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Executives

Michelle Qi – IR Manager

Min Fan – President and CEO

James Liang – Chairman of the Board

Jane Sun – CFO

Analysts

Richard Ji – Morgan Stanley

Chenyi Lu – Cowen and Company

Aaron Kessler – ThinkEquity

Catherine Leung – Goldman Sachs

Eddie Leung – Merrill Lynch

Alex Yao – Deutsche Bank

Ming Zhao – SIG

Mike Olson – Piper Jaffray

Wendy Huang – RBS

Andy Yeung – Oppenheimer

Fawne Jiang – Brean Murray

Eric Wen – Mirae Assets

Presentation

Ctrip.com International, Ltd. (CTRP) Q1 2011 Earnings Conference Call May 16, 2011 10:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2011 Ctrip.com International Ltd. Earnings Conference Call.

My name is Jeremy and I’ll be your operator for today.

At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions)

I would now like to turn the conference over to Ms. Michelle Qi, IR Manager for Ctrip. Please proceed.

Michelle Qi

Thank you, Jeremy, and thank you for attending Ctrip’s first 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 may during this call 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 statement, except as required under applicable laws.

Min, James and Jane will provide a business update, industry outlook, and financial highlights for the first quarter of 2011, as well as the outlook for the second 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 today on the call. We are glad to report that the Ctrip team has once again delivered the strong results in the first quarter, marking an encouraging start to the year 2011. Our net revenues grew 30% year-over-year and net income grew 23% year-over-year. With the solid execution, Ctrip has further enhanced its strategic partnerships, improved operating efficiency and elevated its customer service level.

The Ctrip team has continued to build the brand’s strength and demonstrate industry leadership. Our hotel [ph] supply network continues to expand to satisfy the growing needs of travelers, reaching approximately 18,000 hotels by the end of March 2011 compared to 10,600 hotels at the same time in 2010. The number of hotels with guaranteed allotment rooms accounted for approximately 75% of the total hotel supply.

We rolled out more options for making hotel reservations to keep for different needs of our customers. For example, Ctrip has launched the most expensive hotel group buying platform in China, with the daily participants reaching over 100 hotels. Our hotel group buying 2.0 platform features the most convenient booking process elevating service levels industry wide. Thanks to the great effort and strong execution on the product of IT, Ctrip has continued to outpace industry growth in the air ticketing sector growing far ahead of the industry average.

For vacation packages, despite fair the uncontrollable events next to the affected [ph] customer sentiment towards travel in the last quarter. Our packaged tour business achieved a healthy growth. The Ctrip team has increased market penetration, strengthened strategic alliance with local partners, enhanced results management and diversified our product offerings. As a result of the long-term successful partnership between Ctrip and China Eastern Airlines, the two companies signed an exclusive corporation agreement and initiate adjunct only first dues [ph] product at special price hotel package that offers FIT travelers only booking discounts through the Ctrip [inaudible].

We believe it will become one of the most portrayed products in the market soon. Working closely with Wing On and ezTravel, we have achieved great synergies in operating efficiency, service network, product development and customer acquisition. As a strong demonstration of the companies combined effectiveness, we’ve successfully outlined and operated our 60 Day Deluxe Group Tour last quarter. The group with a total 31 tourists from Mainland China, Hong Kong and Taiwan visited 13 countries and regions across seven continents including Antarctic and the Artic.

The pioneering product [inaudible] Ctrip’s influence in the great China travel industry. Carrying this success, we will continue to develop more middle to high-end products to meet the increasing demand from the combined market. With wide coverage of hotels and airlines, high service quality and the robust system support, our corporate travel team provides reliable and cost effective services for our clients. Our corporate travel business has achieved strong growth and continued market share gains. We see great potential in this year already and are walking hard to further explore and penetrate market.

According to statistics generated by Ericsson [ph], our main website ctrip.com is the most visited travel website in China. Additionally, we have achieved superior conversion rates as a result of optimized utilization of web traffic. Since the launch of our mobile platform in 2010, our booking volume has increased rapidly. The platform has received the most attention among all peer products. For example, to assist [ph] the iPhone client has generated most comments of all travel booking applications in the Chinese iPhone App Store. In the first quarter, Ctrip released new client versions with additional features to make them more user friendly in planning and booking trips.

