Ladies and gentlemen, welcome and thank you for joining the Third Quarter 2014 Ctrip International Earnings Call. My name is Ryan [ph], I'll be the operator on the event. [Operator Instructions] As a reminder, we are recording the event for replay. Now I'll turn the call over to Ms. Michelle Qi, IR Manager of Ctrip.

Thank you, Ryan [ph]. Thank you all for attending Ctrip’s third 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 by applicable law. James, Min, Jane, Jenny and Cindy will share our strategy and business updates, operating highlights and financial performance for the third 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 business update. James, please.

Thanks, Michelle. Thanks everyone for joining us today. We are pleased with the solid results in the third quarter of 2014. Net revenue grew by 38% year over year, driven by accelerated volume growth. Accommodation business achieved 69% year-over-year growth in the room nights and 56% in revenue. Transportation ticketing business reached 98% year-over-year growth in volume and 32% in revenue. In the past two years we have invested heavily in technology and especially in mobile platform. While we're still catching up with the best travel companies in the world in terms of overall technology capability, we are already one of the leading players in terms of mobile products, design and functionalities. Our efforts have led to fast growth in mobile downloads and increased mobile user activeness. By the end of the third quarter, accumulated downloads for the Ctrip travel app reached 350 million and activated accumulated downloads reached 150 million, increasing 75% and 50% quarter over quarter, respectively. Over 5 million daily unique users access to the Ctrip travel app on peak days. Total mobile transaction in the third quarter of 2014 nearly tripled from the same period a year ago. During the third quarter, approximately 40% of Ctrip's total hotel transactions were booked through PC-based internet, and 45% through mobile channels, compared to around 40% and 30%, respectively, a year ago. PC-based internet bookings contributed approximately 45% of Ctrip's total air ticketing transaction and mobile channels contributed 35% compared to around 40% and 15%, respectively, a year ago. For many other products, mobile is the primary booking platform from day one. Transaction made through mobile platforms passed 80% of rail ticket booking in the second quarter. Recently bus ticketing and trucking ticketing also reached similar level. One of the advantages of Ctrip travel app is it offers one-stop…

Thanks, James. Thanks everyone. Good evening. [Indiscernible] getting into the sweet spot for outbound travel growth [indiscernible] travel has been one of the fast-growing segments for Ctrip. To build an extensive global travel resource network, we have actively expanded and strengthened our international partnerships and made multiple investments in different travel segments. Through our expanded partnership with Priceline Group, we'll collaborate on multiple travel products, including hotel, air ticketing, local activities, car rental and dining. We recently invested in Huayin International Travel Company, one of the largest outbound travel wholesalers in China. Ctrip and Huayin will leverage each other's strengths to further enhance our advantages in international tours and travel packages. Cruise, one of the most positive [indiscernible] and effortless outbound travel products for Chinese travelers. Cruise travel in China is expected to grow over 30% per year on average over the next five to ten years. As the largest cruise agency in China, Ctrip has sent over 120,000 [indiscernible] on cruises so far and gained more than 10% of market share in China. Last week Ctrip and Royal Caribbean Cruises signed a definitive agreement to form a strategic partnership through SkySea Cruises, a joint venture that is designed to serve the Chinese cruise market. The new company has acquired its first cruise ship, the Celebrity Century. We believe SkySea Cruise will be an innovative cruise company combining the international expertise with tailor-made products and service for Chinese travelers. With our investment in SkySea Cruises, Ctrip will have a strategic foothold and influence in the fast-growing market and the only player in China. Outbound travel is a promising market and we will keep working hard to solidify and extend our leadership in this area. With that, I turn to Jane for operation highlights.

