Trip.com Group Limited (TCOM) Q1 2008 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to the First Quarter 2008 Ctrip.com International, Ltd Earnings Conference Call. My name is Emisy and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. [Operator Instructions]. I would now like to turn the presentation over to your host for today's call Ms. Tracy, Director of Investor Relations. Please proceed Ma'am.

Thank you for joining Ctrip first quarter 2008 earnings call. Joining me on the call today, we have Mr. James Liang, Chairman of the Board; Mr. Min Fan, Chief Executive officer and Mr. Jane Jie Sun, Chief Financial Officer. We may during this call discuss our future outlook and performance which are forward-looking statements made under Safe Harbor provision of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risk and uncertainties. As such our results may be materially different from the views expressed today. And the potential risk 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 business update, industry outlook and the financial highlights for the first quarter of 2008 as well as the outlook for the second quarter. We will also have a Q&A session towards the end of this call. With that I will turn to Min for business update. Min Fan – Chief Executive Officer: Thanks Tracy and thank you to everyone for joining us today on the call. I am very glad to report as strong quarter of Ctrip at the beginning of 2008. In the first quarter of 2008, we encountered a severe weather change in our history and this heavily impacted the industry for both business and leisure travel. Our team worked very hard to reach out to our customers and provide timely support during the snow storms. We strived to deliver a strong Q1 result with a revenue growth at 47% year-over-year. Despite the bad weather, our hotel grew at 28% year-over-year business outpaced market and grew at 68% year-over-year, and packaged-tour business grew at 67% year-over-year. Thanks to the efforts from all our employees, we continued on gaining more and more market share in this challenging environment. Our hotel supply network continued to expand at a rapid pace with approximately 6400 hotels by the end of March 2008, compared to approximately 4900 by the same period last year. A number of hotels which guaranteed allotment of rooms further increased to more than 60% of the total supply. Airline industry had a challenging quarter in Q1 by providing excellent customer service. We have done a very good job to gain market share and reached a record high in terms of tickets sold in this quarter. By the first quarter of 2008, the number of active cumulative customers reached to 4.5 million compared to 3 million by the same period of last year. We have initiated an intensive customer relations management program targeting to improve our customer communication efficiencies and the customer experience. We're very excited that Ctrip was awarded the honor of famous Chinese trademark by the Trademark Office of China in March. Ctrip is the only brand that's awarded with such an honor in China's online travel service industry and one of only three in the Chinese Internet sector. This award represents Ctrip’s outstanding reputation in the industry and wide recognition of our high quality travel services. The May holiday week has been replaced by a three-day weekend starting 2008. In line of this change, we took the initiative to enhance our shortened… our short distance and long weekend packages. Although the change in May holiday week might cause short-term incomparability from prior year numbers, we are optimistic that our long-term later travel demand will continue to rise as the people's income level increases and practice of paid vacation days is gradually in force by the government. As a part of our ongoing effort to bring us closer to our customers we have established a customer experience center at 70 airports in China. These centers will enable us to back present our products, demonstrate our service capabilities and interact with our customers face-to-face. Overall, we remained to be optimistic with our growth from a long-term perspective. Despite the short-term market trend, we're well positioned to further grow our market share. We will continue to focus on our execution and deliver our promise to shareholders. Now I will turn to James for industry outlook. James Jianzhang Liang - Chairman of the Board Thanks Min. I'm pleased that Ctrip has once again demonstrated its ability to cope with the challenging market conditions. We believe Ctrip has a proven track record of winning through difficult times with strong executions. We always view our temporary slowdown as an opportunity. Our superior customer services and increasing brand recognition will enable us to gain market share at a faster pace. Although we see the indications that the travel market has shown a slower growth compared to 2007, we believe that short-term events will not change the fundamentals of the economy and the growth of travel industry in China. Based on the survey by the World Travel Organization, China is going to be the number one inbound and outbound tourist country by 2020. Particularly, the growth of outbound travel is going to be further propelled by the appreciation of RMB. Ctrip is best positioned to grab all opportunities ahead of us and to build a leading travel company in the world. Now let me turn to Jane for update on our financial performance.

