Good day, ladies and gentlemen, and welcome to the Q2 2014 Ctrip.com International Limited Earnings Call. My name is Sarah [ph] and I'll be your operator for today. [Operator Instructions] I would now like to turn the conference over to Ms. Jade Wei, Director of Ctrip.com. Please proceed.

Thank you, Sarah [ph]. Thank you for attending Ctrip’s second quarter 2014 earnings conference call. Joining me on the call today, we have Mr. James Liang, Chairman of the Board and Chief Executive Officer; Mr. Min Fan, Vice Chairman of the Board and President; Ms. Jane Sun, Chief Operating Officer; Ms. Jenny Wu, Chief Strategy Officer; and Ms. Cindy Wang, 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. James, Min, Jane, Jenny and Cindy will share our strategy and business updates, operating highlights and financial performance for the second quarter, as well as outlook for the third quarter of 2014. We will also have a Q&A session towards the end of this call. With that, I will turn to James for the business update. James, please.

Thanks, Jade. Thanks everyone for joining us today. We are pleased with our continued accelerating growth in the second quarter of 2014. Net revenue grew by 38% year over year, primarily driven by strong volume growth. Our combination reservation business achieved 64% year-over-year growth in room nights and 47% in revenue. Transportation ticketing business achieved 83% year-over-year growth in volume and 39% in revenue. 2014 is a year of strategic investments for Ctrip. In the past two quarters we have expedited our multi-share gain and achieved accelerated growth across all our major business lines. This has demonstrated the effectiveness of our strategy and the strong execution by our team. In the coming quarters we'll continue to reinforce our core competence, expand our leadership in mobile internet, strengthening our IT infrastructure and enhance our one-stop travel service platform, increase our brand awareness, and speed up the penetration into second-tier cities. Ctrip has successfully built an industry-leading mobile travel platform. By the end of second quarter, the cumulative downloads for Ctrip travel app reached 200 million, increasing over 60% quarter over quarter. The acceleration of downloads benefited from aggressive marketing efforts --

Hello?

Hello, James?

Hello, James?

Okay, I will continue. Sarah [ph], can you hear us?

I can.

-- stopped.

Yes, I'm here.

Yes. I will take the chance to like speak for James. Okay. Ctrip has made -- successfully built industry-leading mobile travel platform. And for example, the by the end of second quarter, the accumulated downloads for Ctrip travel app reached 200 million, increasing over 60% Q-on-Q. The acceleration of downloads benefited from aggressive branding efforts by the company, as well as timely improvement made on products and user experience for our mobile apps. More importantly, about 60% of those downloads have been activated, one of the highest levels in the industry -- in the travel industry. With that, we are encouraged to see that approximately 100 million Ctrip apps have been activated and is used by our customers. During the second quarter, approximately 80% of Ctrip's total transactions were booked online or through mobile channels, compared to about 60% a year ago. Total mobile transaction value for the second quarter of 2014 more than tripled from a year ago, with a peak daily transaction value reaching about RMB220 million. For accommodation reservation business, both PC-based internet and mobile channels contributed about 40% of total transactions, respectively. For transportation ticketing business, PC-based internet contributed -- internet contributed 40% -- 45% of total transactions and mobile internet contribution increased over 30%. And in terms of -- are you online now? Hello?

Sarah, are you here?

I'm here. James is here.

Hi, James.

Hello? Okay. Then I will continue then. And for our new business, mobile internet is also the major transaction platform. For example, over 80% of train tickets booking -- ticket booking came from mobile channels in the second quarter, with the peak level exceeding 90% recently [ph]. We believe in utilizing technology to enable our business development. Thanks to the hard work of our team, we have recently added air tickets from more than 70 international low-cost carriers to our platform. This is a big step for our air ticketing business. After the new launch, we are able to work with 162 international airlines, covering over 220 countries and territories, 3,600 international cities and 1.3 million [indiscernible] bus [ph]. Ctrip offers the most flexible product to Chinese travelers, including tickets for single trip, longer trip [indiscernible] and open-door trips. These low-cost tickets can be booked easily through all our platforms, including mobile, PC-based internet and call centers. This gives us a huge advantage against all other major players in the market. We are glad to see that Ctrip is further expanding its leadership in the air ticketing business beyond its peers in China, especially in terms of both product completeness and price competitiveness. In July, we added book bus tickets to complete mobile booking for the last mile of [indiscernible] needs [ph]. Our team is making great progress to expand coverage with more than 240 cities and [indiscernible] just one quarter. We have successfully launched the Ctrip gift card payment system on our mobile app in the second quarter. Customers can easily purchase Ctrip gift cards and manage their balance through the Ctrip mobile app. Not only have Ctrip's gift cards enabled the customers to purchase all Ctrip travel products, they have also supported transactions between our customers and third-party…

Thanks, Jenny.

