Good day, ladies and gentlemen, and welcome to the second quarter 2008 Ctrip.com International Limited earnings conference call. (Operator Instructions) I would now like to turn the presentation over to the host for today, Ms. Jade Wei, Senior IR Manager for Ctrip.com. Please proceed.

Thank you, Andrea. Thank you for attending Ctrip's second 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 Ms. Jie 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 statements except as required under applicable law. Min, James, and Jie will provide business updates, industry outlook, and the financial highlights for the second quarter of 2008 as well as outlook for the third quarter. We will also have a Q&A session towards the end of this call. With that, I will turn to Min for a business update.

Thanks, Jade and thanks for everyone joining us today on this call. I am glad to report the solid results achieved by our team for the second quarter of 2008. Despite the challenges brought by the Sichuan earthquake, we were able to achieve solid results and maintain a healthy pace of growth. While the customer loading base by the major airlines indicated that the travel industry in China experienced a negative year-over-year growth in May and June, we strived to deliver a revenue growth rate at 30% year over year. Our hotel business grew 14% year over year, the air ticketing business grew 44% year over year, and the packaged tour business grew 85% year over year. Our hotel supply network continued to expand at a rapid pace, with approximately 7,000 hotels by the end of June 2008, compared to approximately 5,300 by the same period last year. The number of hotels with guaranteed allotment rooms further increased to account for more than 60% of the total supply. For air ticketing, although the industry experienced a negative growth in May and June of 2008, our team executed effectively to deliver the strong growth rate at 44% year over year. By the second quarter of 2008, the number of cumulative active customers reached to $5 million, compared to $3.3 million by the same period of last year. We are glad that our customer acquisition pace continued its momentum despite a slower market growth. Meanwhile, our corporate travel business continued to grow with a strong momentum. One of the initiatives to further elevate our service offerings to our corporate clients is the newly launched Crystal Reports system. This system has intelligent and customized reporting features to help our customers plan, manage, and monitor their travel budget more efficiently. We believe the new…

Thanks, Min. We witnessed an industry slow down in the past quarter and probably the situation will extend into the third quarter. We have lived through similar or even more severe market situations caused by unexpected events in the history of our company. Today we are in a better position than ever to weather through difficult times and come out even stronger. Our solid execution enabled us to continuously enhance our core competency, improve customer base and loyalty, and improve productivity and technology advantages. The strong growth in corporate travel, the establishment of the Starwave Hotel alliance, the acquisition of one of the leading hotel PMS software companies will further strengthen our competitiveness. China’s economy is expected to continue at strong growth rates in the coming years. The recent direction is deemed to be healthy to maintain our long-term prosperity of the country. We remain to be confident that Ctrip is going to benefit from the economic growth in China. Our solid execution has delivered good results in the past and will enable us to achieve our targets in the future. Now let me turn to Jane for the update of our financial performance.

Thanks, James. I am very pleased to report the solid results for the second quarter of 2008. Despite the challenges brought by the earthquake, our net revenues reached RMB375 million, or $55 million, in the second quarter of 2008, representing a growth rate of 30% year-over-year. Hotel reservation revenues amounted to RMB196 million, or $29 million, for the second quarter of 2008, representing a 14% increase from the same period in 2007 and the previous quarter, primarily due to increased volume in hotel bookings. Air-ticketing revenues for the second quarter of 2008 were RMB169 million, or $25 million, representing a 44% increase from the same period in 2007 and a 6% increase from the previous quarter, primarily due to increased air ticketing volume. Packaged-tour revenues for the second quarter of 2008 were RMB24 million, or $3 million, up 85% from the same period in 2007 primarily due to the increased leisure travel volume and a decrease of 11% from the previous quarter due to seasonality. Gross margin was 79% in the second quarter of 2008, remaining relatively consistent with 80% in the same period in 2007 and in the previous quarter. Product development expenses for the second quarter of 2008 increased by 37% to RMB57 million, or $8 million, from the same period in 2007 and increased by 6% compared to the previous quarter, primarily due to the increased product development personnel resources. Excluding share-based compensation charges, product development expenses accounted for 13% of the net revenues, which was an increase from 12% of the same period last year and remaining consistent with the previous quarter. Sales and marketing expenses for the second quarter of 2008 increased by 16% to RMB68 million, or $10 million, from the same period in 2007 and increased 4% from the previous quarter, primarily due…

(Operator Instructions) Your first question comes from the line of Catherine Leung with Citigroup. Please proceed.