Location based service enabled customers to position themselves easily to search for and book nearby hotels, and to post hotel reviews as soon as they have checked in. Users can also find up-to-date flight departure and arrival status reports. With this advanced technology and a high quality execution, Ctrip was elected as one of the top 10 innovative companies in China’s contemporary service industry by China’s Ministry of Commerce.

Following the adoption of our service 2.2 payroll [ph] model, that has revolutionized China travel industry, Ctrip is further upgrading its systems with its perfecting customer service initiative, derived from the manufacturing industries lean management philosophy Ctrip’s perfecting customer service initiative is a customer oriented approach designed to make our customer experience perfect by reducing or eliminating all non-variant [ph] space throughout our operating process such as waiting time effects and rework.

The Ctrip team has implemented the perfecting customer service philosophy in all aspects of operation, covering product developments, process improvements, technology innovation, knowledge and management and marketing and promotions. The ultimate goal is to pursue the art and science to our customer service, with an strong season drive to improve.

With that Ctrip’s call center centric [ph] customer content center that is always only one call away. So the continued efforts of our sales and marketing team, the number of our cumulative active customers increased to 12.7 million by the end of the first quarter of 2011, compared to 9.6 million for the same period in 2010. Following the successful launch of the website, Lvping.com will spin-off the brand and the independent company, inheriting over 12 million hotel reviews, 20,000 travel destinations, 200,000 travel guides and 2 million Q&As generated by Ctrip users.

Lvping.com is dedicated to enabling travelers to plan the perfect trip and to share their travel experience and advices on the best place to visit free and safe. Lvping.com offers a comprehensive platform for authentic travel reviews from travelers and works hard to bring a wide variety of travel of choices and planning features through partnerships with the full range of travel service providers.

Partnering with Dining Secretary, we recently launched a new restaurant reservation channel. The channel enables Ctrip member to search and reserve restaurants efficient by location, cuisine style and budgets in Shanghai and Beijing. While such value-added services Ctrip has built and integrated value chain of transportation, accommodation and dining. In the future, Ctrip will expand the service coverage geographically according to the demand.

As one of the many recognitions of Ctrip’s contribution to the travel industry, Ctrip was named one of China’s exemplary ecommerce enterprises by the Ministry of Commerce for having successfully introduced ecommerce to the traditional travel industry, and for its continuous innovation in operations, products, and the services. Looking ahead, we believe that Ctrip team’s dedication and execution in delivering optimal value to customers and partners will ensure continued market leading pros [ph] in the business.

Now let's turn to James for the industry outlook.

James Liang

Thanks, Min. A recent analysis published by the Boston Consulting Group shows that China will be the second largest travel tourism market by 2013, and the largest by 2020. The report also predicts that China’s domestic travel to grow at an annual rate of 16%. I think Ctrip is very well positioned to capture this very exciting growth opportunity going forward.

Now let me turn to Jane for the financial updates.

Jane Sun

Thanks, James. I’m very pleased to report the solid results for the first quarter 2011. For the first quarter of 2011, net revenues were RMB765 million or USD117 million, representing a 30% increase from the same period in 2010.

Net revenues for the first quarter of 2011 decreased by 3% from the previous quarter, due to the seasonality. In the first quarter, Wing On Travel and ezTravel contributed 7% for the year-on-year growth for net revenues. Hotel reservation revenues amounted to RMB310 million or USD47 million for the first quarter of 2011, representing a 23% increase year-on-year, primarily driven by an increase of 20% in hotel reservation volumes, and an increase of 3% commission per room night year-on-year. Hotel reservation revenues decreased by 14% quarter-on-quarter due to seasonality.

Air ticketing booking revenue for the first quarter of 2011 were RMB326 million or USD50 million, representing a 23% increase year-on-year, primarily driven by a 20% increase in air ticketing sales volume, and a 3% increase in commission per ticket year-on-year. Air ticket booking revenues increased 2% quarter-on-quarter.

Packaged-tour revenues for the first quarter of 2011 were RMB125 million or USD19 million, representing a 74% increase year-on-year, due to the increase of leisure travel volume. Wing On Travel and ezTravel contributed 54% for the year-on-year growth for packaged-tour revenues. Packaged-tour revenues increased 24% quarter-on-quarter, primarily due to the increased travel demand in the first quarter of 2011.