With that -- yes.

Thanks, Jenny, for the update. Now let me turn to Min for the industry highlights and then investment update.

Thanks, James. This is Min. China has entered a golden era of the travel industry. Recently, the Chinese government has highlighted the importance of the travel industry in supporting economic development, creating employment opportunities, increasing income levels, and improving the environment in China. In order to boost the development of the travel industry, the government is promoting more market-driven development, investment in travel related infrastructure and service, as well as innovative travel products to meet Chinese travelers' leisure needs. We're encouraged by these guidelines and Ctrip will position to capture the opportunities ahead. As a leading player in the online and mobile travel market in China, we have been very committed to providing the best travel product and experience for Chinese travelers. We work intelligently [ph] to create more value for the price [ph] [indiscernible] airlines, hotels, tour operators, attraction sites, amusement parks, tour guides, and so on. Meanwhile, we strive to create an environment of a rational and healthy competition with other industry players. Through our internal innovations and strategic investment, we are continuously developing new business models to meet the demands of Chinese travelers. Ctrip is open to exploring different opportunities in the travel industry. We believe with the strength Ctrip has been building up in the past, together with a strong dedication from our team, we're creating best value for our customers, partners, employees and shareholders. With that, I turn to Jane for the operation highlights.

Thanks, Min. Hello everyone [ph]. I'm pleased to share the updates of Ctrip's main business with you. Ctrip has further expanded its hotel coverage. As of the second quarter, we offer reservation services for around 110,000 domestic and 430,000 international hotels. Room nights grew over 64% year over year in the second quarter of 2014. Within just two quarters of Ctrip deciding to aggressively develop our group buy hotel business, the team delivered strong results, which exceeded our expectation. According to a recent industry report, Ctrip has become the number one OTA player in the group buy business, covering more than 100,000 group buy products and selling over 20,000 rooms in peak days. In Q2, the total volume growth for transportation business unit reached 83% year over year, with air ticket contributing the majority of the volume. With great [ph] expansion of our international air ticketing offering, we are the most competitive player in both products and prices. In the second quarter, international air ticketing grew approximately 60%, accounting for approximately 15% of total ticketing volume. We will continue to improve our technology from mobile interface to backend operations to offer the best price and booking experience for our travelers. Both train tickets and bus tickets booking are currently in the early stage of development. However, we have witnessed a great demand from our customer looking for a reliable service and convenient access, partially from the mobile applications. They trust our mobile application to search for train and bus information and to reserve and pay for the tickets. They will become loyal customer and turn to Ctrip for their future travel needs. This will become a strong growth drive for our other business products in the future. In the second quarter of 2014, our packaged tour volume grew above 40%…

Thanks, Jane. Thanks everyone. In second quarter, Ctrip's total revenue increased to 38% year on year and 9% Q-on-Q to RMB1.8 billion. For accommodation reservation, its revenue growth was 47% year on year and 15% Q-on-Q. Its volume growth was 64% year on year, exceeding our guidance of 50% to 60% growth year on year. For transportation ticketing, its revenue growth was 39% year on year and 11% Q-on-Q. Its volume growth was 83% year on year, exceeding our guidance of 50% to 60% growth year on year. For packaged tours, its revenue growth was 10% year on year, driven by an increase of 42% in volume. Packaged tour revenues decreased by 21% Q-on-Q, primarily due to seasonality. Corporate travel revenues increased 37% year on year and 27% Q-on-Q, primarily driven by the increased corporate travel demand from business activities. Net revenue of RMB1.7 billion lifted 9% Q-on-Q and 38% year on year, exceeding our guidance of 30% to 35% increase year on year. Gross margin was 72%, down 6 percentage year on year and has stayed consistent Q-on-Q. Product development expenses increased 55% year on year and 9% Q-on-Q, primarily due to an increase in product development and personnel related expenses. On a non-GAAP basis, which is excluding share-based compensation charges, product development expenses accounted for 25% of net revenues, up 3 percentage points year on year, and remaining consistent Q-on-Q. Sales and marketing expenses increased 77% year on year and 12% Q-on-Q, primarily due to an increase in sales and marketing related activities. On a non-GAAP basis, sales and marketing expenses accounted for 27 of net revenues, up 6 percentage points year on year and is down 1 percentage point Q-on-Q. G&A expenses increased 22% year on year and 2% Q-on-Q, primarily due to an increase in administrative…

[Operator Instructions] Please limit your questions to only one question. Our first question comes from Dick Wei from Credit Suisse. Dick Wei – Credit Suisse: Hi, good morning. Thanks for taking my questions. My question is on the hotel side. Wonder how much is the non-postpaid hotel volume that group buy and prepaid hotels, and if I get it correctly, you said around 20,000 per day, wonder how big is it as a percentage of your total hotel volume? And how do you think it's going to grow too maybe over the next one or two years on the prepaid hotel side? Thank you.

