Good day, ladies and gentlemen, and welcome to the Q1 2016 Ctrip.com International Ltd. Earnings Conference Call. My name is Whitney and I'll be your operator for today. At this time, all participants are in listen-only mode, later we will conduct a question-and-answer session. [Operator Instructions] I would remind you this call is being recorded for replay purposes. I will now turn the conference over to your host for today, Shiwei Zhou, Senior IR Director. Please proceed.

Thank you, Whitney. Thank you for attending Ctrip’s first quarter 2016 earnings conference call. Joining me on the call, we have Mr. James Liang, Chairman of the Board and Chief Executive Officer; Ms. Jane Sun, Co-President and Chief Operating Officer; Ms. Cindy Wang, Chief Financial Officer, and Ms. Jenny Wu, Chief Strategy Officer. We may during this call discuss on 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, Jane and Cindy will share our strategy and business updates, operating highlights and financial performance for the first quarter as well as the outlook for the second quarter of 2016. We will also have a Q&A session towards the end of this call. With that, I will turn the call over to James for our business update. James, please.

Thanks, Shiwei, and thanks everyone for joining us today on the call. We had another strong quarter with great results. The Company continued to perform well with revenue up 80% year over year, driven by strong execution in addition of a company Ctrip has been investing. This was the first full quarter of financial consolidation since we invested in this company. We are pleased to see significant operating margin improvement in the quarter versus a year ago. In the following discussions, I would like to talk about the operational improvements we have achieved, innovation on Ctrip, and the outbound travel business. Let's start with the improvements made since the investments late last year. Ctrip is strong in customer service and the investor company is strong in technology. Leveraging both strengths, we were able to improve customer service quality and operational efficiency at the same time. Air ticketing business has been going through with some adjustments recently. We believe these adjustments are good for the industry and will be short term in nature. Over a long-time horizon as one of the strong, most efficient distribution channels with a large custom user base will continue to provide our customers with high quality service and work closely with airlines to create more value. Now let's move on to innovation on Ctrip. In order for Ctrip to expand its leading position, we currently innovate our product, service, and technology. To achieve this goal, we have been proactively nurturing new business ideas. We started many new business initiatives in the past several years including all our new business units. To make innovation a company-wide priority, we have just launched an innovation incubator to encourage new business ideas. Many of our young employees participated in a recent innovation competition which showcased a variety of interesting ideas…

Thanks James, hello everyone, this is Jane speaking. I'm pleased to share updates about Ctrip's main businesses with you. First, hotel and other accommodations. At the end of the first quarter of 2016, Ctrip's domestic hotel coverage reached 425,000 hotels, increasing by almost 60% year over year. In the quarter, total hotel revenue grew 70% compared to the same period last year. Outbound travel continued to be a key growth driver for hotel business. With key industry players now focusing on long-term sustainable growth as opposed to short-term market share gain, we continue to see price competition becoming more rational. Ctrip’s hotel coupon expense ratio has decreased to high-single digits. Second, transportation ticketing services. Total transportation revenue grew 106% year over year in the first quarter. Train tickets maintained its strong growth momentum with volume growth exceeding 350%. Bus ticket continued with its faster growth. This business reached a breakeven on the quarterly basis shortly after its establishment. Air ticketing business continued to grow very nicely, driven by healthy volume growth, and international ticketing revenue continued to maintain at the strong growth rate. To strengthen our multi-mode transportation product offering, we have introduced ferry ticketing service. The service covers ferry tickets sales across China to certain outbound routes to countries such as Japan and Korea. Third, on packaged-tour business. Packaged-tour revenue continued to grow at a healthy rate, up 41% year over year and driven by healthy volume growth. As we discussed recently, the packaged-tour business focused on building a strong ecosystem. We now have almost 10,000 partners on the platform,. We have also recently partnered with [indiscernible], a major travel agency and local travel agencies in Chengdu to leverage thousands of physical stores to explore both online and off-line marketing opportunities. We have also introduced a new restaurant [indiscernible]…