Thanks, James. I'm very pleased to report the solid results for the first quarter of 2008. The first quarter is normally the slowest quarter in the year for business travelers and this year it was even tougher. Despite the challenges from the external market, our net revenues reached RMB 340 million for the first quarter of 2008, representing a growth rate of 47% year-over-year. Revenues from hotel reservations were RMB 171 million or $24 million in the first quarter of 2008, up 28% year-over-year primarily due to the increased volume of room nights, and down 13% quarter-over-quarter due to the decreased hotel booking volumes during the Chinese New Year’s holiday. Revenues from air ticketing reached another record of RMB 159 million or $23 million in the first quarter of 2008, up 68% year-over-year and 3% quarter-over-quarter, primarily due to the increased ticket volume. Revenues from packaged tours were RMB 27 million or $4 million in the first quarter of 2008, up 67% from the same period last year and 22% from the previous quarter, primarily due to the increased leisure travel volume in Q1 of 2008. The gross margin was 80% in the first quarter of 2008, remaining relatively consistent with 79% for the same period in 2007 and 81% in the previous quarter. Product development expenses for the first quarter of 2008 increased by 57% to RMB 54 million or $8 million from the same period in 2007, primarily due to the increase of product development personnel resources. Product development expenses remained relatively consistent with the fourth quarter of 2007. Excluding share-based compensation charges, product development expenses accounted for 13% of net revenues, remaining consistent with the same period last year and the previous quarter. Sales and marketing expenses for the first quarter of 2008 increased by 36% to RMB 66 million or $9 million from the same period in 2007 primarily due to the increase of sales and marketing personnel resources. Sales and marketing expenses decreased 9% from the previous quarter primarily due to the decrease in advertisement and other sales and marketing activities. Excluding share-based compensation charges, sales and marketing expenses accounted for 18% of the net revenue, a decrease from 20% in the same period last year and 19% in the previous quarter. General and administrative expenses for the first quarter of 2008 increased by 42% to RMB 43 million or $6 million from the same period in 2007 and increased by 17 million from the previous quarter primarily due to the increase of personnel resources and share-based compensation charges. Excluding share-based compensation charges, general and administrative expenses accounted for 7% of the net revenues, a decrease from 8% for the same period last year and are relatively consistent with the previous quarter. Income from operations for the first quarter of 2008 was RMB 110 million or $16 million, which represented a 55% increase from the same period in 2007 and a 13% decrease from the previous quarter. Excluding share-based compensation charges, income from operations with RMB were 144 million representing a 60% increase from the same period in 2007 and a 4% decrease from the previous quarter. Operating margin was 32% in the first quarter of 2008 compared to 31% in the first quarter of 2007 and 46% in the previous quarter. Excluding share-based compensation charges, operating margin was 42% compared to 39% in the first quarter of 2007 and was relatively consistent with the previous quarter. Net income for the first quarter of 2008 was RMB 99 million or $14 million, representing a 52% increase from the same period in 2007 and a 27% decrease from the previous quarter. Excluding share-based compensation charges, net income was RMB 132 million or $19 million representing a 58% increase from the same period in 2007 and a 16% decrease from the previous quarter. The effective tax rates for the first quarter of 2008 was 28% as compared to 16% in the same period of 2007, and 7% in the previous quarter, primarily due to the application of a new statutory tax rate of 25% under the new EIP law effective on January 1, 2008 and the increase of share-based compensation which is non-tax deductible. The diluted earnings per ADS were RMB 1.43 or $0.20. Excluding shared base compensation charges the diluted earnings per ADS were RMB 1.92 or $0.27 for the first quarter of 2008. As of March 31, 2008 the balance of cash and short-term investment was RMB 1.2 billion or $178 million. The balance of cash and short-term investment accounted for more than 50% of the total assets as of March 31, 2008. For the second quarter of 2008, the company expects to continue a year-on-year net revenue growth at approximately 30%. With that operator please open the line for questions. Operator, we are ready for questions. Operator? Question and Answer

[Operator Instructions]. And your first question comes from the line of Jenny Wu with Morgan Stanley. Please proceed.

Hi James, Jane and Min. I have two questions. Number one, would you please give us some guidelines on the performance of second quarter giving the earthquake and the shorter labor holidays and the tough air traffic in 2Q so far? Thank you.