Yes. Thanks, Dick. And I will have Jane to answer the question.

Okay. Thanks, Dick. For hotel business, we have two principal models. One is the commission model, one is the prepaid model. And prepaid model is growing at three digits so far, very impressive growth rate. It accounts for approximately 15% of the overall hotel revenue. And we believe this model will take a very strong momentum going forward. If you look at international players, I think both merchant model which is used for prepaid and also commission model which is pay-at-the-hotel takes about very even contribution to their revenue model. So we are very confident that the prepaid model will keep up with its momentum.

And for the group buy part, according to the recent industry report, Ctrip has become the number one OTA player in group buying business, covering more than 100,000 group buying products and selling over 20,000 rooms in peak days. But it's still complementary product to us, and given the large size we have, group buy, this model is -- overall volume contribution is still less than 5%, but we see is very good complementary product and very well-received by our customers.

Yeah, next question. Dick Wei – Credit Suisse: Great. Thank you very much.

Sure. Thank you.

Right. Our next question comes from Vivian Hao from Deutsche Bank. Vivian Hao – Deutsche Bank: Hi. Thank you for taking my question. I have actually two questions. First of all, can you please provide us our effective tax rate on air ticketing side? And also, any update of the recent airline fixed commission cut impact to our airline segment? And my second question is regarding our packaged tour seems only growing 10% year over year. Does this have any -- anything to do with our reclassification of air and hotel into respective segments instead of putting it under packaged tour? Thank you.

Thanks, Vivian. Jane, would you want to comment on it?

Yeah, I will comment. Go ahead, James.

Yes. So our calculation has been -- the way we calculated has been consistent, so the package is growing slowly than we expected in terms of revenues because there were some recent political or economic problems in the regions who used to be pretty popular. And we're still growing very nicely in terms of passenger headcounts. But because the pricing and because of the margin squeeze because -- in these regions, because we are not growing as fast as we hoped in terms of revenue. I think overall we're still gaining market share in terms of headcount, but I think in the future we're going to see some pickup in those regions, because just I think these regions will naturally recover once these problems go away.

Thanks. And Jane --

And then for the air ticketing margin, probably Jane can comment.

Yes. So for air ticketing, right now I think the commission rate is we think the normal range, 4% to 5%. And the change in the air ticketing commission rate, as indicated by our results, did not have material impact on us. The key for our business is to become the most efficient sales distribution channel for the airlines. We want to deliver the highest level of the services at the lowest cost. If that's the case, I think it's very value-added for airlines to use Ctrip as their partner to distribute these air tickets. So we spent lots of investments on our IT, spent a lot of time on our service to make sure we can help airlines to drive volume and at a very efficient manner. So we do not expect the commission rate to have a material impact on us. Vivian Hao – Deutsche Bank: Thank you. Very helpful.

Thanks, Vivian.

Our next question comes from the line of Philip Wan from Morgan Stanley. Philip Wan – Morgan Stanley: Hi, good morning. Thank you for taking my question. My question is about your margin, given that we had two quarters passed this year, would you have more visibility on the margin outlook for the rest of this year? And then a follow-up question is, would you break down your Q3 sales guidance by business lines as usual? Thank you.

Thanks, Philip. And I understand margin is a question of everyone [indiscernible] here so I would like to take the opportunity to share with you more of my thoughts on this. First of all, if you look at our first half, our margin is quite stable around like 12%. And when we move to second half, and we expect it will continue to be very stabilized. And in 3Q, due to it's peak season of the year, we may see slightly improvement here. For us, we want to highlight again as we have been consistently communicating with the public, 2014 is a year of strategic investment for Ctrip. Our top priority is always very clear, that is to grab the golden industry opportunities and to gain market share at a faster pace. Since Q1 this year, we have stepped up our investment on several key areas, especially on improving user experience, extending our leadership in mobile internet, strengthening our IP infrastructure, enhancing our one-stop travel service platform, and especially we spent a lot of money to increasing our brand awareness and speed up the penetration into lower-tier cities. And this, on the progress of each project, we've dynamically adjusted our budget and approaches accordingly so that we can monitor, and these are the projects to be executed on the right track. Meanwhile, we have worked hard to implement technology and innovative matters to improve our operating efficiency and cost control. In the past two quarters we are very pleased to see we have exceeded [ph] our market share gains and achieved accelerated growth across all our major business lines. We not only strengthened our leadership in our flagship [ph] hotel and air ticketing business, but also successfully cultivated over 10 mini-tigers [ph] internally, and especially has become the clear leader…