Corporate travel revenues for the first quarter of 2011 were RMB31 million or USD5 million, representing a 20% increase year-on-year, primarily driven by the increased corporate travel demand from business activities. Corporate travel revenues decreased to 12% quarter-on-quarter due to the decreased business activities during the Chinese New Year.

Gross margin was 78% in the first quarter of 2011, remained consistent with that in the same period in 2010 and in the previous quarter. Product development expenses for the first quarter of 2011 increased by 29% to RMB130 million or USD20 million from the same period in 2010, and increased by 8% from the previous quarter, primarily due to an increase in product development personnel and share-based compensation charges. Excluding share-based compensation charges, product development expenses accounted for 14% of net revenues, remained consistent with that in the same period in 2010 and increased from 13% in previous quarter.

Sales and marketing expenses for the first quarter of 2011 increased by 32% to RMB125 million or USD19 million from the same period in 2010, primarily due to the increase in sales and marketing related activities. Sales and marketing expenses for the first quarter of 2011 decreased by 2% from the previous quarter. Excluding share-based compensation charges, sales and marketing expenses accounted for 15% of net revenues, remained consistent with that in the same period in 2010 and in the previous quarter.

General and administrative expenses for the first quarter of 2011 increased by 23% to RMB82 million or USD13 million from the same period in 2010, primarily due to an increase in administrative personnel. General and administrative expenses for the first quarter of 2011 increased by 6% from the previous quarter due to the increase in share-based compensation charges. Excluding share-based compensation charges, general and administrative expenses accounted for 5% of net revenues, remained consistent with that in the same period in 2010 and in the previous quarter.

Income from operations for the first quarter of 2011 was RMB263 million or USD40 million, representing an increase of 34% from the same period in 2010 and a decrease of 10% from the previous quarter. Excluding share-based compensation charges, income from operations was RMB333 million or USD51 million, representing an increase of 28% from the same period in 2010 and an increase of 5% from the previous quarter.

Operating margin was 34% in the first quarter of 2011, compared to 33% in the same period in 2010, and 37% in the previous quarter. Excluding share-based compensation charges, operating margin was 44%, remained consistent with that in the same period in 2010 and decreased from 45% in the previous quarter.

The effective tax rate for the first quarter of 2011 was 21%, increased from 12% in the same period in 2010 primarily due to certain tax benefit granted by the local tax bureau in the first quarter of 2010. The effective tax rate for the first quarter of 2011 increased from 19% in the previous quarter, primarily due to the increase in the amount of non tax-deductible share-based compensation charges as a percentage to our income as a whole.

Net income attributable to Ctrip’s shareholders for the first quarter of 2011 was RMB235 million or USD36 million, representing a 23% increase from the same period in 2010, and a 22% decrease from the previous quarter. Excluding share-based compensation charges, net income attributable to Ctrip’s shareholders was RMB305 million, representing an increase of 20% from the previous quarter in 2010, and a decrease of 16% from previous quarter.

Diluted earnings per ADS were RMB1.54 or USD0.24 for the first quarter of 2011. Excluding share-based compensation charges, diluted earnings per ADS were RMB2.01 or USD0.31 for the first quarter of 2011. As of March 31st, 2011 the balance of cash, restricted cash and short-term investments were RMB3.6 billion or USD546 million.

For the second 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.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from Richard Ji with Morgan Stanley. Please proceed.

Richard Ji – Morgan Stanley

Hi James, Min, and Jane, good morning.

Jane Sun

Good morning.

Min Fan

Good morning.

Richard Ji – Morgan Stanley

Good morning. I have two questions, and let me start with your online initiatives. And we have no history – you have been putting a lot of efforts to ramp-up your online transactions. And so far what percentage of your total transaction comes from online? And going forward and obviously given online platform tends to be lot of more sustainable and what kind of margin impact should we expect, and in particular, recently you have launched the group buying service. And what kind of outlook should we look in this space [ph]? Thank you.

Min Fan

Yes, thanks. For online percentage of our total production, right now our online percentage is close to 40%. You can see this percentage has significantly improved – increased from last year and if you compare two year ago or three years ago, you can see our growth is there.

And regarding the online promotion and online products, the group buying model as you can see on website, we think this can meet quite some – our users’ needs. This can bring supplementary demand to drive up the occupancy rate for some hotels. So I think this model is – can bring some best value to both our hotel partners and the customers.