My first question is on margins -- in the second quarter, despite slower revenue growth, operating margins still expanded by over 100 basis points, primarily driven by leverage of SG&A. Can you help us understand specifically which areas you were able to derive more efficiencies from and were able to cut costs? And going forward, what is the potential for further cost control as the weaker demand environment persists? Thank you.

Sure. We monitor our investment return for each dollar we put in the channel very carefully, so in Q2 after the earthquake, we sensed that the market -- that the sentiment in the market is very low, so we controlled our sales and marketing costs very carefully to an extent, if our campaign is effective, we will proceed without any problem. But to an extent if we sense the sales and marketing campaign will not stimulate the market, then we will control the costs accordingly. That’s the main reason why as a percentage of total revenue, sales and marketing decreased to 17%.

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

I have a quick question about Q4 and looking at some of the industry data suggests that Q4 air capacity is getting cut globally and also in China. Can you talk at all about what you expect for Q4 revenue growth and what kind of pent-up demand there may be for travel, and what kind of revenue growth rate that could result in? Thank you.

Sure. I think we will do our best to monitor the market situation and give Q4 guidance in our Q3 earnings release call. So far, I think after the Olympic Games, the business will be back to normal and travel industry growth rates should be back to normal in Q4.

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

My question is Jane, can you comment on your 3Q guidance? What so far that makes you be -- you know, give this kind of guidance? Is it mainly the air ticketing or is it hotel? And because we are in the middle of the Olympics, have you already had visibility about the Olympic impact? Thanks.

Sure. Based on our current visibility, during the Olympic Games, for leisure travelers, most of them are staying home watching the games on TV, so they are delaying their trips until after the Olympic Games. For business travelers, most of the companies are also delaying their meetings and conferences until after the Olympic Games, so we see the market slow down during the Olympic Games but our expectation is in Q4, all the business and travel volume will be back to normal. That’s the reason we -- our guidance is between 15% to 20% for Q3.

Your next question comes from the line of Jenny Wu with Morgan Stanley. Please proceed.

I have several questions; first one, a follow-up on Ming’s question on the Olympic impact -- could you please qualitatively give us some color on how much the impact mainly coming from this one-off event and how much would come from the economic slow down? Thank you.

From our observation, the slow down of the travel industry for the second quarter is primarily caused by the Sichuan Province earthquake, and for the Q3, as Jane just said, that we project that for leisure and business travelers, those events, those activities would slow down during that season. But after the Q3, that means after the Olympic Games, hopefully we can see all those activities and business is back to normal. So I think still right now it is very hard to predict exactly how much the impact will be but we are very sure that this will be a one-time event.

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

I just want to continue on that line -- after looking at various gauges, such as consumer and business sentiment, GDP growth, stock market performance, inflation, all of that, over what kind of timeframe do you expect that the macro environment will stabilize and then be able to improve on an sustainable basis, as best you can tell right now?

Okay. I think we are not economists, so we cannot predict the GDP growth and the economic growth very well, as well as the chief economists in the major banks. But we will do our best to help our investors by sharing our views. I think last year, the GDP growth rate was above 10% and the travel industry was growing at around 15%, a couple of percentage higher than the normal GDP growth rate. In this year, for the first six months the GDP growth rate was still above 10%, although it was slower than last year but still it is among the fastest growing nations in the world. And going forward, I think even the GDP growth rate will be slower than last year, a 7% to 8% GDP growth rate probably is still sustainable. And we think that with that sustainable GDP growth rate, travel in a normalized business environment should be one or two percentage higher, or even higher than the GDP growth rate. And with that, I think based on our execution, Ctrip should be able to sustain our strong growth rate going forward.

Your next question comes from the line of Elinor Leung with CLSA. Please proceed.

Actually, I have two questions; the first question is still regarding the economic slowdown. Given you are targeting the business traveler, so if there is really an economic slowdown, are you actually exposed to a higher rate of the slowdown? And the second question is regarding your gross margin -- I see there is a slight decline in the second quarter. What is the main reason? What is the trend going forward? If we see continued slowdown in the top line, are we going to see more gross margin decline?

Sure. Our CEO will address your first question and I will address the gross margin question later on.

I think for the slowdown, right now I think still it is one-time. As you know, a year or two, it’s [inaudible] -- the year 2008 probably will be one of the toughest years, most tough year in China’s history, so I think that’s why the macro situation is not so good as the last year. But definitely I think after the Olympic Games will be very good recovery from the inbound and also the domestic travel business.