Sure, we're still in the second quarter, so we don't know the full pictures until we close the quarter. However, we can give you some feeding as to the earth quake impact. The whole country right now is focusing on the relief efforts. So, from a supply side airlines are giving priorities to the rescue teams and rescue foods to transport as much products to the Sichuan Province in order to rescue people and also to give relief to the people who are impacted by the disaster. From a travel viewer's perspective, they are discouraging people from traveling into the Sichuan Province right now in order not to interfere with the rescue efforts. So, with that the market sentiment right now probably for travelers if they do not have to travel they will reduce their travel volume. So, that is why we give a guidance of 30% in anticipation of potential impact by the earthquake.

Okay. Thank you. And Jane, what's the revenue contribution from Sichuan Province for Ctrip?

The revenue contribution for Sichuan Province is sizeable. It's not significant... it's not significant, it's below 10%. But I think the real important factor we need to consider is a similar situation for snowstorm. The direct impact from the cancellation during the snowstorm was limited. However, the snowstorm created a market sentiment and therefore after the snowstorm was relatively slow. If you look at the airline loading data in March, the airlines only grew about 6% as compared to 15% last year. So our... the potential impact from the earthquake on the overall market can be significant.

Okay. Thank you. My second question is regarding the Olympics Games, obviously it's a big event this year also. And we've heard that the government may give some possible traffic control during the period. Do you have any update on this and also or any update on the impact of your business. Thank you?

I think from the long-term perspective Olympic Games, definitely a great event for China and a very good opportunity for Ctrip. Ctrip will benefit from this event to increase our visibility. And from the short-term perspective, during the Olympic Games, I think in the... maybe let's say in Beijing area or nearby there was some traffic control and also I think some people in China will probably enjoy the sport and enjoy the time with family or friends at home. So, maybe the long distance later travel will probably decrease to some extent and business travel may be... will be a little bit slow down prior or during the Olympic Games, especially in the... within and the nearby Beijing area. So I think it's right now, it is very hard to predict short-term impact, since as you know this is the first time for China to hold this big event. We too view this as a short-term impact and we are confident that Ctrip will be better positioned during this worldwide event. So for the long term, I think definitely still it will be very good for China’s travel industry.

Okay, thank you very much.

Thank you.

Thanks Jenny.

Your next question comes from the line Aaron Kessler with Piper Jaffray. Please proceed.

Hi guys, couple of questions. First outside of the earthquake, is there any other factor for a more conservative Q2 guidance? Is it the elimination of the May holiday and also what do you think about the [inaudible] go down in the air traffic in March. And just on the guidance for the full year '08 should we sell it for 35%, is that still reasonable? Thank you.

Sure, the full-year guidance remains to be the same at this point at 35%. The other factors we can take a look. The change in the May holiday, the long distance tours are replaced by a three-day short distance tour. So, from a leisure traveler's perspective, the package tour did have, it's not comparable apple-to-apple, from year to year. But once people are used to the change in the schedule, I think from next year the numbers will be more comparable. Outside of the snowstorm and also earthquake, is there any other reasons causing the slowdown in the industry. I think based on the datas we have seen, the slowdown is mainly caused by special events such as snowstorm. When we look at the routes that have the majority of the decrease, these routes are all related to the areas which were hit by the snowstorm. So it's a special event related decrease in our mind.

Would March also be impact... I don't think the snowstorms were in March, so I think the March airline traffic go slower, any reason that you will have that... you would have seen slower airline traffic in March?

You mean in March?

Correct.

March industry is -- March is the month right after the snowstorm. So our thinking is it’s market sentiment after this snowstorm that is causing the market slow down. Min Fan – Chief Executive Officer: Yes, I think this is mainly... not just because the snowstorms at that time but post snowstorm effect will exist. So, also I think there will be similar consumer behavior like the post earthquake effect... impact.

And then just one follow-up question. On the sales and marketing for the quarter I know that it slipped down from about 20% of revenues last year. It's about 18% in Q1. [inaudible] similar sales and marketing percent of revenues going forward or think it will return to a more normalized rate of around 20%?

I think we monitored investment to return very carefully. This quarter the market has slowed down. So based on our analysis of investment return, we withheld some of the advertisement efforts, because certain business activities was reduced. So we will keep the range of the sales and marketing in the range of 18 to 20% for the year.