Thanks, Min. Thanks everyone. I'm pleased to share the updates of Ctrip's main businesses with each one of you. At the end of the third quarter, Ctrip has further expanded its hotel coverage to approximately 170,000 domestic hotels and 510,000 international hotels. Room nights grew 69% year over year in the third quarter of 2014. International hotel grew more than 90% year over year, despite the continued impact of the weakness in the Southeast Asian market. We're devoted to provide more values to our customers and our partners. We now offer hostel manager a free and cloud-based property management and marketing system for hostel managers. The system supports hostel managers to manage inventory, price and booking, with convenient PC and mobile-based tools. It is designed to help our partners to accommodate higher demand in a cost-efficient manner. Besides bookings made through Ctrip, the system also helps provide free guidance to help them with their yield management based on their -- based on our extensive customer data. In the third quarter we launched new hostel channel that covered about 50,000 hotels in over 700 cities in China. The reception has been very positive. And we'll keep improving the system according to the users' feedback. The total volume for transportation tickets grew 98% year over year in the third quarter of 2014. Air ticket contributed to the majority of the booking volume and the revenue for the transportation ticketing business. We have added more than 160 international airlines. This brought the number of our total international air partners to over 300 and greatly expanded our service coverage to all regions and destinations around the globe. Train ticket volume grew over 300% year over year. Rail transportation is 10 times larger than air ticket market in terms of the number of the trips.…

Thanks, Jane. Thanks everyone. For 3Q, Ctrip's total revenue of RMB2.3 billion was up 38% year on year and 24% Q-on-Q. Accommodation reservation platform increased 59% year on year, exceeding our guidance of 50% to 60% increase year on year, with revenues of RMB550 million, up 56% year on year and 26% Q-on-Q. Transportation ticketing volume increased 98% year on year, exceeding our guidance of 60% to 70% increase year on year, with revenue of RMB800 million, up 32% year on year and 10% Q-on-Q. Packaged tours revenues of RMB358 million increased 12% year on year, driven by 52% increase in volume for our self-guided and group tours. Packaged tour revenues increased 74% Q-on-Q. Corporate travel revenues of RMB104 million were up 45% year on year, driven by the increased corporate travel demand from business activities. Corporate travel revenues increased 15% Q-on-Q. Net revenue of RMB2.1 billion were up 38% year on year and 24% Q-on-Q. Gross margin was 72% versus 75% a year ago and being consistent Q-on-Q. Product development expenses increased 83% year on year and 28% Q-on-Q to RMB612 million, due to an increase in product development personnel related expenses. On a non-GAAP basis, which is excluding share-based compensation charges, product development expenses accounted for 26% of net revenues, versus 20% a year ago and 25% a quarter ago. Sales and marketing expenses increased 69% year on year and 25% Q-on-Q to RMB598 million, 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, versus 22% a year ago and being consistent Q-on-Q. G&A expenses increased 40% year on year and 25% Q-on-Q, due to an increase in administrative personnel related expenses. On a non-GAAP basis, G&A expenses accounted for 8% of net…

[Operator Instructions] And our first question here comes through from Dick Wei of Credit Suisse.

Hi, good morning. Thank you for taking my questions. My question is on the -- maybe in the fourth quarter guidance. Wonder if management can share more about the volume and pricing trend across the various business lines? And maybe, any kind of outlook for 2015, that would be great as well. Thank you.

Sure. Thanks, Dick. On the 4Q guidance, as we mentioned, overall we target to deliver our top line by 30% year on year. And if we can deliver that, that means, for the full year we could deliver 35% [ph] annual growth, which is higher than our growth target and also imply a strong market share gain by our team. By product line, for the hotel -- for the accommodation reservation business, the volume growth will be around 40% to 50% year on year and the commission -- the bare [ph] price will decline by roughly 5%, and then the commission per room night may decline by 5% to 10% year on year. And then the revenue will grow roughly 25% to 30% year on year. For the transportation business, the volume growth will be 55% to 65%, and the revenue growth will be 25% to 30%. Among the growth is mainly driven by our air ticketing business. And for the packaged tours, the revenue growth will be 15% to 25% and the corporate travel revenue growth will be 25% to 30%. So, combined together, the net revenue for Ctrip will grow around 30%.

Our next question comes through from Alex Yao, JPMorgan.