Thank you Jane, thanks everyone. For the first quarter of 2016, Ctrip reported total revenue of RMB4.4 billion or US$682 million, representing an 80% increase from the same period in 2015 and 45% increase from the previous quarter, primarily due to a very healthy revenue growth across all business lines and the consolidation of the financial results of Qunar. Accommodation reservation revenues for the first quarter of 2016 were RMB1.6 billion or US$250 million, representing a 70% increase from the same period in 2015 and 36% increase from the previous quarter, primarily driven by a healthy volume growth and the consolidation of Qunar. Transportation ticketing revenues for the first quarter of 2016 were RMB1.9 billion or US$302 million, representing 106% increase from the same period in 2015 and 57% increase from the previous quarter, primarily driven by an increase in ticketing volume and a consolidation of Qunar. Packaged-tour revenues for the first quarter of 2016 were RMB556 million or US$86 million, representing 41% increase from the same period in 2015 and 59% decrease from the previous quarter, primarily driven by an increase in volume growth of organized tours and self-guided tours. Corporate travel revenues for the first quarter of 2016 were RMB116 million or $18 million, representing a 25% increase from the same period in 2015, primarily driven by an increased corporate travel demand from business activities. Corporate travel revenues decreased by 15% from the previous quarter, primarily due to seasonality. For the first quarter of 2016, net revenues were RMB4.2 billion or $648 million, representing an 80% increase from the same period in 2015. Gross margin was 73% for the first quarter of 2016, compared to 70% in the same period in 2015 and remained consistent with the previous quarter. Excluding share-based compensation charges, product development expenses accounted for…

[Operator Instructions] Our first question comes from the line of Binnie Wong with Merrill Lynch. Please proceed.

Good morning management. Thank you for taking my questions. I have two questions here. One is on the 2Q growth guidance of 70% to 75%, which implies slightly lighter growth as we have seen in 1Q. Does that reflect any particular trends we have seen in our core air and hotel segment? On air, is that due to the impact of an extended weakness in Qunar's air segment? And on hotel, is that due to [indiscernible] volume growth? And also can you share with us more color on 2Q growth outlook by air and hotel? And my second question is on the hotel segment. I understand from your opening remarks that coupon ratio decreased into high-single digits. But with the rising competition, we have seen in the low-end segment, just want to clarify what is the trend of coupon ratio looking forward into 2Q? Thank you.

Thank you, Binnie. For the first question, although our air ticket business is experiencing some adjustments recently, but we are still very confident and we are on the right track to achieve our long-term target. Now, our strategy is to achieve a very healthy and sustainable topline growth, and at the same time, steadily improving our operating margins. And as for the guidance of the next quarter Q2, we plan to achieve 70% to 75% year-over-year growth on the net revenue and each business items, many driven by very healthy revenue growth across each business items as following. For the accommodation business, the gross revenue will [indiscernible] at the rate of 70% to 75%. And for the transportation service, the gross revenue will grow at a rate, year-over-year rate at around 95% to 100%. And packaged tour business will also see a very healthy topline growth at around 45% to 50%. In the first quarter of 2016, Ctrip and Qunar together had a very significant non-GAAP operating loss over 300 million, and this first quarter by very successfully executing our strategy, our consolidated non-GAAP operating margin turned to be profitable. And we forecast for the coming second quarter, we will continue this momentum and we will have non-GAAP operating profit in the range of a breakeven level to RMB100 million. As for your questions on the lower-end of the hotel market, yes, Ctrip together with Qunar, because so we are in a different market segment. For the comparatively lower-end of the hotel market, we will continue to be - for the high-end of the hotel market, we already see very healthy and sustainable pricing. There is no very fierce pricing competition on the high-end hotel and that’s why you see Ctrip’s couponing on the hotel segment has lowered to high-single digit from mid-teens from the fourth quarter of 2015. And also for Qunar, they also reduced their coupon ratios on the high-end, but for the lower-end because it’s still a very competitive market, we will keep pretty competitive pricing strategy to put the pressure on any potential competitors in the segment.

Thank you.

[Operator Instructions] Your next question comes from the line David Jin with Goldman Sachs. Please proceed.

Hi, good morning management. Thank you for taking my questions. Just have a one quick follow-up on your hotel business. So if we think of the competitive landscape in China’s online hotel market, how do you define your advantage versus other players? We understand you cover the largest number of hotels, you have a longer track record in China, but any other metrics or things that you will highlight that you think it’s an advantage, which are hard for your competitors to replicate or catch up? Thank you very much.