Our next question comes from Alicia Yap from Barclays. Alicia Yap – Barclays Capital: Hi, good morning, James, Min, Jane, Jenny and Cindy. Thanks for taking my question. My question is a follow-up on the packaged tour. So can you give us a little bit more specific on the domestic tour versus the outbound international tour on both the volume growth and also the pricing trend for each of them? And then if we exclude let's say the volumes from the destination tickets and [indiscernible] what is the actual growth rate for our normal packaged tour business? And related to that, given our strategic investment in Tungchun [ph] and Tuniu [ph], can you help us understand more about your strategies on the further cooperation and your own organic growth target going forward?

Sure. This is Jane. I would take your [ph] question. For packaged tour, as James illustrated, that our target is very clear. We will do whatever we can to gain market share very aggressively. And as demonstrated in our results, the headcount for packaged tour growth very well at more than 43% year over year. In terms of domestic versus international, domestic revenue-wise grew about 40% to 50% year over year. But the international grew a little bit lower just because majority of our packaged tour is in Asia. And as you've seen in the news, there is political turmoil in Thailand which is a very popular destination for us. And also what happened in the Malaysia Airline also deters some travelers from traveling to this region. And also in Philippines and Vietnam, there is a little bit uncertainty impact consumer's behavior. But we believe that is temporary, just like earthquake or tsunami. Once the region recovers its stability, I think the pent-up demand will recover. So the key for us is still to offer the best product in the region, and when the opportunity comes, we will be able to -- we're positioned ourselves and grab the market opportunities and recover very quickly. So that's the split between domestic and international. In terms of -- it's almost half-half domestic versus international. And your second question on Tuniu [ph] and Tungchun [ph], yeah, we are good partners with both of the team, and there are a lot of cooperation where two teams work together to explore, including vacation package, hotel attraction tickets. I think each team has its strength. And going forward we'll leverage everyone's expertise and make sure it's a very efficient operation alliance. Thank you, Alicia. Alicia Yap – Barclays Capital: Thank you. Can I just have one quick follow-up on the -- is the packaged tour also included in the destination ticket volume?

Yes.

No.

No, no.

-- ticket line. When we say destination ticket is for the air ticket, that in the ticket volume. For attraction tickets, that's in the packaged volume. But attraction tickets overseas relatively is a new business and it's very immaterial right now. Alicia Yap – Barclays Capital: Okay. Thank you.

Thanks, Alicia.

Our next question comes from Mike Olson from Piper Jaffray. Mike Olson – Piper Jaffray: Hey, good morning. You included in your discussion of the hotel revenue guidance for Q3 that you expect commission per room night to fall 5% to 10%. Could you just talk in general about kind of the promotional environment and if anything has changed since Q2? And maybe specifically, could you share how hotel coupon expense as a percentage of revenue compared to what it was in Q2? Thanks.

For the hotel -- on the hotel side, the competition is still very fierce, but kind of stabilized. And for the -- since 3Q last year, coupon expenses as a percentage of hotel commission revenues has been relatively stable around 18% to 20%, which is likely to be the case for 3Q this year. And just some accounting treatment differently, and I think it's largely because your user is now the -- just to utilize the cash they owned to purchase our gift cards and Ctrip's own product. So, currently the majority, almost 100% of coupon costs are booked in actual -- come to revenues, versus like still part of that will go to the sales and marketing line last year. And thus, there will be roughly 5% actual decline for revenue per room night on a year-on-year basis. And on competition-wise, we see it's kind of stabilized. Mike Olson – Piper Jaffray: Okay. Thank you.

Our next question comes from Ella Ji from Oppenheimer Company. Ella Ji – Oppenheimer: Thank you. Can you talk about the organic volume growth of air tickets for this quarter? And also in terms of the trend in the bus tickets, what is your current coverage of the total tickets there available on the market? And then, can you also share with us some of your thoughts relating to your commission rate that you acquire in train and bus tickets?

Jane, do you want to take the question?