But still I think the group buying model is still along its early stage, and we will monitor this trend.

Richard Ji – Morgan Stanley

Thank you. Secondly, hello?

Min Fan

Yes.

Jane Sun

Yes.

Richard Ji – Morgan Stanley

Okay, yes secondly, if you look at your 2Q 2011 guidance, and you conservatively guided for roughly 15% to 20% year-on-year growth. And how much of that and when it comes from the impact of high-speed rail route or the sort of the close [ph] to what expectation the impacts?

Jane Sun

Sure. The guidance is prudent for a couple of reasons. First of all, in Q2 of last year, we acquired Wing On Travel. So starting from Q2 this year, we are comparing apples-to-apples. There is no additional percentage from Wing On. That’s the first two reasons.

Secondly, that is due to World Expo is pretty high. It’s hard to quantify but we know last year we had an excellent year due to the fast growing market. Certainly also in Q2, the whole travel industry has suffered from a couple of uncontrollable events such as the earthquake in Japan, and what happened in Africa. So all these elements combined, were the reasons why we gave a prudent guidance as we did.

Richard Ji – Morgan Stanley

Yes, thank you, Jane.

Jane Sun

Sure, thanks.

Operator

Our next question comes from Chenyi Lu with Cowen and Company. Please proceed.

Chenyi Lu – Cowen and Company

Thank you. I have two questions. First, can you give us a view as to the guidance by segment in terms of gross rates? Thank you.

Jane Sun

Sure. Let me walk you through each line item. For hotel business, we forecast the revenue growth will be in the range of 15% to 20%. For air ticket, the volume growth will be around 20% to 25%. Price will be 5% down. On the commission rates, from quarter-over-quarter basis, it’s stabilizing but if you compare on a year-over-year basis, it’s approximately 10% down.

So if you aggregate volume times price times commission rate, we forecast year revenues in somewhere around 5% to 10%. For packaged tour, we’ve forecasted the revenue to grow about 40% to 50%. Corporate travel similar to air. If you add them altogether, total revenue will grow around 15% to 20%.

Chenyi Lu – Cowen and Company

Great, thank you. And then my next question regarding your gross margin. Again you delivered very strong gross margin in the first quarter. I just want to get a view as to where you seeing of the gross margin going forward and if you can please give us the gross margin by segment as well? Thank you.

Jane Sun

Sure. Gross margin conservatively from a long-term perspective somewhere around 75% is very much achievable. In terms of the gross margin by product, air ticket – hotel has the highest gross margin, somewhere around 85% to 90% is achievable. Air ticket has a gross margin about 65% to 70% and packaged tour is a combination of hotel plus air. So it’s gross margins is ranged from 70% to 80%. And corporate travel is close to the air ticket gross margin.

Chenyi Lu – Cowen and Company

Great, thank you. Thank you, Jane.

Jane Sun

Thanks.

Operator

And our next question comes from Aaron Kessler with ThinkEquity. Please proceed.

Aaron Kessler – ThinkEquity

Yes, thank you. I have just a couple of questions, first, can you just expand a little more on the corporate travel, I think your growth was approximately 20% which is a little below in the last few quarters. So if you can just expand there, and then for the travel review side, do you have plans to monetize that for advertiser or what the method you plan to monetize that side? Thank you.

Min Fan

Yes, for corporate travel this quarter, I think why the growth rate is a little bit lower, I think the first reason is last quarter the cost – Q1 [ph] in 2010, our corporate travel delivered very strong growth. So almost close to 100% growth year-over-year. So this will give us a very high comparative base. And secondly, in this Q1, because of the seasonality and also because of some one-time events happened in the world, probably will give the corporate travel some slowdown factors. So I think this is the main reason for our corporate travel growth at a relatively low growth rate.

Aaron Kessler – ThinkEquity

Got it. Thank you.

Jane Sun

And then for the travel side, I think its still in an infant stage. So our team works very hard to make sure the website is very well built, generates lots of traffic, but from a long-term perspective, we do have high hope for the website. The revenue model will be very open, I think advertisement model is one of the model we will adopt, but again I think whether open to test all the good opportunities for this website.

Aaron Kessler – ThinkEquity

All right, and can you give us sense for the tax rates for the remainder of the year?

Jane Sun

For tax rates, 20% to 21% for your model is reasonable.