Thanks, David. This is Jane. The reason why Ctrip is in a very dominant position in the hotel business is that we have built-up lots of barriers to entry. Hotel coverage, as you said, is one of them. The second way is also we have guaranteed allotment and that is the highest in the market. So during the peak season, while other players will not be able to get the hotel rooms, we will be able to get it. Thirdly, our service level is very strong. So, in case there is a major blow in the airlines, our hotel team will team up with our air ticketing team to make sure customers are well taken care. And fourthly, I think the product off late is very comprehensive. If you look at our [indiscernible] website, you can see from five star, four star all the way to hotels – the chain hotels and also [indiscernible] will have homestay and will have [indiscernible] service apartments. So with this broad range of the types of hotels that we offer, you can find anything that is suitable for your price range and service range. And lastly, I think Ctrip offers a variety of the products and each product is very attractive for pleasing the travelers. So we think our platform after you book air tickets, it’s very easy for you to see where the destination is and where you can book the closest hotel, and after hotel, you can book other accessories services. So with this comprehensive product offering, that is also a strong advantage for us. With all the strength we discussed above that continues to extend our leadership in the market.

Your next question comes from the line of Alicia Yap with Citigroup. Please proceed.

Hi, good morning, James, Jane and Cindy. Thanks for taking my questions. I have a question – I just wanted to get a sense of the integration process on the back-end, especially post the consolidations and integrations of both Ctrip and Qunar. Just get a sense how Ctrip and Qunar direct and allocate the user traffic into each specific hotel or inventory. So if we looked at - the reason is that because if we look at the standalone Qunar results on the sequential basis, it seems probably it’s a more sequential change with decline in the history. So just trying to get some color, is that mainly due to the integration disruptions to the Qunar’s team which affects the sequential performance or should we expect some of these changes will continue in the coming quarters even maybe perhaps your dynamic algorithm on directing where the user traffic goes? Thank you.

So just for Ctrip and Qunar, they are known to be two independent companies. Our focus is mainly on business travelers and mid-to high-end customers, and our strategy is service -- very much service to them. Qunar’s team is tailored for young and price sensitive customers and they are very good at it. So the team continues to execute their strategy. I think the results are primarily – their results primarily reflected adjustments in the air industry where Qunar was the only company being listed to certain number of traditional travel agencies from their platform. In Q3, starting July 1 every platform will follow the same rule, so the volumes will come back to the service provider which has strongest technology platform and service platform.

Your next question comes from the line of Natalie Wu of CICC. Please proceed.

Thank you for taking my question. I just have one question regarding the – hello.

Yes.

Okay. Yes, just how should we think about the driver behind 70% revenue growth rate in accommodation revenue? Can management give us some color on both coupon, OTA and take rate and also average of both the channels, coupon rate and take rate in this segment?

Yeah, I think a very healthy 70% to 75% revenue growth for the accommodation service and mainly driven by a very healthy volume growth and forecasted a stabilized ADRs and further as per the couponing, yes, there is room especially on the high end hotel market to further reduce the coupon. But overall speaking you will see a very gradual decrease on the couponing of the time and if you are looking ahead, I think the overall accommodation reservations service revenue line, we will continue to see a very, very healthy and sustainable revenue growth driven by volume across all the high end as well as the low end comparatively lower end of the hotel market.

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

Thanks for taking my question. I just have one very quick question on the recent air commission changes. Can you give us some update on the policy changes from CASC as well as implementation by different airlines and also how that is going to affect Ctrip commission exchange in the longer term. Thank you.

Thank you. Wendy. Airline commission change is, yes, especially Qunar’s, their financial as they are going through some adjustment in the air ticket business, but as for the airline commission changes, we think it will have some impact on the air commission revenue, but we are still very confident that we can maintain the current blended take rate level because we have the skill and the leading technology and we offer the high quality products and services at very reasonable cost levels. And Ctrip now we believe we have one of the most advanced international air ticket platform among all the global OTAs, so international air tickets are ready and will continue to be our key growth driver.

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

Hi, good morning, management. Thank you for taking my question. I have a very quick question on the package tour, Aubagne Travels. Can you give us more color on the Aubagne Travel’s contribution to the different business lines and also we noticed that you launched a new project based on [indiscernible] Can you give us more color and your plan to spend the 1 billion investment. Thank you.

Yes, Aubagne Travel international related travel has been a key growth driver across all our all business lines, so for Ctrip brand Aubagne Travel accounts for the hotel - for the accommodation reservations Aubagne Travel accounts for roughly 15% to 20% of our hotel accommodation revenues and for the air ticket, international air ticket already accounts for around 30% of our total air ticket revenues and majority of the Aubagne, a majority of our package tour basically is revenue contributed from Aubagne Travel already. Regarding our campaign for Freedom in the year, yes, every year, our team will come up with greatest ways to target different segments and this year we will put efforts to penetrate not only the first tier cities, but also the second tier cities and third tier cities where [indiscernible] has benefitted certain buying power and that will enable us to aggressively to get into these markets.

Your next question comes from the line of Justin Patterson with Raymond James. Please proceed.