Hi. It's Yong [ph] calling for Alex. Thanks for taking my question. My question is regarding your investment play into 2015. So, 2014 is a strategic investment year for Ctrip. So as we are entering 2015, just wondering if you could share your initial thoughts on what other key investment areas you are focusing on. And also, if we assume stable competition into 2015, how should we think about the margin trend? Thanks.

Yeah, I think 2014 is definitely investment year and 2015 we'll continue to be investing but I think investing with also emphasis on efficiency. We'll -- as we have a lot of innovations in many new areas, some of the innovations we brought on successfully, some were not. So we'll adjust to maximize our efficiency in the investments we make. But at the same time, I think 2015 will continue to be a very competitive year, as you all realize all the -- all our competitors have very rich valuations, much richer than Ctrip, and they have a lot of resources to also invest. So it's -- I think it will continue to be an investment year, but also competition for which company will have the highest efficiency.

Sure. Just to add to that, indeed as James mentioned, encouraged by the great achievements to this year's investment [indiscernible] which means even more aggressive competition from here. Lately we released our strategies and we decided that to gain market share at a faster pace should continue to be our top priority in the coming year. We will continue to make bold investments to further strengthen our achievement in mobile internet, open platform, technology, brand awareness, and innovation. Along with this decision, we are speeding up investments right -- from now on. In the last -- in 4Q of this year, we will run into loss for our bottom line, with non-GAAP OP margin to be negative chart to 17%. And if we take the medium of the level, it will be negative 15%. This means a decline of 26 percentage points Q-on-Q and 35 percentage points year on year on the margin side. And for more details [indiscernible] our gross margin may decline roughly 2 percentage points Q-on-Q and 3 percentage points year on year, largely due to the hotel coupon, the product mix change and the rising of reservation costs. Among that, hotel coupons impact is roughly 1 percentage point as it will increase from 80% to 20% of the total hotel commission revenues in 4Q. On the impact from product mix change and rising reservation cost, the volume contribution from lower-margin products is increasing, such as the group buying and new products. Secondly, for sales and marketing, it will erode margin by additional 9 percentage points Q-on-Q and 12 percentage points year on year, due to increased branding campaign and product promotion, coupled with lower seasonality in 4Q versus 3Q. Thirdly, for product development, it may erode margin by additional 13 percentage points Q-on-Q and 18 percentage…

Next question is from Philip Wan with Morgan Stanley.

Hi. Good morning everyone. Thank you very much for taking my question. This is George calling in for Philip. I have a question on the competition, especially on the accommodation side. So, first, congratulations on the strong open platform growth. If we think about your business models now, you're doing more open platform and your competitors are currently doing more OTA. And one -- I think one of the unique advantages that you have and your competitor does not have is the hotel wholesalers that you control. So I'm just wondering if you plan to leverage this advantage more to attract users and also in the meanwhile block your competitor, maybe by acquiring more wholesalers? Can you just remind us of the contribution of the accommodation revenue from the wholesalers now? And if that contribution is growing, is it possible that maybe your auditors will make you book gross revenue going forward because of the inventory risk associated? And finally, can you share with us the long-term strategic thoughts on the different positioning of your own hotel business and open platform hotel business? Thanks.

Sure. I think in terms of pricing and coverage, we're very aggressive to make sure our price is the most competitive in the market. Wholesaler is one of the means that we have been taking. The revenue contribution to our total pool is insignificant. However, they give us the leverage and also coverage on the pricing. So it enable our customers to get the price in the market. In terms of the open platform, not only the wholesalers is -- wholesalers only is one of the strategy we're taking to make sure our price is very competitive. We also reach out to many other smaller players in the market to make sure whatever is available in the market, Ctrip will get it. Because we are the largest player in the market, and Ctrip ought to have the most competitive pricing that is given to the other players online. So that's the first thing. We did very well in the quarter. And continuously it's our focus. And secondly is the coverage. Our open platform is growing very fast. So our goal is to grow that portion very aggressively to make sure we have total [ph] market and make sure we get the coverage in a very short period with very competitive strategy, with very competitive pricing structure as well. And meanwhile, with the strong pricing and coverage, it enhance our customer satisfaction rate and empowered by our high quality of the services, the quality of our customer and learnings power in our platform is much stronger than the other players in the market. So, going forward into 2015, the best pricing, best coverage, best service, will still be our strongest competitiveness into the market.

