there are more and more players emerging from the market, from industry but in total the whole picture has not changed that much.

Alex Yao

Okay, got it. Thank you very much.

Jane Jie Sun

Thank you.

Unidentified Company Representative

Thank you.

Operator

And from Oppenheimer, your next question comes from the line of Andy Yeung. Please proceed.

Andy Yeung

Hi, good morning. Thank you for taking my questions.

Jane Jie Sun

Good morning.

Andy Yeung

My first question is regarding your group by business. Can you provide some color on some of the use of metrics, perhaps a kind of run rate and also how you currently are comfortable the group by sales in individual segments?

Jane Jie Sun

After we launch our group buying channel, where the site we do see is going where it will and so far we have achieved significant amount of share and I think that for group buying model is one of the supplemental products we offer to help our hotel partners to get incremental margins. Meanwhile, we can drive the needs of price sensitive leisure customers. And for Ctrip we do have quite some hotel coverage quite unique and those hotels they have very good location and also very good price to fit for our customer needs. Also it’s growing well, but I think the market itself is not that big and also the production and the revenue generated from this channel is still very small portion of our total revenue.

Andy Yeung

Just a quick follow-up, so do you count that product sales in your hotel segments and do you only account for the commissions not their whole web sales revenues?

Jane Jie Sun

Yes, the accounting is similar, if we make some commission on the group by product, we only account for the commission part and it’s in on the hotel line, which is very immaterial at this stage.

Andy Yeung

Got it. And my next question is regarding your insurance license. Can you help us understand what these licenses would allow you to do in the insurance – or travel insurance fund and also in a longer run what’s your goal in this business?

Jane Jie Sun

I’ve seen for Ctrip, we definitely need to provide one-stop solution for our customers so among those needs definitely people will tend to pay more above the insurance requirement. So recently we were happy to get the insurance agency license. I think this will – we’ll try to provide more insurance products for customers and we will cooperate with our insurance companies to design relative insurance products for our business travelers as well as leisure travelers. For example, recently we cooperate with one big insurance company to provide those airline delay insurance and marked feedback is very good. So in the near future we will try to provide a few new insurance products to our customers and I think this part of business will be growing very steadily and we will contribute to our total revenue in the near future.

Andy Yeung

Great. Thank you.

Jane Jie Sun

Thank you.

Min Fan

Thank you.

Operator

Your next question comes from the line of Eric Wen from Mirae Asset Management.

Eric Wen

Hi, good morning. Thanks very much for taking my question. I have few questions. First question is Jane, the hotel volume if I remember that during your first quarter guidance you are projecting a pricing increase of about 3% and the second quarter actually we are seeing volume being the biggest driver, well price seems to be flattish in the second quarter. Can you comment on if there is any competitive dynamics that’s changing in the hotel business that lead to – that the pricing seems to be a little bit soft in both second quarter and third quarter? Thanks.

Jane Jie Sun

Sure. I think last year, the price is very high due to the world expo, so for this year, the price to remain to be very consistent with last year. I think the market is still holding at a very healthy level. When we went into the quarter, the number was – some area hotel price was – had some increases, but I think for Shanghai related – nearby Shanghai the prices is, also compared to last year have modest decrease as well. So if you’re net-net every region together, at the end of the quarter the price is very flattish compared to last year.

Eric Wen

Okay. Got it. My second question is a clarification regarding the insurance business. My understanding is that our license right now allows us to sell third party insurance policies. Does it allow us to underwrite our own policies or in the future underwrite our own policies and how far are we to be able do that in the future?

Jane Jie Sun

Yeah. This license will enable Ctrip to work with major insurance companies to design appropriate insurance products for our customers and also will accelerate Ctrip to sale different kind of travel related insurance to our customers. So I think this is very good as a supplementary channel – supplementary service to our customers.

Eric Wen

So do we actually get to keep the premium or we only charge agency commission for selling those policies?

Jane Jie Sun

Yeah, we for this travel insurance company we’re only agency not a –

Unidentified Company Representative

Underwriter? Underwriter.

Jane Jie Sun

We’re not into underwriting.

Eric Wen

Yeah. But do we plan to be a underwriter anytime soon or not?

Jane Jie Sun

No, no.

Min Fan

No.

Eric Wen

Okay. Got you. And my third question is, last question is, the packaged tour business, given that we’ve incorporated Wing On going forward does this have a different business model to our organic packaged tour business, is that going to lead to a lower growth rate than before?

Jane Jie Sun

I think Wing On – we are not the best players in Hong Kong. So in Hong Kong they are very dominant. But Hong Kong market and Mainland China market is very different. I think Mainland China’s GDP growth rate is 9.5% year-over-year; Hong Kong probably is somewhere below 5%. So that determines the growth rate for each player. However, I think Hong Kong is a very strategic region for us to have Wing On regional player will strengthen our presence as was our branding and image and product offerings in the region.

Eric Wen

Thanks, very helpful.

Jane Jie Sun

Thank you.

Operator

Your next question comes from the line of Mike Olson from Piper Jaffray.

Mike Olson

Hi, good morning. Just a couple of questions, is there anything you can say about your acquisition strategy kind of following on the Wing On question, are there additional kind of peripheral markets that you’d like to enter that could come from acquisitions similar to Wing On or ezTravel?