Great. Thank you very much. In terms of air, just to dive into the take rate question a little bit more, we’ve seen take rate pressure in the past beginning in 2014, could you talk about what’s different this time, how disruptive is compares to the past and why your confidence that take rates will remain stable? Thank you very much.

We remain confident simply because Ctrip really have the scale and better technologies and we created values in the whole value chain with a very reasonable – we distribute air ticket with very reasonable cost. So the take rates really have seen – have been maintained at very steady level, the ability for us to sell the volumes, selling large volume to our user base enabled us to also generate ancillary revenues associated with travel capital.

Your next question comes from the line of Henry Guo with Summit. Please proceed.

Thanks for taking my question. So again on the air ticketing business, so I believe you guys disclosed before the take rate is very similar between the open platform and also OTA. Can you provide some update in terms of what the volume percentage in terms of OTA and open platform and also the take rate difference there? Thank you.

The volume contributed from the open platform has been around 60% of all ticketing volumes and we have a similar level of blended take rate from the volumes contributed by open platform as well as the agent model.

Your next question comes from the line of Amanda Chen with Morgan Stanley. Please proceed.

Good morning, management. Thank you for taking my question. So my question is still regarding the air ticket. Can you share with us how much revenue now is from the cross-selling product and how much is from the commission fee? And also I think from China airlines, you launched some new policy and if that will impact the cross-selling revenue a little bit and how do you feel – do you think other airlines will follow the similar policy in future? Thank you.

Yeah, air ticket business, if you look at a loyal customer book, travel related product, during their decision making process air tickets is kind of a starting point, so it makes sense for us to cross sell a variety of products that customers need and at the same time Ctrip will be a one-stop shopping center, so we have a lot of choices for customers to choose, so that’s why we can cross sell our travel related products together with our air ticket business. I think it’s very sustainable because this is a business model I think from a customer perspective it’s very helpful and useful. And as for the air commission – airlines’ commission policies, yes there will be some impact on Ctrip’s air commission revenues, but as I said before as long as we sell or cross-sell products that is useful for our customers as this model will work.

Your next question comes from the line of Alice Cai with HSBC. Please proceed.

Good morning, management. Thank you for taking my questions. I have one question about the Pack 2, so recently in May we launched a lot of flying campaigns with agencies in Chengdu and Chongqing, so it is already one month past, can management share with us the effectiveness of this campaign? Is there any useful data you can share with us?

So these campaigns are very targeted to the area that has demonstrated a strong buying power such as Chengdu and Chongqing with certainty density in population, so this area we – our team carefully monitor the density and buying power and if we believe that investing in this area will generate a strong ROI in the future, we will invest in it. So we have been exploring to team up with the local travel agencies, help them promote our product and it has been very successful try and we will continue our efforts as long as we see the positive return.

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

Hi, thanks for taking my question. Good morning, Cindy, Jane and Jen.

Good morning.

Congratulations on the -

Thank you.

I just had two housekeeping questions. One is a follow-up. How much percentage of your air ticketing volume is sold with a vendor or a package and how much of that is attached with the insurance, if you can give us some color. And another question is on the others revenue. How do we break down Qunar’s average revenue into our consolidated revenue classification? I presume [indiscernible] will go to respective categories, but how much percentage is remaining that will go to your others revenues, besides digital advertising.

Yes. So, for the air ticket business, because we sell air ticket and after a customer chooses an air ticket, we will cross sell product that is useful for customers. So we call it cross sell. And for the other revenues [indiscernible], I think hotel and especially air ticket, two pillars for the revenues in the past. All the other revenue lines is comparatively immaterial in the financials.

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

Hey, good morning. Outbound travel is obviously a big opportunity, you talked about how it's growing as a percent of the business. You have a partnership with Priceline for hotels, but I was curious if you could tell us how aggressively you're pushing in to hotel acquisition outside of China on your standalone without that partnership. Thank you.

Sure. As we set with the income level for Chinese citizens, that's increased year-over-year and also beta restriction for Chinese citizens are being relaxed for a lot of countries. So outbound trend is growing very strongly and as the leading player in the China market, we will cut a lot of resources to make sure we have our customer is interested for these destinations. We will make sure we have sufficient inventory and products to satisfy their needs. And historically, Ctrip and Priceline have very strong partnerships. So within China, we opened our inventory for Priceline and outside of China, Priceline opened their inventory to us. And so far, we have always respected Priceline and we also strengthened our partnership over the last few years. Thank you.

Your next question comes from the line of Jialong Shi with Nomura. Please proceed.