Our next question is from Chi Tsang with HSBC.

Good morning. Thank you for taking my question. I was wondering if you could give us a sense of your expectations on pricing for packaged tour next year. Obviously this has been impacted by the ASEAN situation. What's your sort of current outlook for any type of recovery in pricing for packaged tours? Thank you.

Sure. I think the packaged tour in terms of transaction volume and headcount grow very well, almost every quarter we deliver more than 50% year-over-year growth. But this year [indiscernible] has suffered a little bit stableness, including what happened in Malaysia, what happened in Philippines and also in Thailand. So, going forward into 2015, if the political situation is stabilized, we are very positive that the recovery on the pricing will be achievable. And we will continue to work on our open platform to make sure into the second-tier and third-tier cities with retail to the smaller vendors and make sure their pricing and also coverage is on our vacation package platform, to enable our customer to get the best price and best coverage for the product. So we are very positive in terms of the pricing going into the 2015.

Our next question is from Fei Fang with Goldman Sachs.

Hi. Thanks for taking my question. We have seen continued macro headwinds in the domestic economy, with slowing growth and lower demand in some of your peer internet verticals, including advertising. What's your assessment of the travel demand in 2015? Thank you.

We are still very optimistic about the travel demand, as people don't spend money buying houses, even buying cars. If they cannot buy houses and cannot buy cars anymore, in big cities anyway, I think they -- even though their income is growing maybe single digit, actually we think the income growth is going to be higher than the GDP level growth, but their travel consumption will be at least double the GDP and income growth. And particularly on the high end of the market where we have an advantage, for example, outbound travel or high-end hotel, air ticket consumption, I think these double the growth rate of the income. So we are still very optimistic of the travel demand.

That's great. Thank you.

Thanks.

Next question is from Alicia Yap with Barclays.

Hi. Good morning everyone. Thanks for taking my questions. My question is regarding your accommodations volume. So can you maybe share with us the breakdown of each of the hotel categories, for example, the percentage from the four and five-star hotels, percentage from three-star and below, your group buys, your wholesale volume, and also percentage from open platform? And any of this percentage from the volume that may agitate [ph] inventory risk? And in relation to that, can you actually tell us, what is the current accounting booking for your hotel inventory that you take inventory risk? Is that on the growth on the net basis? Thank you.

Sure. In terms of the category, we're very diversified. We try to -- not to have concentration of the risk in our business. So from five-star, four-star, three-star and also hostel, as we discussed before, the revenue is very evenly spread. No segment will -- we will not concentrate on one segment. That is why, no matter what happened in the market, our model is very resilient. Secondly, we do not normally take inventory risk. We only, you know, the most of the customers we have guaranteed allotment, so, unless it's really during the peak, peak season for one or two hotels that you need to buy. But most of the hotels we just need to have a guaranteed allotment to -- with the hotels to ensure the availability. And based on our volume, hotels will prioritize Ctrip's customers in order to get a great volume from us. So in that, the booking and accounting is similar to the commission rated hotels. In terms of the contribution into the future, I think Ctrip started with the business travelers, and we're very aggressive moving into the travel -- leisure travel business. So for our team, have hired people in the second-tier cities, third-tier cities to make sure all this inventory reflected in our platform on a timely manner. And in addition, not only we have our own self-contracted team, we also opened it to the market. So to an extent, in a market, there are other players with better inventory availability, we'd be happy to lift their inventory onto our platforms as well. That is why our growth rate in the past few quarters have demonstrated very strong growth, although our base is very large, our growth rate has been pinned at around 69% for last quarter. I think the concerted efforts into the pricing and coverage are the main reason contributing to our strong growth.

