Ctrip on Track to Beat 3Q10 Guidance

Chinese travel-booking company Ctrip (CTRP) recently reported solid 2Q10 results and strong guidance for 3Q10. Data from the airline industry and the city of Shanghai have indicated strong growth momentum for Ctrip in July 2010. I believe Ctrip is on track to surpass its guidance of 25% Y/Y increase in air-ticketing volume in 3Q10, 25%-30% growth in hotel-booking volume, and 35%-40% Y/Y increase in overall revenue. "A rising tide lifts all boats." I forecast strong growth in China's overall travel volume will help Ctrip overcome challenges posed by less important factors such as air-ticketing commission cuts and high-speed rail's substitution effect on airlines. Detailed data and analysis are as follows:

Based on official data from Civil Aviation Administration of China (CAAC), total number of China's air passengers rose 21% year-over-year (17% month-over-month) to 25.47 million in July 2010. Domestic passengers increased 20% Y/Y (35% M/M) to 23.71 million. International passengers rose 44% Y/Y (13% M/M) to 1.76 million (Chart 1).

Based on data from TravelSky, the leading provider of IT solutions for China's airline industry, total number of China's air passengers rose 22% Y/Y (17% M/M) to 26.73 million in July. Domestic passengers increased 20% Y/Y (17% M/M) to 23.85 million. International passengers rose 43% Y/Y (16% M/M) to 2.88 million (Chart 2). These data points have indicated strong growth momentum of travel activities in China. I believe Ctrip's air-ticketing volume in July has grown faster than the overall passenger growth of 21% because it has been gaining market share against air-ticketing industry peers. I believe Ctrip is on track to surpass its guidance of 25% Y/Y increase in air-ticketing volume in 3Q10.

Based on official data from Shanghai World Expo, total number of visitors to this mega event have reached 44.1 million from May 1 to August 23, with daily traffic reaching a new high of 568.3K on August 21 (Chart 3). According to various news reports, the "World Expo Fever" has resulted in significantly higher pricing and occupancy rates for hotels in Shanghai as compared to one-year ago.

According to Sina News, some travel groups to Shanghai even had to arrange logding in cities outside of Shanghai because of the scarcity of low-to-medium-level hotel rooms in the city. Based on my estimates, Shanghai-related business has historically accounted for over 15% of Ctrip's total revenues. Therefore, the Shanghai World Expo (May 1 to October 31) has clearly benefited Ctrip a lot in Q2 and Q3. I believe Ctrip is on track to surpass its guidance of 25%-30% growth in hotel-booking volume in 3Q10.

Chart 1: CAAC Air Passenger Data