All right. Thank you, Jane.

Sure. Thanks.

Your next question comes from the line of [inaudible] with Citigroup. Please proceed.

Hi. Good morning, Jane, James and Min. In this quarter, we saw significant year-on-year margin expansion. And actually also slight margin expansion on sequential basis despite the first quarter being a seasonably weak quarter. I was wondering if you could elaborate a bit more on how you've been able to control the costs? Where you have been able to generate increased operating efficiencies and how we should think about the margin for the rest of the year?

Sure. I think our team has worked very hard to improve our efficiency on a daily basis. So our team has been examining all the business processes in order to cut necessary steps and to better service our customer. That is reflected in our numbers. Going forward, I think as we discussed before as air ticket is contributing more and more to the revenue pool that will put on the margin a little bit. But hopefully, we will be able to continuously improve our efficiency to offset that decrease and hold a very consistent margin. In the long run, if air industry, and air tickets and hotel business are evening out in five years, I think the margin should be stabilized somewhere around 75%.

Okay. Thank you.

Sure. Thanks.

Your next question comes from the line of Ashish Thadhani with Gilford Securities. Please proceed.

Yes. Good morning. Two or three questions. The first one is there was a big jump in the share-based compensation in the quarter. Could you explain what specifically happened and what we can expect in coming quarters? Whether this will be the base line and what rate of increase we should be factoring in?

Sure. When you look into the share-based compensation, there are two major factors, which determine the total expenses. The first one is the number of shares we granted. The second one is the stock price, so for the first item the total shares we can grant and our stock option plan is limited to a maximized amount of 1 million ordinary shares every year. So we control the total shares very tightly. The second item is the stock price. The increase in the stock price is the main reason why you see the overall expenses for the share-based compensation increased.

Okay. If the price were to be roughly here then we should assume that this $4.8 million roughly will also stay where it is or it might increase a little bit because you'll be granting a little bit more. Is that right?

No. We are not going to grant a little bit more. The total number of the shares that we grant is limited at 1 million a year. So the increase is only linked to the stock price. So, if our stock price is increasing, the total stock compensation will increase. It is the price decreases that are [inaudible].

Okay. And then the other income in this quarter, could you just provide some color on that? Are those subsidies, and if so roughly how much can we expect on an annualized basis, because I think in the last four quarters, we've seen roughly $7 million or thereabouts, so what would be representative equilibrium for that kind of... for those contributions?

Sure. For the subsidy... in the other income line there are two components. The first one is the subsidy, the second one is the foreign exchange gain. Last year end we converted some USD which is intended to pay the stock dividends after June 30th this year into Australian dollars. So Australian dollars compared to USD has some appreciation. So, part of the other income is FX gain and the rest is the subsidy. Now on subsidy the timing and the amount of how much we can get is totally up to the government. Our team will always try to apply as much as possible, but how much they will grant and when they will grant is totally depending on the government agencies. So, for that reason we conservatively record the subsidy income based on the cash basis when we receive it. So probably the similar level as last year is achievable.

And in this quarter a $2.7 million, can you break that out by subsidies and forex gain?

The FX gain is probably around 10 million RMB and the rest is subsidy.

Okay, that's very helpful. And final question has to do with your tax rate, should we be assuming this kind of effective tax rate for the rest of the quarters? I understand that it's 25% and then the share-based compensation is non- deductible. So, it takes it up to 28, but I also understand that you have applied for preferential tax treatment. Can you talk us a little bit about the timing of that coming through and what the magnitude might be?

Sure. This year starting January 1st, 2008 the Chinese government has kick in to effect that the -- statutory tax rate is 25% and they expected to accept applications towards the end of May or June and our team is very proactive to get all the documents ready. Once the time is ready we will submit our applications form in order to apply for the status of new and high technology. So before we get the approval, we will prudently apply 25% for almost all the Chinese entities, and if we get the preferential tax treatment approved later on, then we will reflect it in the quarter when the approval is obtained.

But how long... how long that might take and if it is approved where would this 25% or 28% stabilize?

Sure. So if you take out stock compensation, the highest rate is 25%. So, if that is the case, if all the entities are approved for hiring new technologies, that is 15%. If some entity is approved and some are not, the rates can be in between 15% to 25%, excluding stock compensation.