Sure. I think the air ticket volume growth very strong. It's up between 35% to 40% growth. And our new star [ph] at the two -- train tickets as well as the bus tickets, particularly during this time of the year, the weather is unstable. And during the stormy day, there is major delay in the airport. And our team will push the high-speed railway to the relevant customers. So it's a very nice complementary products governed by our transportation department. I think going forward these three elements will become very organic combination to serve the people from one city to another. So that's what we base our forecast on. And in terms of commission for bus, we charge a service fee. And also for train tickets, I think there is a basic number we can charge. So in terms of a dollar amount per ticket, it is lower than air ticket. But in terms of the market potential, these two segments is huge. Based on the recent statistics for air tickets per year, the market accommodates about 300 million tickets. But for train, that number becomes 2 billion tickets a year. And for bus, that is 30 billion tickets a year. So, market size is bigger. So in the future we believe these three segments will all generate healthy volume as well as revenue contributions for us.

Yeah. And to add one more point on that, in that you'll see in the second quarter, for our transportation tickets, our volume growth is 83% year on year and the revenues 39% year on year. And the majority of this growth and contribution is still from our air tickets. And for the air ticketing itself, the volume growth was largely in line with revenue growth and still over three times industry average growth. And we are very pleased with the strong momentum that our team is building, even we have such large base but we still can outpace the industry. Hello?

Our next question comes from Eddie Leung from Merrill Lynch. Eddie Leung – Bank of America Merrill Lynch: Hi, good morning. Thanks for taking my questions. Just a follow-up question on your bus and train ticket pieces. I think you mentioned that down the road that could be a profitable business. I'm assuming that on a standalone basis bus tickets and train tickets right now may not be profitable, and it's not -- is there any timeline that we can look for? Thanks.

Sure. For bus and train tickets, I think as you said, it's a huge market for us. Right now we try to do everything through mobile and through online, as automatic as possible, to reduce the personnel costs to supporting this business. And they're very much on the way. So for these two business, our goal is to make the business as automatic as possible. So in a very short time period, hopefully they will both become a breakeven business. But as Jenny discussed in the margin section, I think these are the baby tiger programs along other -- 10 other baby tiger programs. And clearly all these programs take about one to two years to be breakeven and profitable. However, if we make the wise investment today, all these product lines will become the leader in the market. So I think in the short term, if we want to improve our margin, cutting these investments will easily increase our short-term margins; however, in the long term that's the wrong decision for our shareholders. So we are very defensive. Anything that is related to travel, that will make travel convenient for our customer, we will make investment today and take the leadership today, so that two to three years from now, our market leadership is strengthened and our new product line can add another layer to the existing product line. So that's our goal, Ed. Eddie Leung – Bank of America Merrill Lynch: Thank you, Jane.

Our next question comes from Wendy Huang from Standard Chartered. Wendy Huang – Standard Chartered Bank: Thank you. First, I want to clarify Jenny's previous comment about the margin trend. Are you saying that if the sales momentum continue at the current level, then for the second half the non-GAAP OP margin will be at low teens level, which is very similar to the first half? And secondly, can you give us some update on your thoughts on the competitive landscape, how that has changed over the past one quarter? And also, are you -- is there any interested area that you may actually consider the MA? Thank you.

Yes. First of all, on the margin side, you're right, for the second half we expect the margin will be largely similar to the first half. And we are very pleased with this momentum, although we have such tremendous investment and our team deal successfully to achieve the margin stabilization, that's very positive. And for the M&A side, you know, we, Ctrip team has stepped up on investments and has become more proactively to embrace the industry change and industry dynamics. And so our M&A strategy is always very clear. We will be very much focused on travel-related segments, and we will specifically look at several areas. First one, we want to -- we focus on expanding Ctrip's business to a new travel-related segment, such as in the [indiscernible] Beijing Mind Enterprises [ph] which is a clear leader in serving teenage travel in China. And it has accumulated over 700,000 customers in the past several years and will clearly help us extend our user coverage, help us to literally now cover the -- literally all type of travelers in China now, and also help us to accumulate -- to calculate the user behavior and user habits using Ctrip. And it's very [indiscernible] we are actually building more new blood [ph] and sustain the growth driver for Ctrip. And secondly, we will also focus on expanding our business to a new region geographically where there are great potentials, such as last year we had investment in like Tshufong [ph], one of the leading local tour operating serving outbound travelers when they reach the U.S., and also the local tourists, for people to travel within the U.S. And it's a natural extension for our [indiscernible] model and it's great user experience improvement for our customer. And thirdly, we also -- Ctrip is leading all-tour player in China and we care about the IT innovation, and Ctrip going forward, all the great ideas were being enabled by the great technology. And so we're searching for the good team and alert about the industry technology innovation and look for the right candidates. And that's pretty much what we are looking for. And we hope we can add [indiscernible] to Ctrip and also to help the industry to make more innovative ideas and great business, and so that we can grow together. And eventually Ctrip will be the leader and also the industry [indiscernible] segment. And that's pretty much our strategy here. Wendy Huang – Standard Chartered Bank: Okay. Thanks, Jenny.