Regarding the gross margin, the gross margin is still holding at a very strong pace. It’s going to be reflecting the revenue mix. Our hotel business has the highest gross margin and air ticketing has a relatively lower gross margin than the hotel business, so as the air ticketing business increases its contribution to the total revenue pool, the gross margin will pull down a little bit. But our team will do our best to continuously improve our efficiency to offset the decrease in the margin. So based on the current volume, I think a margin between 75 to 80 is sustainable; it probably will be in the middle range.

Your next question comes from the line of [Cindy Wong] with Lehman Brothers. Please proceed.

Two questions; first about [inaudible] slowed down, do you think the fuel price hike in China will slow down overall tourism? And I think this is the first question, and secondly about the hotels revenue growth -- what do you think is that in the third quarter or the fourth quarter?

The fuel price definitely impacts all the travelers worldwide but fortunately I think for our business, because 80% of the travelers are business travelers, so they are less sensitive to the increase in the price. Relatively, they are better than the leisure travelers, so that’s the first question. The second question is the hotel revenue -- hotel revenue is going to be reflecting the overall general market. I think in Q2, the air industry had a negative growth in May and June and normally, air industry represents the high-end of the travelers. The hotel industry does not have a nationwide index, so we have to analyze based on the air industry. Normally the hotel growth rate is below the air industry by a couple of points, so if the market recovers, the hotel industry will follow. But in Q3, I think it is still a very challenging quarter for the hotel industry.

Your next question comes from the line of Chris Zee with BNP.

I have several questions. First of all, in the early part of this year, you guys gave the full year guidance for 2008 in revenue terms. Now, two quarters are already lapsed and the third quarter guidance has been released today of 15% to 20%. So with that, are you guys doing anything or changing your full year guidance? That’s number one. The number two question is you mentioned earlier about the cost controlling, especially in the sales and marketing item, that being quite a flexible cost item, spending less in the sales and marketing in the air cycle. Should we assume that to persist in the third and fourth Q, so that the leverage may be higher in these quarters?

Sure. At the beginning of the year, our guidance was around 35%. Now, for the full year guidance, it really will depend on how Q3 will turn out to be and how strong the market rebounds in Q4. Based on our current limited visibility for Q4, our estimation is the full year growth rate will be in the range of 30% to 35% year over year, but again as we come closer to Q4, we will better address your question and will revise it accordingly. Your second question on sales and marketing, normally in a normalized range we maintain sales and marketing in a range of 18% to 20%. That’s the normalized range. In the market, that is impacted by a one-time event, we will do the adjustment accordingly.

Your next question comes from the line of Leah Hao with Goldman Sachs. Please proceed.

I was wondering if you could give us a little bit of a comment of your expectations, where, how the airline commission removal changes will impact the industry. And also along that line, do you perceive any structural changes in the travel industry in China, either from this or some other factors, such as higher gasoline price or maybe lower GDP growth? And also, would you expect airlines to lower ticket price a little bit to promote volume in the near-term? Thanks a lot.

When the government decided to change the 3% mandatory commission rate, which is just a few months ago they had a meeting in Beijing, I think the intention is to let the market decide the commission rate. We believe this can provide a better chance for a big company, for a qualified company to get more market share. It does not mean that the government will ask the other companies to cut commission but just try to make the market behavior, market performance. And for the air fuel and surcharge change, I think this kind of cost increase will more affect the leisure travelers and for business travelers, I think most of the business travelers, they are less price sensitive, so it should be no big impact on our business.

Your next question comes from the line of Eddie Leung with Merrill Lynch. Please proceed.

I’m Thomas asking questions on behalf of Merrill Lynch -- just a follow-up question from previous one; I would like to get more color on how many corporate clients Ctrip has in the second quarter compared to the first quarter. Thank you.

Normally we do not release the exact number of our corporate clients but our corporate travel management business is growing very fast, even during this slow season, mainly because we acquired more big, corporate clients among the market. And I think still we are growing at around 100% year over year growth, so it’s very healthy.

Your next question comes from the line of Wendy Huang with [ABN Amro]. Please proceed.

I have three questions. First, about your second quarter ’08 total revenue -- I understand you no longer disclose the metrics regarding the segments. Could you help understand the softening in the second quarter, whether it is more from the volume side or whether it is more from the ARPU side?

The second quarter volume, the hotel growth is mainly driven by volume.

(Operator Instructions) Your next question comes from the line of Lu Sun with Endis Capital. Please proceed.

Hello?

Lu Sun, your line is open. Please proceed with your question. Your next question comes from the line of Jenny Wu with Morgan Stanley. Please proceed.