Sure. To add more color here, we achieved volume growth of 69% year on year. Actually that's the highest growth rate in the past decade for Ctrip. This is primarily driven by our superior services that enrich hotel product offering and improves price competitiveness. Now you see we are offering a full range of hotel products covering postpaid, prepaid, group buy, tax and [indiscernible] prices and also providing regular hotel accommodations, vacation rentals and hostel facilities. Not only our regular hotel business has maintained the strong growth but also we are very pleased to see many of our new initiatives that we have been milking [ph] in the past two years are growing up to become strong growth drivers. For example, our international hotels grew 19% year on year, despite the continued impact of weakness in the Southeast Asian market. Our group buying business saw the volume growth more than double year on year to reach the tier one league. Our [indiscernible] hotel grew volume about 200% year on year to contribute about 20% of our total room nights. We are very pleased to [indiscernible] going forward. Ctrip's hotel business is [indiscernible] strong growth engine. And Ctrip is to be the best partner of choice for both our customers and our suppliers.

Our next question is from Eddie Leung with Merrill Lynch.

Hi, good morning. I have two questions. The first one is about the trend of commission per ticket as well as per hotel room night. Could you share more color with us on the commission trend in the first quarter? And how much the impact was from industry pricing changes and how much the impact was from couponing? And then secondly, you mentioned that there could be a pretty big increase in headcount cost in the fourth quarter. So, just wondering, how many headcounts you have right now and what's the change into the fourth quarter? Thanks.

Okay. First of all, on the commission trend, for the air ticketing, airlines usually adjust their commission rate from time to time, and based on the market supply and demand. That's why we see commission rates fluctuate in different seasons. And also air commission rate usually includes a fixed part and also a flexible part. Recently airlines are just down the six part and improve their sales and marketing efficiency. And for Ctrip, we see some commission rate decrease post this structure change. However, the impact overall is very limited given our large volume. And now our overall commission rate for air ticketing is still relatively single [ph], somewhere around 4% to 5%. We received [indiscernible] but higher starting bonus in our large-scale and wide-part spectrum. And going forward, no matter how the market evolves, Ctrip will continue to work hard to provide the best value for our customers at a relatively lower cost, and remain the most efficient and effective distribution channel for airlines. We believe that our competitive advantage and also the highest entry barrier. Yeah. Comparing to the higher commissions, airlines are also increasingly [indiscernible] to promote tickets with multiple travel components. Ctrip is best partner for airlines with our wide part offering and high operating efficiency. That's for the air ticketing commission rate trend. As for our hotel, for our hotel, our hotel revenue is -- has -- is a multiple of the volume growth and the ABR [ph]. And for the overall ABR [ph] trend, first of all, our blended ABR [ph] has two components. One is selling price of the room nights and second one is the commission rate that hotels give to us. And for us, our focus is to gain market share and penetrate into the air travel market aggressively. And so…

Next question is from Michael Olson with Piper Jaffray.

Hey, good morning. You talked a lot about group buy and your cruise line and some other new initiatives that you're investing in. The cruise line in particular would have been an example of a category that we may not have expected you to enter directly several quarters ago. Are there other categories that you're looking at that could cause further investment that you'd like to add to your portfolio of offerings, or do you feel that at this point you have all the categories addressed and don't anticipate further investment in new categories, which is deeper investment in the existing categories that you have? Thanks.

Yeah. Overall we're generally very active or take a very open attitude towards investing in China's travel market. There I think different kinds of investment opportunities, some are more asset-heavy, such as the cruise business we're in, others more asset-light, for example, two operators, and some just have a lot of traffic on the front end, we categorize at the front end, traffic generating investments. So [indiscernible] I think depends on the timing. Sometimes some of investments are more high -- more I think richly -- more richly valued than some other times. Now currently the traffic asset is very richly valued, some that are asset-heavy assets actually not as richly valued, and then some of the asset-light resource type of investments is somewhere in between. So we take a more -- very open approach, but very strategically think about the kind of valuation, the kind of timing that we want to invest in. And also, in terms of synergy, I think Ctrip is also looking at the leaders in each category, and those leaders who usually have a very strong market power and very valuable partners in many of our products, many of our value chain that provides service to our customers. So on a synergy level, we also have this consideration. So overall that's kind of -- you know, we cannot comment on specific investment, but that's the overall philosophy of our investment strategy here.