Aaron Kessler – ThinkEquity

Okay, thank you.

Jane Sun

Thanks.

Operator

Our next question comes from Catherine Leung with Goldman Sachs. Please proceed.

Catherine Leung – Goldman Sachs

Hi, good morning.

Jane Sun

Good morning.

Catherine Leung – Goldman Sachs

I have two questions. My first question is whether you could comment at this moment on the general travel demand trends in the first quarter, other than some of the temporary issues you mentioned on the last call which had affected travel symptoms, do you believe that there was any weakening in the general economic environment? And secondly, if you could comment on your new customer acquisitions, are you seeing more customers coming through from your online or your call center channels? Thank you.

Min Fan

I think for this past quarter, we believe that the Chinese government is taking some right step to balance the GDP growth and inflation rates. And also for the past quarter its usually a slower season for travel industry due to the seasonality such as Chinese New Year and also you can see some especially weather condition happened during the past quarter.

I think for this year, only this year uncontrollable events around the world such as major disasters in Japan, political instabilities in African area, etcetera. This also will affect the macroeconomic situation and also I think normally for the first quarter of the year, it’s a slow season. So we do see the business activities in this quarter is relatively slow and if you compare the airlines passenger data, you can also see this information. And also the year-on-year growth passenger rate this past quarter is – the growth rate is much lower than the same data last year.

But we think as soon as those impacts from one-time events is gone, and the economy in China is growing healthily, China travel industry should get back to the trend of healthy growth.

And regarding the acquisition of the new customers, I think for our multi channels we still looking very efficiently to acquiring new customers, not only offline in our onsite distribution channel, but also in our online platform. So I think the trend is still very healthy for us.

Catherine Leung – Goldman Sachs

Thank you.

Min Fan

Thank you.

Operator

Our next question comes from Eddie Leung with Merrill Lynch. Please proceed.

Eddie Leung – Merrill Lynch

Good morning. Thank you for taking my questions. The first one is about your strategies. We have seemed quite some acquisitions in the past 18 months. Should we expect these trends to continue or should we expect this year would be more like a consolidation year for you guys to integrate the pieces and generate synergy [ph]?

Jane Sun

Eddie, for acquisition strategy, we are very disciplined, although we are very open for all the opportunities in the market and very alert with all the movements, but we have been very focused, unless the acquisition will bring us great synergy or bring us a new expertise that Ctrip currently does not have, normally we will not consider. And in terms of the target, normally we – our target at the leader in the industry. So we are open minded but very prudent in terms of executing our M&A strategy.

Eddie Leung – Merrill Lynch

Got that. And then my second question is on high speed railway. Have you guys thought that to contact [inaudible] railway to talk about whether you can be a distributor of high speed tickets or this is still something that you need to consider in the future but at the moment those are – nothing is done. Thanks.

Min Fan

Of course, we are working very hard to explore M&A [ph] opportunities to provide this service and also we have contacted difference sources and even the government. And I think we think that we would grow our best to have our customers to use high fast train products. And so far I think we are in preparation period so we will definitely try our best to take forward customers needs.

Eddie Leung – Merrill Lynch

Got that. And finally what’s the percentage of cash payment for the quarter? Thank you.

Jane Sun

Eddie, let me clarify the question, cash payment, what do you mean cash payment?

Eddie Leung – Merrill Lynch

I mean non cash like creditors, debtors of mobile payment.

Jane Sun

I see. For our consumer, among 60% to 70% of our customers are using credit cards.

Eddie Leung – Merrill Lynch

Thank you.

Jane Sun

Sure, thanks.

Operator

Our next question comes from Alex Yao with Deutsche Bank. Please proceed.

Alex Yao – Deutsche Bank

Hi, good morning everyone.

Jane Sun

Good morning.

Alex Yao – Deutsche Bank

And congratulations on a good morning. Good morning.

Jane Sun

Thank you.

Alex Yao – Deutsche Bank

I have a question on the group buy business, given that there are already some first movers in the hotel group buying market out there in the market. What’s your strategy to differentiate your group product offerings and how would you elaborate the existing user base and expand usage of this, what’s your long-term view on this business? Thank you very much.