I have a follow-up question -- given the tough environment currently, have you noticed some change in the industry competitive landscape, or have you noticed that some smaller peers actually have been [clipped] out? Or more specifically, how many market shares you have or you expect you may gain in the coming quarters? Thank you.

We monitor our competitors in the market very carefully. However, we don’t think there is any significant change regarding the competitive landscape. And in fact, I think when Ctrip grows bigger and bigger, we definitely will get more and more market share from those small players in China. So I think the trend is still very healthy.

Your next question comes from the line of Lu Sun with Endis Capital. Please proceed.

Actually, I have three questions -- the first one is regarding other income. It seems like the company has recorded quite a substantial increase in this item. Please explain where this is coming from and the future trend. And also, I would like to know the month-on-month growth trend in the past three months. Hopefully also provide us some color on the July trend, and also the regional kind of difference in terms of travel volume performance, because I suppose that the Olympics probably affect the northern cities a little bit more than the southern cities. And then I have a follow-up. Thank you.

Sure. The other income for Q2 is mainly driven by the FX gain. We had to pay our shareholders a cash dividend [inaudible], so last year when our shareholders approved the resolution, we converted some USD to Australian dollars in anticipation of the appreciation in Australian dollars. As of June, we have paid all the dividends to shareholders so the other income line is very much linked to the conversion from USD to Australian dollars and it’s not recurring for the next couple of quarters, so that’s your first question. The second one is month-to-month growth rate -- I think in July, because people were already anticipating the Olympic Games, the travel volume already reflects the people’s delay of the travel in July.

What about regional difference in performance?

Sure, regional differences, I think -- the Olympic Games is happening in Beijing, so that’s definitely been impacted the most. But all around the country, I think everyone in China right now spends a lot of time at home watching TV, so it’s a country-wide phenomenon.

I see. My last question will be on the hotel consolidation side. There have been some mainland reports about Ctrip potentially becoming a consolidator in the economy hotel side. First, I want to know whether that’s true and secondly, you did actually I think acquire a hotel consolidation software company. So can you indicate what’s your future plans in this regard and how you are going to further expand your hotel supplier networks?

You know, our press release, we talk about the Starwave Alliance. Maybe I can give you a little bit of information on this side. In China, around 90% of the hotels are independent hotels and around 10% are chain hotels. Starwave Alliance is targeted at 90% of those independent three star and below, or those small hotels. For Ctrip, we will not try to be a hotel consolidator but the Starwave Alliance is not a chain hotel, as you can see in China’s industry, and the Starwave Alliance will select those qualified hotels who intend to keep their own management and aim at improving their quality and brand awareness, so this will provide a nationwide branding and sales, marketing, and quality assurance support for those hotels. And again, the Starwave Alliance will act as an independent hotel alliance company and will complement with chain hotels in the hotel industry and provide travelers with more quality accommodation choices. So I think this will -- this is our idea to launch the Starwave Hotel alliance. And regarding the PMS company we acquired, I think this will give Ctrip a very good chance to improve its reservation efficiency in terms of having better cooperation with those hotels, and also the acquisition will enhance Ctrip's internal operational efficiencies and also Ctrip will be able to support the sales through our hotel network for the PMS company. And right now, the transaction is immaterial and we -- in fact, we are not trying to be a software consolidator in China but we just want to try to get more efficiency in terms of cooperation among hotels.

Your next question comes as a follow-up from the line of Wendy Huang with [ABN Amro]. Please proceed.

Just a follow-up on your Starwave hotel alliance -- could you maybe give us some data points regarding how many hotels you already included in that network and how will this help you to accelerate the penetration into the second tier cities? And associated with that, should we expect some additional sales and marketing expenditures to help you build the branding of this Starwave hotel alliance among the consumers in the second tier cities? Thank you.

The Starwave Alliance right now has around 20 independent hotels already rebranded as Starwave hotels in the market. And right now, the Starwave Alliance is only in the development stage and we do not expect a significant revenue contribution from the Starwave Alliance, and again, as you may know because we are not as the chain hotels, we are not a capital intensive company to run the Starwave Alliance, so in fact the expense or the cost to launch this company is not significant.

We do not plan to spend any significant amount of the sales and marketing dollars for the Starwave hotel. It should be self-sufficient.

Your next question comes from the line of Richard Chow with Alliance [inaudible]. Please proceed.

I wonder if you can update us on the tax application for 15% that you alluded to earlier. Where are we in terms of that? Thanks.