Our next question comes from Alex Yao from JPMorgan. Alex Yao – JPMorgan: Good morning and thank you for taking my question. I just want to clear one thing. In the prepared remarks you guys mentioned 80% of the company's total transactions were booked online or through mobile channels in the quarter. Does this refer to total transaction value or volume? If it's volume, what is the percentage of value in the quarter? And a quick follow-up question is, given the transaction goes through online and mobile is growing much quicker than the call center, does it mean the call center's role in the company will diminish over time, and do you guys have a plan to streamline this part of the business? Thank you.

James, do you want to comment on this?

Yeah. We're growing very fast overall, so even though the percentage of call center business has been reduced, the overall, the absolute level of transactions handled by call centers actually is still pretty stable. And our call center is going to be, I don't want to call it call center rather than contact center or service center, our service center is still going to be a core competency and one of our major advantages against our competitors, because it doesn’t -- not only -- I think increasingly call center is not just handling the sales but it's handling after-sales service. So whenever something unexpected happen, for example, flight delays or hotel -- extra request by the customers, anything that needs some interaction with people, with human service, actually we will do better than our competitors. So that's the reason the high-end customers or even price-conscious customers were willing to transact with us, even though the price -- our prices are at the same -- same as our competitors. So, call center will be -- continue to will be our key competence -- core competency and will be our competitive advantage. Alex Yao – JPMorgan: And can you clarify that the 80% refer to value or volume, and what will be the, you know, one of the other? Thank you.

Yeah. It's volume, and actually the transaction value is -- the percentage is quite similar to that. Alex Yao – JPMorgan: Thank you very much.

Thank you.

Our next question comes from Fei Fang from Goldman Sachs. Fei Fang – Goldman Sachs: Hi, good morning. Thanks for taking my question. So in your sales and marketing expense, you highlighted the branding efforts, so, TV commercials in the lower-tier cities. Are those more of a one-off spending for this year or will it become a recurring strategy? And also as your revenue base and your volume base scales up, do you plan to further increase your branding investment? Thank you.

Jane, do you want to comment on that?

I will. For the branding efforts, we have seen great potential for the third-tier and fourth-tier cities. So we selected approximately 30 cities to roll out our aggressive marketing campaign. And the GDP growth rate and average spending for these cities is similar to the first-tier cities and second-tier cities a few years ago. So we believe this is the right time to penetrate into these cities and increase the brand awareness. So when these people migrate from travel domestically to travel abroad, Ctrip will be the primary travel service provider for these consumers. So far I think the company has been run very effectively. We have seen increased volume from these cities. So it really depends on the -- we carefully monitor the spending power for the cities and GDP growth rates for the cities. And to an extent it reaches our threshold to make the investment. And hopefully this investment in one year time will become a very profit region for our business. Fei Fang – Goldman Sachs: Okay, I see. Thank you.

Thanks, Fei.

Our next question comes from Tian Hou from T.H. Capital. Tian Hou – T.H. Capital: Thank you management. Good morning. So I have a bigger question and a smaller question. So in the guidance, so if I look, the third quarter guidance, if I look at the past two years, second half shows acceleration in terms of growth, and this year the guidance somehow shows a slower growth in the third quarter than Q2 or first half. So I wonder what's the reason. And is that because the micro issue or is that because some company operational issue, like a competition, or industry issue, et cetera, some air control. So what's the reason for the growth deceleration in the third quarter guidance? Smaller question is about the volume total -- total volume in the second quarter. Does it include your platform volume, the tickets or hotel booked through your vendors, your platform, so those volume, is that part of your total volume? That's my two questions.

Yeah. The guidance for the second quarter, I think historically we have been very prudent. We rather to under-promise but over-deliver. So with limited visibility, it's our management philosophy, we rather to guide very prudently, so when we deliver we'll give 100% effort to make sure we deliver very strong results. On the volume total, the volume includes everything Ctrip provide service on, including direct-to-contact with the hotels, and also platform. Right now platform volume is still at very early stage. The growth rate is strong, but overall contribution quite immaterial. Tian Hou – T.H. Capital: Thank you. That's all my question.

Thanks.

Our next question comes from Ming Zhao from 86Research. Ming Zhao – 86Research: Thank you. Two questions. First question is about your product and development expense. So I think in the prepared remarks you said it's mainly due to the engineer cost. So this amount, if I assume each engineer earns RMB20,000 a month, that means you have 25,000 engineers. That figure is just too higher. So, could you give us some breakdown or some color about the product development expense, which is almost four times that of Qunar? So that's my first question. And the second question is if you could tell us about your total GMV for the quarter. I believe Jane said that the third party is doing RMB200 million transaction in the -- on a monthly basis, so that's about RMB600 million or 3% of your total GMV by my calculation. Is that a ballpark number? Thank you.