Min Fan

Yes, frankly speaking I think the hotel group buying model has existed quite sometime ago. For example for our – for the FIT tour group unit, is a kind of group buy –hotel group buy model and also it will noted by what way we have our best deal [ph] channel before and in that channel, we have a quite some very deep discount hotel room rates, promote there. It’s also a kind of group buying model. And of course right now the group buying model is quite popular and is somewhat is a kind of fashion for especially among young customers. So for future, although we are not the first one to present this kind of group buying hotel model, but we’ve prepared very carefully and also we try to differentiate Ctrip’s position from other players.

So our hotel group buy products providing we have our own features. First is we not only can provide such group buy hotel selections on our websites. We also can use the group buy model to reserve your hotel checking dates right away. So this is, I should say kind of new initiative we can provide to those price centric customers, to try to checking on specified checking dates. So this is one product we are quite different from others.

And also for the hotel group buy coverage, we are much, much wider than any other players. And you can see on our website, our advertisement is we provide more than 100 hotels per day for group buy selection. So this is also I think is also quite different or quite unique from other players.

And for the long-time trend, I think hotel group buy model is supplementary sales channel and somewhat is a kind of margin channel for those new hotels or for those hotels with a high peak and the low season and try to adjust there occupancy rate. So I think this market is definitely has existed. And we will try our best to locate [ph] for our customer needs and also for our hotel partners needs.

Alex Yao – Deutsche Bank

Got it. Thank you very much.

Min Fan

Thank you.

Operator

Our next question comes from Ming Zhao with SIG. Please proceed.

Ming Zhao – SIG

Well thank you, good morning everyone. Two questions here. First, Jane, in your second quarter guidance, have you predicting some sense about the impacts on the high speed train between Shanghai to Beijing being in use. So that’s the first question. The second question is we saw that Tencent has just invested in eLong, management comments on this event and how you can cope with this? Thank you.

Jane Sun

Okay, I will respond on your first question and our CEO will talk about the second one. Yes, in our guidance we take into consideration of the potential impact of the high speed railway and we will monitor it very carefully. And that all the investment community knows the real impact when it is placed in service.

Min Fan

Yes, I think since eLong is a profit company. So it’s easy for them to seek for strategic investors. And also I think more than one years ago eLong has already get one strategic players, investors that’s called Chen Xiang Group [ph] to invest in eLong and also of course they brought even shares in the open market and also they will try to get more synergy on one of their investment. I think the market is there that if any players in the – any portal and the players in the market want to cooperate with Ctrip or eLong, I think its kind of marketer’s choice. So we will see how the situation will be there in the future.

Ming Zhao – SIG

Well thank you.

Min Fan

Thank you.

Operator

Our next question comes from Mike Olson with Piper Jaffray. Please proceed.

Mike Olson – Piper Jaffray

Hi, thanks good morning. A couple of quick questions. Can you just follow on what you said earlier regarding Wing On Travel? When exactly did the acquisition closed last year? I believe it was late May, is that correct? And then how much did Wing On Travel specifically contribute in Q1?

Jane Sun

For Wing On, we closed in May of last year. In Q1 Wing On and ezTravel contributed approximate to 5% to the total revenue.

Mike Olson – Piper Jaffray

Okay. And then as far as – I appreciate all this detail on Q2 guidance but just one other question, what hotel pricing assumptions that are built in the guidance for Q2 hotel revenue growth of 15% to 20%?

Jane Sun

In the 15% to 20% we assume the main driving force is from volume growth. We assume hotel price is flattish and the commission rate is flattish.

Mike Olson – Piper Jaffray

All right, thanks very much.

Jane Sun

Thanks.

Operator

Our next question comes from Wendy Huang with RBS. Please proceed.

Wendy Huang – RBS

Hi, thanks for taking my question, just some housekeeping questions. First, Jane, well you said that you already took into consideration of the impact from the high speed train in your Q2 guidance, are you talking about the negative impact or positive impact included in your guidance?

Jane Sun

For Q2, I think the high speed railway, were put in place during the end of Q2. So the impact is immaterial for Q2. When this rail services in Q3, now we have a clear vision as to the actual impact and when we give the Q3 guidance, I think it will be more meaningful. But for Q2, the impact should be immaterial.

Wendy Huang – RBS

Okay, but based on your current assessment, do you think there will be positive or negative impact in the medium term?

Jane Sun

Pretty neutral.

Wendy Huang – RBS

Okay.