And timing?

The timing, well, I hope for -- depending on how fast that the government can process it. We are hopeful we can get the approval before the year-end.

Terrific. Thank you very much.

Sure. Thank you.

Your next question comes from the line of George Chu with UBS Securities. Please proceed.

Actually my question has been answered. Thank you.

And your next question comes from the line of [inaudible]. Please proceed.

Hi, good morning Jane and Min.

Hi, good morning. Min Fan – Chief Executive Officer: Good morning.

I just have a quick question about... I know you don't disclose your ARPU and the booking volume now, but I was just wondering if you can tell us which is the driver for your revenue growth, ARPU or the booking volumes?

Sure, as we discussed last quarter, we will do our best to help our investors to understand our business as much as possible. Right now, our main driving force is coming from the volume side.

Okay, I see. Thank you. And another quick question is about… on your balance sheet, the warranties from the customers dropped a lot. So, I just wanted to clarify the decrease was due to the weak seasonality and by the snow storm impacts right?

Yes, that's correct.

Okay. Thank you.

Thanks.

Your next question comes from the line of Wendy Huang with Bear Stearns. Please proceed.

Good morning Jamie and Jane Sun, thanks for taking my question.

Good morning.

I have two questions. First, last quarter you mentioned that once your corporate travel reaches a certain scale, you will break it down, so could you give us some update on that side?

Sure, our corporate travel has gained a very good momentum and it's increasing at more than 100% year-over-year. The total corporate travel market is very sizeable in China and it’s fast growing. We are already one of the top two players in the market. So, we are very confident that business will keep up always the strong momentum. Hopefully when they become more than 5%, we will be able to break it out next year.

So, do you see any earthquake or snow storm impact on this or is it mostly not really event driven? Min Fan – Chief Executive Officer: I think the... for this part of business it will be less impacted by the… either snow storms or the earthquakes, but there must be some, let us say post-earthquake effect. For example there will be some meetings, exhibitions will be cancelled or postponed. Later those events or activities at last they will... they will shoot up at last. So, we do hope that this part of business would be impacted very small.

Okay. Secondly given that Ma Ying-jeou won the Taiwan Presidential election and we expect to see... to see some relaxation in the Taiwan's travel control. So… and also I think Ctrip is still having the minority stake in EasyTravel in Taiwan if I'm correct. And so what's your strategy in that market going forward? Min Fan – Chief Executive Officer: We do see a great opportunity for Ctrip when the travel restriction between Mainland China and Taiwan are lifted and Mainland Chinese people will like to visit Taiwan, meanwhile the inbound travel volume would be increased, if there are more and more direct flights, instead will begin from this July, but we are waiting for the final discussion. But overall I think for the travel across the Taiwan streets will be a gradual process and we see limit impact to us in the year of 2008. For the EasyTravel site, we are sure that by utilizing both companies’ platform we will be able to offer comprehensive products and service to our customers from both sides. So, that will give Ctrip and the EasyTravel more better marketing position to service our customers compared with other players.

Do you have any plan to increase the stake in EasyTravel? Min Fan – Chief Executive Officer: We are open for all the options, yeah.

Okay. Thank you. Min Fan – Chief Executive Officer: Thank you.

The next question comes from the line of James Mitchell, Goldman Sachs. Please proceed.

Hi, good morning. Thanks for taking my question.

Thanks James.

Just on the hotel revenue growth rate, it's accelerating some 30% plus growth to... I think 28% year-on-year growth. How much should be that acceleration, just natural because of the lower large numbers and already penetrated a lot of big second tier cities, how much should we view it as one-time slowdown because of the snow storming? Thank you.

Sure. The hotel market growth rate this year is much slower than last year. Officially there is no official number for hotel growth rate, but normally a reasonable analysis is, it should be very consistent with the airline industry growth. For Q1, the airline industry grew about 11% compared to 15% last year. That's probably a reasonable assumption for the hotel business. We grew 28%, which represents 2.5... somewhere around 2.5 after market. So we outpace the market growth by more than double. And last year the market grew about 15%, we also outgrow the market at around 2.5%. So even during a slow time, I think our execution was to allow us to gain more market share. However, in terms of absolute dollar amount that should be a combination of our execution and also the market condition.