Sure. Just to add more color here. You know, Michael, Ctrip, our goal is to build a one-stop travel platform to our customers. And our vision is that, no matter who they are, they come to Ctrip's platform, they will find the most comprehensive products at best prices with the best services. To achieve that goal, the comprehensiveness of product offering is key. And so to achieve that, we have, internally, we have a lot of innovation and milking a lot of new projects. And externally we are very open and proactively searching for the good candidates. And for our investment, our investment philosophy is, on one hand we're very open, on the other hand we are very focused. We only focus on the travel-related areas. And we're consistently looking for the new talent and technology and resource and good things, that could strengthen the strength of our flagship. And then we also -- when we're handling the investment, we also have a very scientifically managed system in that we have very strict internal evaluation system, and also we skillfully adopt the best approach to make the balance between the growth and the financial impact. And for your, for example, for the so-called having this asset investment, in the early years when we invest in Home Inns and China Lodging and our recent investment to -- in this cruise line, we all adopt this kind of strategic investment style, and we -- the overall impact for our P&L is very manageable. So overall our platform is still very much like asset-light. And going forward, as a leader in this online travel market in China, we are very willing to work with leading teams in this market and want to develop a healthy industry together with everyone. And as long as the new investment can help us to achieve this goal, to build the best one-stop shop platform, we are open to that.

Next question is from Jiong Shao with Macquarie.

Thank you for taking my questions. Really appreciate the detailed commentary about the margin for Q4. Your operating expenses I think was up 30% sequentially in Q3 and is guided to be up another 30% sequentially in Q4, which is also going to be over 100% growth year over year. I was just wondering, just follow up on the operating expenses, how much of the expenses in Q4 is going to be more headcount related, how much is more sort of marketing promotion driven? That's a follow-up. My question is on the internet finance related. I think given you now have tremendous amount of G&D [ph] through your platform, could you talk about your thoughts around perhaps have your own payment? And then you have launched some internet finance products recently. Could you also give us an update on what you have done and what you are thinking about doing in the next few quarters? Thank you.

Sure. Jiong, as I mentioned, for the sales and marketing in 4Q, the sales -- it will erode the margin by additional 9 percentage points Q-on-Q. And this is largely, the majority of expenses is related to our brand campaign and the product promotion. And the headcount increase for that segment is very minimum. And this year we're making very deep penetration into the lower-tier cities. And we already achieved great achievement there. And the branding campaign especially meaningful for those lower-tier cities. And so on the dollar amount, actually if you look at the 4Q versus 3Q, it's largely similar. And so the margin impact from sales and marketing this quarter actually also due to the soft seasonality in 4Q versus 3Q. And then on the product development and G&A part, the majority of -- on the Q-on-Q basis, the product development will increase -- will erode the margin by additional 13 percentage points Q-on-Q and 2% Q-on-Q for G&A. And the majority of that is due to the headcount increase, and especially on IT and on the business development. And we actually, if you look at our headcount increase, Q-on-Q in 3Q, the overall headcount increase for that segment -- for an item, the PD, actually grow over like 1,200. And we will hire more in 4Q. And the majority of that will be -- the full quarter impact will be -- will emerge in 4Q. And coupled with softer seasonality, so you'll see the very bold -- the significant margin impact. But those people, when they tune in [ph], they gradually will fit into our system and they [indiscernible] to become more functional. And so after one to two quarters, we would expect the great performance from each of this investment. And so that's why we expect in 1Q next year our margin will be largely Q-on-Q flattish, but we could expect certain recovery in the quarters to come. And for 2015, for the full year, we still can expect the margin to be roughly flattish on a year-on-year basis.

Next question is from Ella Ji with Oppenheimer.