Jane Sun

Because some of the travelers probably will take train instead of flight. So there is some movements there, but for vacation package in a hotel, hopefully we will pickup some additional revenues due to the high speed rail. So net-net, we assume its very neutral position. But in a long-term, I think if people can access to the most popular tour destinations by any means including high speed railways plus air plus car that is very good for travel industry and Ctrip will benefit from it.

Wendy Huang – RBS

Okay, it sounds like if you have the negative impacts on the air volumes and positive impact on hotel and passenger [ph] volumes. And if this is the case, even that the later gross margin is higher than air. So should we expect this actually to the earnings accretive in the medium term?

Jane Sun

Yes, if the hotel and air – hotel and the package definitely has higher market but I think in terms of the volume shift because this is the first try for the high speed railway, we are very carefully monitoring the progress and will update you accordingly when it’s put in a place.

Wendy Huang – RBS

Okay. I assume the follow-up on your corporate channels, so in essence the Q1 low growth was due to the last year’s more than 100% year-over-year growth but why you are still guiding just a 15% to 20% year-over-year revenue growth from corporate travel in Q2?

Jane Sun

I think last year Q2 number is also very high. So conservatively we guided two different conservative in Q2 as well.

Wendy Huang – RBS

Okay. And next, you mentioned in your prepared remarks that you had some exclusive relationship with Eastern Airlines right now. So do you have any plan to extend that type of the corporation to other airlines?

Min Fan

Yes, in fact we have very good corporation relationship with all the major airlines in China. And for Eastern Airlines, this product is a kind of designed product especially for FIT clients. So I think this product definitely will give us some new try to explore the market and also we will work very hard with other major airlines to promote more products to take forward our customers needs.

Wendy Huang – RBS

Okay, last one, on your tax rate. Jane, you talked about 20% to 25% tax rates for Q2, but Q1 the tax rate is just 17%. So can you explain on that?

Jane Sun

Yes, sure. So a more sustainable tax rate on a GAAP basis is about 20% to 21%. In Q1 we did – of last quarter we had one-time tax benefit from the local tax bureau. So that is on the one-time basis.

Operator

(Operator Instructions) Our next question comes from Andy Yeung with Oppenheimer. Please proceed.

Andy Yeung – Oppenheimer

Hi good morning, thank you for taking my questions.

Jane Sun

Good morning.

Andy Yeung – Oppenheimer

My question is a follow-up question’s regarding the high speed trains. Can you give us some insight in to the percentage of your air travel that's coming from the Beijing-Shanghai route and also your hotel bookings along the Beijing-Shanghai route potentially for the high speed trains?

Jane Sun

For air ticket, in terms of volumes its about 10%. If you take 10%, times the air ticketing volume as a weighting to our overall revenue, that is 4% maximum impact for the Shanghai-Beijing route, assuming everyone on that route takes train. So probably its something below 5% -- below 4%.

Andy Yeung – Oppenheimer

Got it. And how much of your hotel booking right now is along the Beijing-Shanghai route, which potentially could benefit from the high speed train [inaudible].

Jane Sun

That number is hard to convert, because depending on the square miles you get different numbers.

Min Fan

Yes.

Andy Yeung – Oppenheimer

Okay, got it. And then my question is about your geographic footprint right now. Can you give us some sense, what’s the percentage of air ticket, from second and third tier city versus the first tier cities, that will be quite helpful?

Jane Sun

You mean the revenues related between first tier cities versus the second tiered cities?

Andy Yeung – Oppenheimer

That’s right, yes.

Jane Sun

Okay. That number is – we know they targeted [ph] by the departure city. So if you look at people who are departing from the first tier cities, that is still the majority of the traffic volume which accounts probably for 80% because most of the people have to switch flights in the first tier cities including Shanghai, Beijing, Guangzhou [ph].

Andy Yeung – Oppenheimer

Got it. Okay, thank you so much.

Jane Sun

Thanks.

Operator

Our next question comes from Fawne Jiang with Brean Murray. Please proceed. Mr. Jiang with Brean Murray, your mic is now open.

Fawne Jiang – Brean Murray

Hi good morning, thank you for taking my questions. First one is actually regarding the coupon program you offered on your hotel products. Just wondered what’s the percentage of hotels you provide, you have the coupon program associated with it? Also if I understand correctly, the coupon is actually tied to your packaged tour business, just wonder whether it helps you to drive up either your hotel growth or drive up your packaged tour business so far?