Okay. And just in terms of the market growth decelerating, how much of that was due to snow storm and other one-time factors, how much was due to the macro economic or other issues?

Yeah, that is a big question, because when we see the slowdown there are many things happened in Q1, right. The West Region has some events taking place, and also the snowstorm taking place. So it's very hard for us to segregate to allocate certain percentage to our snowstorm, allocate certain percentage through some other effect, but from what we can see, our data shows that the decrease is mainly related to the areas which are hit by the special events.

Okay. Thank you.

Sure. Thanks.

Your next question comes from the Richard [inaudible], Bear Stearns. Please proceed.

Thanks Jane for taking this question. I have a question regarding your guidance for second quarter. The 30% guidance for second quarter, is that a preemptive measure, so far how have things shaped out in April and a sudden anticipation of this earthquake that will slow down things. And I will follow up with my second question.

Sure, so far the April has, two things happened. First of all, I think the May holiday changed. So, that impacted the longest [inaudible], and also the air industry in April still shows a very slow growth rate compared to last year's and so that's what we have seen so far. And the anticipation... anticipated impact from the earthquake for the post-earthquake market sentiment is also one of the very important factors buried into our guidance.

Okay, thanks. If we have to make an early estimation on the third quarter, which we also have Olympics, one of the events, would you kind of think that to be higher than 30% or lower than 30% growth if we estimate an assumption today?

It's very hard to do that. We, our team for each product line is monitoring issuance very carefully. Because this is the first time China is hosting such a major event, we really do not have any historical data to base on. So, we would rather monitor the situation and give a prudent guidance, so when we have that visibility.

And also I think for the Q2, our forward-looking guidance and we hope for Q2 the earthquake even the post-effect would be a short-term event or short-term effect, short-term impact on the overall travel industry. But so far we cannot judge right now.

Okay. Thanks a lot.

I think for Ctrip, normally because of our high quality of the services and a strong branding. During the snow time, and also during the time, that's the overall market slowdown. That's a very good opportunity for us to grow our market share. Take an example for air ticket. Last year, we did four times the market. So, the market grew about 15% and we did more than 60%. And this year, the market grew 11%. We still delivered more than 60%. So, that means our market share gain is much faster than last year. So, during the slow time actually future period, it is a good opportunity for Ctrip to even grow our market shift faster.

Yes, once you have very strong customer standards, and you have very good operating quality, it will be even better for you to acquire more market share in that season.

Al right, thanks.

Sure, thank you.

Your next question comes from the line of Jason Johnson with Aurora Investments. Please proceed.

Good morning everybody.

Good morning.

Congratulations for a strong quarter.

Thank you.

I notice that your stock price drops about 10% in the after hour trading, but I believe it's a strong quarter in every metrics. In terms of revenue...

Thank you.

In terms of revenue, operating income and net income and net income per share. It's a very strong quarter.

Thank you.

I have two questions about the business environment and the competitive travel landscape in China.

Sure.

About six months ago, I asked Min, what impact did TuneAir have on your business?

Yes.

And at that time you said that you didn't put any advertisement on TuneAir but recently just a couple of weeks ago, I checked TuneAir again. I see you flood their space with your ads. Most of them are tired to get to us. I was wondering what changed within six months?

I think… in fact we would love to put our advertisement in TuneAir website. I think TuneAir because it’s a search engine, so they will get information from various travel websites and posting their website. And I think right now if you compare six months ago, definitely TuneAir, they became pager view than before. I think it's normal because people will try to like the search engine, any kind of search engine they gain more and more page view year-over-year. But finally, I think we need to see that consumer behavior if experienced consumer or sophisticated travelers how they book their products, either they book their products from various comprehensive platforms or they just try to search here and there. So far, I don't think the competition landscape change, there is no major material impact on the Ctrip's competition position. I've seen in the China travel industry, because more and more travelers and there are more and more even web sites emerge from the horizon. So the page view will increase, I think it's normal, it's normal thing for every website.

So you still believe that TuneAir will not impact your business. I know that TuneAir doesn't make reservations for travelers. They just direct traffic to different reservation site. I got the feeling that TuneAir, they lay over the playground so that the mom-and-pop, those little shops can compete with such giants as Ctrip. Is that your view or you still believe that this mom-and-pop and there is no way for this mom-and-pop to compete against... I mean can compete with Ctrip?