Jane Jie Sun

I think for our acquisition strategy, we have to remain very prudent and very disciplined. I think first target we have is always the tower related business. And normally we look at the leaders in the industry and also we are very discipline financially as to the price we can offer. I think we already took a move into the great China area. So Taiwan we have ezTravel, Hong Kong we have Wing On, that’s very strategic for us. So our first priority is domestic China and the second priority is great China area. And in the next may be three, five years if we move to great Asia area, that’s our third priority, so we have to move very methodically and very prudent with a disciplined approach.

Mike Olson

Okay, thanks for that. And then you mentioned that online was 40% of total transactions in Q2, would you be willing to share your view on what you expect online will be as a percent of transactions in 2012?

Jane Jie Sun

The online portion right now we have a very steady growth in the past years and I think for the year to come we will still work very hard, try to promote more online transactions among our customers and we hope try to reach even higher percentage in the years to come, perhaps several years later we can see half and half can be half of the total production can be generated online.

Mike Olson

Thanks very much.

Min Fan

Thank you.

Jane Jie Sun

Thank you, Mike.

Operator

And your next question comes from the line of Ming Zhao from SIJ.

Ming Zhao

All right, thank you. I have a question about the guidance, Jane. So if you look at your 3Q guidance, you maintained the year-over-year growth at 15% to 20%, but the third quarter actually has a very tougher comparison than the second quarter. So I was wondering why the guidance is not lower than the second quarter given the tough comparison and what make you maintain that steady level?

Jane Jie Sun

Yeah, you are very excellent Ming; yes it’s right, last quarter in Q3 we grew 49% in RMB terms. In USD terms it’s more than 50% year-over-year. So the base is 5 percentage higher than Q2 but our team has put a lot of efforts in making sure we can deliver what we promised in our guidance.

Ming Zhao

Okay. So it’s sounds like the reason is mainly the execution, right?

Jane Jie Sun

Correct, correct.

Ming Zhao

Okay. Thank you.

Jane Jie Sun

Thanks.

Min Fan

Thank you.

Operator

(Operator Instructions) Your next question comes from the line of Wendy Huang from RBS.

Wendy Huang

Thanks for taking my follow-up questions. One is regarding the – your tax rate guidance for Q. I notice there was a cash benefit in Q2, which caused the tax rate to be especially low. So what will be the tax rate look like the remaining of the year?

Jane Jie Sun

I think in Q2 we received certain tax benefit from local tax bureau, but full year model in Q3 and Q4, our tax rate up 21% is the reasonable rate to use.

Wendy Huang

And also historically you received certain government subsidies, which you put in the other incomes. So, whether will you receive this kind of subsidy in 2011?

Jane Jie Sun

Four subsidies the timing and months is high to predict that is why we took a very prudent a conservative approach. We were not to record the subsidy income until we will receive cash. So that is why we normally do not provide any guidance in terms of amounts, timing, it’s not in our control.

Wendy Huang

I see. And finally if I look at your past few quarters, top-line growth is somewhere around 20% and earnings growth actually even dip below 20% for a while, But on the other hand, Jane you actually seems to very confident to achieve the 30% CAGR over the next ten years in the top-line. So when do you think you can regain the growth and accelerate to about 30% level and when can we see you guys to reconnect between this kind of near term growth and long term target and if this is the case, then what should be the trigger for this? Thank you.

Jane Jie Sun

I think prior to Q2 and Q3 of this year our growth rate has always been somewhere around 30% to 50% year-over-year. Q2 and Q3 of this year is just – have a very challenging high based comparison. If you use CAGR calculation, I think we – normally our growth rate has two elements; one is the market development, so how much the natural growth is in market. The second one is through our strong execution how much market share we can gain. So to answer your question, a 30% CAGR rate going forward if the market is healthy and if it is normalized year, our team will give 100% efforts to deliver the results as high as possible.

Wendy Huang

It seems that the recent new products you launched to could be one of those drivers in the long term then when do you except those new business that you launched this year to be become meaningful to top line, will it be as soon as 2012?

Jane Jie Sun

Yeah – I think the reason after 10 years Ctrip still can maintain a strong growth is because every year we think about the new things that we can do and we’re moving to these new product line with very prudent approach. But, it takes some time to nurture – excuse me, to nurture these products. So for example, the train I think we need to develop a network similar to the airlines and we will do it as quickly as possible and also for insurance, I think we just got the lessons, which is positive, but it takes us sometime to develop the product, but I think everything we can do in order to strengthen our customers, users experience and provide one-stop shopping more concept we will give our efforts to develop that platform.

Wendy Huang

Thanks, Jane.

Jane Jie Sun

Thanks.

Operator

(Operator Instructions) Your next question comes from the line of Alex Yao from Deutsche Bank. Please proceed.

Alex Yao

Hi. Thank you very much for taking my follow-up question. Just one very quick follow-up question. What is the exposure to Shanghai and adjacent region hotel booking business? I mean, on the hotel booking revenues, how much in percentage is from Shanghai and adjacent region? Thank you.

Jane Jie Sun

Sure. I think we normally classify first tier versus second tier and third tier. First tier cities include Shanghai, Beijing, Guangzhou, Shenzhen, and currently the revenue contribution for these four cities is somewhere around 40% of the total hotel revenue.

Alex Yao

Got it. Thank you.

Jane Jie Sun

Thanks.

Operator

We have no further questions at this time.

Michelle Qi

Thank you, everyone for joining us on the call today. A replay of the call will be available as usual on the IR website shortly after the call is completed. We appreciate your interest in Ctrip and look forward to convening with you again next quarter. Thank you very much for your time and efforts.

Min Fan

Thank you.

Operator

Thank you for your participation in today’s conference. This concludes the presentation and you may now disconnect. Have a great day.