Good morning. Thank you for taking my questions. I have two questions. First, your 4Q guidance for the accommodation and transportation ticket volume both indicating a sequential deceleration from the prior three quarters. Can you provide some colors of that? And secondarily, relating to your operating expenses, I think management mentioned that you're having -- investing in a lot of new projects, you call it Little Tigers. I wonder if you can break out your operating expenses increase, I mean, how much of that is for the investments, the new initiatives and how much is for your existing business? Thank you.

Sorry, I missed your first question. Would you please repeat?

Sure. The first question is relating to your 4Q guidance. For the volume for both accommodation and transportation, the year-on-year growth of the volume are both indicating a sequential decline from the rest of the year. So I just wonder if you can provide some color of that.

Sure. Actually our growth is still very solid and very healthy, and 4Q tend to be a soft season, and the seasonality was 3Q strongest every year and 4Q is kind of soft. And something new this year is that we see and gradually the Chinese travelers become more mature and they are trying to avoid the traffic jam during the peak season and in the Golden week. So we find out most -- a lot of travelers actually plan and take the leave, take the vacation in summer, and kind of diluted the traffic and the [indiscernible] that we see in Golden week this year. And this kind of new sign, and it's too early to see a pattern, but is kind of additional layer to the softness of the 4Q. But overall we still see the very strong volume growth for our hotel and for our air ticketing and transportation business. And sorry, what's the second question?

Yeah, I can address the second. In terms of the operating margin, we guide a net income on GAAP basis for Q4 around RMB400 million to RMB500 million loss, on GAAP basis. The main reason is because we're very aggressive in terms of our investment into the market, technology, second-tier city penetration, and new businesses. So, to address your question, the new Baby Tiger program contributes to about 8% to 9% of the margin impact. And also for IT, that's about 8% in terms of the margin impact. And also we hide a lot of people to penetrate into the second-tier cities and third-tier cities to make sure all the inventories in these cities support our fast growth. And that is another 3 percentage of the impact into the margin. So this investment in the short term might impact our Q4 margin, but in the long term will enable us to take greater leadership into the market. So we are very decisive in making these investments upfront, to make sure we lay out a solid foundation going forward into the next few years.

Next question is from Tian Hou with T.H. Capital.

Good morning management. I have a question related to your platform model. And I wonder, in terms of air, how much -- what percentage of air volume come from your platform? And also in terms of hotel, what percentage of volume come from your platform model? And also for those transactions happened [ph] from your platform model, is there any difference accounting treatment than your normal OTA business?

Sure.

That's my question.

Sure. The open platform is our major strategy going forward, because again it enable us to give us the leadership for time to market and enable us to get the best price in the market, with the greatest coverage, within a very short time period. So for air, more than 60% of our revenue are coming from the open platform already. For hotel, it's very new but it's somewhere around 5% to 10%, and growing very fast as well. And for packaged tour, it's about 15% and moving again triple digits very fast. So, because we have a very strong service platform, IT system, once our API is connected with these smaller vendors, they can see great volume from our customer. So, lot of vendors very much like our platform and are very willing to put their product onto our platform. We think that's a great strategy for us to go forward. Secondly, our service platform is also very strong. So, not only we have open platform, we also guarantee certain level of the services for our customers. Therefore, from our customer side, they get the best price and best coverage with the guarantee of Ctrip brand and Ctrip service. So our customer is also very happy with our open platform product. And thirdly, because of the product comprehensiveness and price competitiveness, the quality of our customer and earnings power is very strong. So, normally we can upsell products at much strong level than the other platforms.

Next question is from Yu-Heng Fan with China Renaissance.

Hi, good morning. Thanks for taking my questions. I have a follow-up question for the open platform. You mentioned in your prepared remarks, you have a 1 billion GMV hotel transaction from open platform. I wonder if management can share what will be overall GMV and room night contribution from the open platform to your core hotel business. Thank you. And what will be the take rate differentiation between the open platform and room nights sold by your own inventory? Thank you.