Ming, I think the first question on product development, the classification for product development, our classification might be different from our other peers in the market. For Ctrip, product development includes investment in IT and also our team who are talking, discussing business deals with hotels, airlines, packaged tours. So all these, we classify them as product development. The growth rate mainly in this line is mainly two reasons. One is, as you've seen in our growth in the mobile app, our mobile app is very comprehensive. It pretty much has everything you can think of in the market. So with one -- a few clicks [ph], you can cross-sell different products very easily within our apps. So in the past few quarters we have invest very strongly into the mobile team as well as our IT team. So that's the first reason why product development team goes up. Secondly is also what we talked about, the baby tiger program. So all the innovation for new product such as cruise tickets, rental car, the young student program, train tickets, bus tickets, all these product teams who are talking to the vendors, who are talking to -- travel around the country to make sure all the inventory is grouped in our platform are classified as product development team as well. So this line growth is not only the IT team but also the team that is invested in our new business development for the new product. So that's the first question. The second question, the open platform RMB200 million, that is on the open platform for vacation package. The number is growing fast, and we are very confident going forward they will take more market share. But open platform relatively contribution to our revenue is very small, because commission rate from this platform relative to our direct contact is lower. So we are confident in this business, but still they contribute a very small percentage into our overall business. Ming Zhao – 86Research: Thanks, Jane. If I can follow up, for the product development expense, if we include those ground force, right, your people on the ground developing the new businesses, I mean assuming their cost is cheaper than the engineer, then the math would point to maybe 30,000 or 40,000 people on the ground. Maybe you could tell us how many people are on the ground indeed, so we could understand this item. Are they all full-time employees?

Yeah. I think a critical position all filled [ph] by an employee. But included in the cost, Ming, there's also IT investment, infrastructure. We allocate the IT infrastructure, computers and service into each line of business. So it's -- or allocated to the relevant department. So it's not only people but also support team. If they occupy certain level of offices, the depreciation also is allocated there. So you cannot take the number divided by the headcount. That comes up with their salary. That's only part -- salary is a part of it. We also have infrastructure and supporting costs that is utilized by this team. Ming Zhao – 86Research: Okay. If I may have another follow-up, right, talking about the same thing. The CapEx [indiscernible] PPE [ph] is up by RMB0.5 billion. It's just a big step-up quarter over quarter. What is that spent on? Are you buying aircrafts or boats, anything on that?

On the CapEx side, the increase you see is largely related to our office buildings that completed construction, so, our Chengdu office and for our Shanghai office. So there's nothing like additional new here. Ming Zhao – 86Research: Thank you.

And we -- when we try to analyze whether to build and rent, we do a very careful analysis on rental versus depreciation. So all the building we self-build has a depreciation equal or lower than the rental cost. So in a long term these building will enable us for faster growth into the region.

All right. Our next question comes from Ada Yu from CICC. Ida Yu – CICC: Hi. Thank you for taking my questions. Can you give us more update about your open platform business and if you, as you mentioned that your volume -- your transaction volume has exceeded 100 million, and can you divide it business-wise? And the second question is, can you give us more update about your new business like baby tigers, for example, your cruise lines or car rentals? Thank you.

Sure. Open platform has an advantage which is give us the coverage very quickly into smaller cities, because regional players might have their special advantage in the regional cities. So our team work very aggressively to make sure these smaller vendors get our platform as quickly as possible. So our direct product combined with the open platform product will give us our customers the best choice of product comprehensiveness and also pricing. So that's something we see a very good growth rate on and we will increase our investment accordingly. And your second question? Ida Yu – CICC: Yeah. Any -- some updates about your new business, the light baby tigers for example? Yeah, cruise lines or car rentals and such? Yeah.

Sure. I think we -- our management philosophy is we are very disciplined and very focused. Our investment needs to be put in the area that's associated with travel, and we do travel very well. We do it before anybody realize there is a good opportunity. So when we look at the market, anything associated with travel will facilitate our customers' needs to travel domestically and abroad. So for example, cruise ticketing, cruise ship is growing very fast in China and we have seen this business line grow mid-three-digits in the past quarter. So I think it will be a very promising business in the future. And also rental cars, I think that's also very promising because moving people from city to city, combined with our air ticketing, it becomes a very convenient way for people to travel with us. And also the young student program, we just launched a new app targeted at young students. And it has been very well-received by the university students. In addition to our self-developed app, we also made an investment in a company in Beijing which have a cumulative customers more than 700,000 students, to help them to travel domestically and travel abroad. And these students going forward will become future users for our primary products as well. So all these investments in our mind has to be very disciplined and focused on travel. And if we do it, we want to become number one in the business for each line of business. And going forward, we believe these business will become the future addition to our revenue pool. Ida Yu – CICC: Thank you. That's very helpful.