Yes. TuneAir probably offers at... provide more values to the price-sensitive consumers and to -- when every quarter we conduct our consumer survey and based on our survey, our customers always focus on three major things. The first one is the quality of the service, the second one is the timeliness, the third one is the reliability. In the customer survey we have conducted so far, price is always the lowest. So therefore I think the targeted market, Ctrip is that versus Chennai quite different. So we do not see Chennai as major competitor with us. No way, probably in two different sectors.

I have a second question. Recently, I was reading a Chinese travel magazine and there is a very brief news that there is a local travel agency called Golden Holiday, they are filing a lawsuit against Ctrip? Could you confirm that or could you confirm this whether such... whether this news is a rumor or is this a...?

Oh. Yes. During normal course of business, we always have here and there the dispute between different business entities but nothing is going to materially impact our business.

What's the nature of the lawsuit? Is it because of you have some patent issues? I don't think you have any patent issues. What's the nature of that lawsuit?

In fact I think the Golden Holiday they challenged, let's say, the kind of the... certain core qualification of Ctrip to do the travel business in China and that they launched a suit in a few cities...

Yes, for OD.

For OD suits.

Yes, they have filed a lawsuit in '04, in the past couple of years and pretty much all the lawsuits... they lost all the lawsuits.

When I read that your F-20 report that you filed with SEC and you do recognize that there is a risk... significant risk for kind of violating Chinese Business Law, because Ctrip given the fact that contributes a foreign person under Chinese law, service... in travel.. in the service industry it is limited to domestic companies. Will that be a... that's not a concern or that's not a significant risk factor?

The reason we put in the 20-F because it is a risk factor. But, our legal structure based on our consultant’s opinion for many years supports our position and it's in compliance with legal requirements in China. And it's a very common standard structure among all the NASDAQ listed companies.

Yes, and also in the meantime in fact we are… our operating structure and our operating [inaudible] was notified by the government as you can see in our press release that we got our national...

The trademark of this -- give us the... famous trademark in China and that's a government award.

That's a government award. They will review your company very, very carefully in terms of any lower points or any operation point of view.

Okay. Thank you.

Sure, thanks.

Your next question comes from the line of Timothy Chen with CLSA Asia Pacific. Please proceed.

Hi hello.

Hi.

Hi. Thank you for your presentation. I have two quick housekeeping questions. Can you give us the number of hotel rooms sold and the air ticket sold in the first quarter? Sorry if I missed that.

Sure. As we discussed last quarter from Q1 2008 we are no longer going to break out the volume and the commission separately due to increasing sensitivity for competitive reasons, but what we will do is, we will do our best to help our investor to understand our business and as we discussed before the main driving force for our business right now is volume driven.

Thank you.

Sure.

Your next question comes from the line of [inaudible]. Please proceed.

Yes, thank you for taking my question. We just read some news regarding price line they're coming to China. Cushing, they claim to have more hotel than Ctrip and also they will provide like lowest price for the hotel. I'm wondering do you see a competition from this? And also how do you see the competition from [inaudible] by themselves and also the hotel websites by the hotel operators? Thanks.

For Cushing I think it is just launched to be positioned as another travel searching portal or travel related portal. And I think for customers it's not the reason if you have five zone hotels or ten zone hotels it will make difference. How can you help make a difference is your service quality and your value-added services and also your consistent quality. So, in terms of this point, I think Ctrip is well positioned and has very good advantage over other players. And in terms of the hotels website or even as the airline website for their direct sales, I think for customers they... of course some customers will go direct to their website but most of the customers they would like to have more choice, more options for their travel decision maker. And also in Ctrip website you can get all the comprehensive information and all the value-added service assistance. So most of the customers as we know they will have more value-added service, more comprehensive information than just one hotel or just one airline company. So I think why not the... overall the competition landscape has not changed so far.

Thank you.

Thank you.

I'm showing no further questions at that this time.

Okay. If there are no other questions, let's conclude this call. Thank you everybody.

Thank you very much. James Jianzhang Liang - Chairman of the Board Thank you. Bye, bye.

Thanks.

Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Good day.