Min Fan

For coupon model right now, we have 100 more hotels who can provide these coupon model in our website. But total volume right now is still very small compared to our mainstream production. And also for the in fact, right now for our hotels we provide quite some hotels which provides price hotels, there is coupon issues when you book our hotels in different cities and those customers will receive certain amount of a coupon after they check in the hotels.

So for those part of promotion, I think its kind of one-time promotion so far and we will try to encourage more and more especially new customer to try our service. And we will monitor the situation.

Operator

And our next question comes from Eric Wen with Mirae Assets. Please proceed.

Eric Wen – Mirae Assets

Hi guys, good morning, thanks for taking my questions. I have just a simple question. Jane, as we’re heading to the launch of Beijing-Shanghai routes of high speed rail, do you foresee the airline to pre-intuitively slashing the flight ticket price in order to compete and will that mixing the effect of your business in second quarter? Thanks.

Jane Sun

Sure. I think we and airlines are working very closely to make sure the yield management is well monitored. High speed railway is very good for the travel industry. It provides another alternative for the travelers. So we look forward to it. In terms of the pricing, I think its going to be a supply-demand drive. So airlines were adjusted according to their capacity, according to the volume. We monitored it very carefully but so far we haven't seen any major impact yet.

Eric Wen – Mirae Assets

Okay. My second question is actually a follow-up on [inaudible] question, I am not sure [inaudible] said, is regarding Tencent’s acquisition of eLong, do you see that being anywhere material in any of your business lines in expansion of competitively against you or not? That's second question.

Min Fan

Yes, I think for Ctrip in fact we cooperate with many portals, many big enterprises and also with almost all banks, all airline companies in China. So far I do not see any major impact can be happened if Tencent invests certain 16% of the stakes in eLong and also I think Tencent is a very big company and for travel is a very small segment of its total production. So we will monitor the situation very carefully.

Eric Wen – Mirae Assets

Thank you very much.

Min Fan

Thank you.

Operator

(Operator Instructions) We have a question from Wendy Huang with RBS. Please proceed.

Wendy Huang – RBS

Thanks for taking my follow-up questions. Just one question on your inventories in hotel supplies. When you are launching several initiatives, how can you make sure that your new products will not cannibalize the volumes from your existing mainstream product?

Min Fan

Yes, I think for example if you talk about the coupon model and also if you’re talking about the – some other promotions those promotions we try to target for those price – much price centered customers. Perhaps those very price centered customers lot Ctrip’s user before, so this is one of our initiatives. And for our main stream users, I think normally for those customers they mainly will be on our last service as we will – of course we will try to provide them with a very competitive prices.

So we don’t think those promotions will have some connected impact on our mainstream production.

Wendy Huang – RBS

I guess apart from the group buy that you recently launched, you still have the Star Alliance targeting the low-end hotels and also recently as far as I know you launched a very successful product called [inaudible] hotel which is using paid pricing system which is also targeting the low-end customers and the price centric customers. So can you maybe elaborate a little bit more, how can you just to maintain the balanced relationship among these products?

Min Fan

Yes, I think for customers, for Ctrip most type of customers will think about Ctrip has a middle to high-end service providers and product providers. With the market is growing very fast, we do see that we have the need to also to locate for those price centric customers. So that's why we will try to provide more products to our customers like the coupon models and also for those Ctrip [ph] hotels that gives part of businesses is very small now. Right now its only stake and its very interesting where you book with certain hotels and you will get certain deep discounts. So it’s still in its early stage, we will monitor how we can use this kind of service providing to attract more customers.

Wendy Huang – RBS

Thanks for color. And my second follow-up is your major competitor eLong has already built strategic relationship with SINA [ph] and Tencent so well you consider to maybe tie up with other major internet companies such as SINA to lead reach microblog for example?

Min Fan

Yes, we are open to see any strategic cooperation with any big portals and big companies. So I think this is our strategy for many years. So I think it’s good for the market so we can have more cooperation among this market.

Wendy Huang – RBS

Thank you very much.

Min Fan

Thank you.

Jane Sun

Thank you, Wendy.

Operator

At this time, there are no more questions. And I would like to hand it back to Michelle.

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.

Min Fan

Thank you.

Jane Sun

Bye-bye.

Operator

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.

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