Sure. Our team is very proactively working with the authority to get the approval but I think in the city of Shanghai, the detailed information schedule is yet to be published, so we are anxiously waiting to hear from the government on any development on the detailed information guideline. Hopefully they will publish it and approve our application as soon as possible but we will take a very conservative approach that before we get official notice from the government authority, we will apply 25% across the board for all the entities that does not have the high and new technology status.

Your next question comes from the line of James Mitchell with Goldman Sachs.

Could you just clarify what was happening with the Australian dollar? You were transferring the U.S. dollars for the dividend into Australian dollars and then transferring them back into U.S. dollars?

Sure. Every year at the end of the year when we lock down our annual income, I think based on last year’s board resolution, 30% of our net income will be paid to our shareholders as cash dividends. And we need to convert RMB to U.S. dollars in order to make sure we have sufficient U.S. dollars to the shareholders. However, we know the U.S. dollar is depreciating so in order to preserve the value of the assets, we converted around $15 million to Australian dollars for the six months after we locked down our net income for the year to the time when we have to distribute our cash dividends for six months. And after six months, the Australia dollar is converted back to USD and paid out to the shareholders, so that’s what happened. Is it clear or do we need more explanation on that?

Your next question is a follow-up from the line of Catherine Leung with Citigroup. Please proceed.

I have two more questions; firstly, a follow-up on the Starwave Alliance -- can you help us understand a little bit better kind of what is the revenue model for the Starwave Alliance? Because I think one of the competitive advantages that Ctrip has and one of the barriers to entry for the hotel market is the fragmentation, so now that we are trying to build up a network, how will this affect the industry dynamics for the hotel market in terms of new agencies trying to enter this market and forming a cooperation with the Alliance to get some of the hotels to apply? And my second question is on the inbound travel initiatives, Ctrip has relaunched its English website earlier this year. I’m just wondering what is the development, what is the progress of the development? Have we been seeing some good traction, especially with the Olympics? And what is the strategy right now in terms of cooperation with overseas partners? Thank you.

For Starwave Hotel Alliance, Starwave Alliance, in fact we will get some revenue by the branding maintenance fee from each of the hotels. And this money will mainly use [amount] for those hotels in terms of the sales and marketing and in terms of branding, in terms of the upgrading their operations quality and for the marketing position of the Starwave Alliance, I want to make a little bit of color on this -- the Starwave Hotel Alliance will be an independent hotel management company but it is not at Home Inn or other chain hotels. This is kind of a hotel alliance, so we will mainly target those 90% unaffiliated hotels. Among those hotels, there are certain qualified hotels who aim at improving their quality and try to establish their brand awareness. So among those hotels, we set up this Starwave Alliance to make it more easy for our customers to choose among all those small hotels in China. Because in China, we have tens of thousands of hotels and among those hotels, most of them are small and low star hotels, so if you are talking about the chain hotels, all those chain hotels only accounts for around 10%. So there’s still 90% of hotels that don’t have a nationwide brand, they don’t have enough awareness among the -- among our business and leisure travelers. So I think Starwave Alliance will complement with existing chain hotels in China’s hotel industry and provide more qualified or quality accommodation choice for business travelers. So in that way, this will again help for Ctrip's clients and also will be very helpful for Ctrip to cooperate with those hotels. And regarding the inbound business, we launched our upgrade English version, English website only this year and so far, I think that our operation is very small and the inbound business right now accounts for a very small portion of Ctrip total revenue, and especially I think during this period of Q2, Q3, I think in China the inbound business, we cannot expect a very significant increase because of the current situation. But after the Olympic Games, that’s when we will see very positive increase in terms of inbound business, and we are working very hard to provide more product lines for inbound travelers.

Your next question comes as a follow-up from the line of Ashish Thadhani with Gilford Securities.

Yes, on this majority stake that was announced today, what exactly is the ownership stake, your purchase price, and any general color that you can provide on revenue and profitability of the entity would be helpful.

Sure. The acquisition -- the majority stake we took in a PMS company is very strategic. The company in terms of size, the balance sheet, income statement, is immaterial compared to Ctrip's size, so we do not expect the company to bring any significant revenue or income compared to Ctrip. But this strategic move will improve our efficiency from an operational perspective.

And the amount you spent?

It’s undisclosed.

Okay. Thank you.

At this time, there are no further questions in the queue. I would like to turn the presentation back over to Ms. Jade Wei for closing remarks.

Okay. If there are no further questions, we conclude this call and thank you all very much.

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