The direct [indiscernible] hotel commission rate is stabilized between 10% to 15%. And on the open platform, it depends on the vendor. If the vendor give us very good, attractive inventory, we work with them to make sure it's a win-win proposal. So, sometimes it's a tiered proposal, if we give them certain volume, they give us certain take rates. But again it's on individual basis and we talk with them to make sure they gain -- they have financial gains on this arrangement and make sure it's a win-win partnership.

Next question is from Fawne Jiang with Brean Capital.

Thank you for taking my question. The question is actually on the competitive landscape, near term, mid/long term. Just wonder, James, how do you look at the mid/long term competitive landscape in the space, particularly in the near term it seems like all the players are aggressively going after market share? Do you see that as a race to the bottom? So, essentially is the competition eventually you'll see weaker player will be eventually out of the market, or you see at some point all players will most likely play a more I guess a fair game and scale back the aggressiveness? And do you see the potential of -- or encourage further industry consolidation down the road?

Yes. So looking ahead maybe short term and midterm, a year or two years, I think we'll face continued pressure as more players are putting more resource into this very promising high-growth market. As you know, Alitrip has recently entered this market with a new brand. And Amazon just entered this [indiscernible] so we may see them at some point and in the future in China. But I think at some point, as the market -- certain parts of the market will have more mature growth rate and people will -- I think all the players will start to think more rationally and it's time to make some profit, and at that point we'll see some consolidation in the market. For example, actually, earlier this year, we invested in Tong Chan [ph] who is really becoming a partner now. Now they actually -- is working with us. They don't directly get into the hotel business anymore, they're working with us as a distributing channel for our hotel business. This sort of arrangement, I think once of the market slowed down a little bit, we'll see more of in the future. But that'll probably be a year or two years from now.

And our next question is from Aaron Kessler with Raymond James.

Yes. Sorry, I've got a couple of questions. First, on the transportation growth, that slowed somewhat from 39% in Q2, about 32% in Q3. Just wondering if there's anything one-time in that slowdown or just maybe the overall -- maybe the air market slowed a little bit, more macro related? And Jane, could you update us on kind of the long-term operating margin expectations and maybe how much the couponing will determine kind of what that long-term growth operating margin is? Thank you.

Sure. So for air ticketing, I think the momentum is still very strong. In Q3 last year, the base was a little bit higher. So there's no specific one-time event there. But it's -- the market only delivers single digits growth rate year over year. In terms of the margin in a long term, Q4 we invest very heavily to lay out a solid foundation for the future years, but our goal in the long term should be continuously improve our internal efficiency. The money we save from internal efficiency will enable us to respond any competition in the market, meaning, if there is any irrational competition on pricing, we'll be able to respond very swiftly. The key for us is to remain very competitive internally in terms of operating efficiency. And with that efficiency and the cash balance we have on the balance sheet, we'll be able to offer the best and most competitive pricing structure for our customers. In the long term, our goal is recurrent margin to range somewhere between 20% to 30% gradually. If you look at the international player, when the market stabilize, I think that's a reasonable range to achieve.

Sure. Just one more color --

Thank you. Thank you.

Sure. And I just think, since you mentioned the transportation volume growth, and I want to highlight that, among that, the key growth driver is still from our air ticketing business. And in 3Q [indiscernible] our volume growth is about 40% on a year-on-year basis, which is the highest growth in the past several years, and over three times industry average. And also for our train ticketing, growth is over three times on a year-on-year basis. And when we're building larger and larger base, it makes it harder for us to deliver fast and even higher growth rate. But we are kind of like accelerating here. So that's due to the consistent efforts of our team. And we are very confident that we can continue this kind of trend, and further enhance [ph] our leadership versus the peers.

Okay. And we have no further questions in the queue, so I'll turn it back over to Michelle for any closing comments.

Thank you everyone for joining us on the call today. A replay of the call will be available as usual on the IR website shortly after the call has been completed. We appreciate your interest in Ctrip and look forward to convening with you again next quarter.

Thank you very much.

Thank you.

Thank you.

Thank you.