Thank you.

Okay. Our next question comes from Yu-Heng Fan from China Renaissance. Yu-Heng Fan – China Renaissance: Hi, good morning. Thanks for taking my question. I just had a follow-up on your marketing and promotion strategy for lower-tiered city and younger generation. I understand how to measure the return of branding, but what will be the average customer acquisition cost for those newer customer base? And what kind of product they are more likely to buy when they first become Ctrip's customer and the repeat customer [indiscernible] ratio [ph]? Thank you.

The marketing efforts we spend on the second-tier -- third-tier, fourth-tier cities, we survey the customer before we run the ad. And depending on their -- where they normally appear, where -- what's the interest, we run the ad accordingly. But it is -- they build upon our core competence which is competitive on pricing, competitiveness on the comprehensiveness of our product and our IT. So these are the three strengths in our product offering for the students. And for student platform, I think the, you know, the product nearby their campus become very attractive, and also pricing, since students are not making money, so pricing becomes very important. So these are the focus. So for each segment of the business line and for each city, we will survey the customer before we roll out the investment, to achieve the best yield for our investment money.

Our next question comes from Yee Jin [ph] from Aegis Capital [ph].

Hi. Thank you for taking my question. I'm just wondering, do you plan to initiate any aggressive promotional programs during major holidays in the second half of this year or will you just simply follow to match your competitors' promotional programs?

Major -- we have program which has lead time before the major holidays, and every year we roll out the program based on the market competition. Each player in the market has their own strengths, and so we monitor what's going on in the market, and we will make sure Ctrip invests very strongly to spending out in the market. So we do look at what we have product-wise and what we target marketing-wise, and also we compare it to what's going on in the market. That's how we decide how much money we invest, where we invest the money. So for this year, I think the major holiday, as every year, we will invest with sufficient lead time, so by the time major holiday comes over, consumers have a very strong impression for our product and branding.

Thank you.

Our next question comes from Ella Ji from Oppenheimer. Ella Ji – Oppenheimer: Yeah, thank you very much for taking my follow-up questions. I have a long-term question relating to your user growth. So this quarter we have seen you have a very strong growth in mobile apps downloads. I think you added about 80 million downloads, and you mentioned the activation rate is about 50%. So that's around 40 million new users. But if we look at your volume growth, it's now growing at a rate, and I fully understand the travel is not highly frequently used app by nature. But just longer term, as you look at your new user behavior especially on mobile, how should we think about your user growth that you acquired from -- on the mobile side? And also within that 200 million users, what is the overlap with your existing PC users?

James, do you want to take the question? Hello, James?

Yeah. We don't have the exact number of 200 million new users, how many of them are new users. In the past we actually see quite a few migrations, migrating from call center users to the -- to become the mobile users. But the ratio of new users have been going up. So, increasingly mobile is not just a more efficient platform, it becomes, more importantly, a platform to attract new customers. Especially in the second, third-tier cities, we see a lot of new users actually have not been using PCs or have not been Ctrip customers now becoming Ctrip mobile users. So that's the reason that actually we pushed aggressively in terms of development, in terms of sales and marketing effort, to promote mobile apps, especially in second, third-tier cities where most of the growth opportunities are. So we are very excited that mobile will be a primary channel for our new customers. Did I answer your question?

Yeah. Thanks, James.

Right. Our next question comes from Alicia Yap from Barclays. Alicia Yap – Barclays Capital: Hi. Thanks for taking my follow-up question. Very quickly, on the hotel coupon side, is there any update in terms of the hotel coupon impact as a percentage of the hotel revenue? And also overall competition environment. Thank you.

Yeah, we mentioned it before. This coupon environment has become very stabilized actually since 3Q last year. The percentage of hotel commission revenues, it contributed roughly 18% to 20%, which is likely to be the case for the coming quarters. Alicia Yap – Barclays Capital: Thank you.

Thanks.

All right. There are no further questions in queue, so I'll turn the call back over to Jade for closing remarks.

Okay. Thank you for everyone joining us on this conference call today. If you have any further questions, please feel free to contact our management team or the IR team. Thank you very much.

Thanks.

Thank you very much.

Thank you.

This concludes today's conference. Thanks for your participation. You can disconnect, and have a wonderful day.