Hi. Good morning, management. Thanks for taking my call. And so I just have one quick question. So for each of your business lines, hotel, transport, patient and packaged tour, just wondered how much of their revenue is contributed by outbound travel and also can management provide some color on the outlook of the outbound travel this year and what was the total GMV you achieved for 1Q. Thank you.

Yes. For outbound travel, for the accommodation reservations and Ctrip brand, outbound travel already contributed 15% to 20% of our total accommodation revenues and for the air ticket, international air ticket already contributed roughly 30% of our total air ticket revenues and packaged tour, a majority of our volumes and 60%, 70% of our packaged tour revenues are contributed from outbound travel business already and we see a very healthy and very also very healthy and significant growth in outbound travel and across all business lines and international related travel already contributes more and more GMVs for Ctrip as a whole.

Your next question comes from the line of Ming Xu of UBS. Please proceed.

Hi. Good morning, management. Thank you for taking my question and congrats to date on the very strong quarter. I just have a question on the airline business. So, we understand that in June and the airline companies have announced some new policies regarding commissions and also the policies on cross sell. So I just want to understand from your perspective, do you think the kind of negotiations between or the opportunity between CNI and Ctrip and also the airline companies is now over or is there still some remaining overhead and specifically I think from what I've asked before previously on the cross selling things, because I think the airline companies are trying to be stricter on the extent that you can cross sell, so do you think that this will limit your capability and also have downside risk to your overall take rate on the existing business. Thank you.

Sure. So, airlines policy is starting to choose and CNI was the only company, which delisted the majority of the [indiscernible] products. In Q3, the formal policy, we applied to everyone. So, certain volumes will come from the impacted platform in Q2 to the players, which will provide the best product, service and technology. So we should be able to see some, I just meant and then stabilization in Q3. And in terms of cross sell, always, our focus is always providing the product that customer needs. So we don't force customer to buy anything, but the nature of our products is that we provide a variety of choices to the customers. So naturally when a customer book a train ticket, a bus ticket, a air ticket, naturally, they will choose a hotel and after the hotel is booked, they naturally will book attraction ticket. So it's a very natural flow in our product line and that if our technology is very strong, we understand the customer's behavior, we use the big data to analyze customer's need and that's how we generate our revenue. So, there shouldn't be a material impact from the policy side. It's more for our internal expectation to make sure we analyze customer's behavior and make sure our product is very tailored to different customers. That's our strength. Thank you.

Your next question comes from the line of Alicia Yap with Citigroup. Please proceed.

Hi. Thanks for taking my follow-up questions. Just quickly, for the 1Q, total transportations, what was the air only ticket volume growth for this quarter, excluding the bus and trains? And then secondly, on the second half margin, could you give us some color in terms of the profitability level? Thank you.

Yes. For the first quarter, the air ticket still contributed vast majority, roughly 90% of our total transportation ticketing revenues and this revenue, very healthy revenue growth, mainly driven by our healthy volume increase in the air ticket, especially from the international air ticket volume. And regarding the margin of the second quarter, we actually very successfully bring our negative margin last year to be at the breakeven level for the first quarter of this year. And we see, we are very confident to continue this margin growth momentum and we forecast we will achieve roughly breakeven level to RMB100 million non-GAAP operating margins in the second quarter.

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

Hi, management. Thank you for taking my follow-up question. I think comparing with last year, it seems Ctrip has a bit slowed down in the investments, so do you still have proactive investment now this year and if so, what's your focus in future? Thank you.

Yes. Investment is always very important for Ctrip for following new business development. But Ctrip is very focused in the area that is associated with our core competence. So when we make an investment, there are three things we focus on. First of all, the target has to be cost related to travel industry. The second thing is, the player in this vertical player has to be number one or number two in the industry. They need to stand alone to be very strong. And thirdly, we want to make sure when we invest in something, the price is right, so we are very focused, very patient and very disciplined. And so far, the big majority of our investment has generated greater returns for our shareholders and we will cater that. Thank you.

Your next question comes from the line of Binnie Wong with Merrill Lynch. Please proceed.

Thank you for taking my follow-up. Just a question on James' opening remark on Ctrip's dedication in the innovation and devoting more resources to technology. I think they will become increasingly important, especially if we do more cross selling, is there any metrics that you can share with us on in terms of customer booking a train, bus, air ticket and then they will cross sell into other segments or maybe any color on details into your innovations, technology, that would be very helpful for us to understand. Thank you.

Thank you. We don't break down the numbers by individual products, but the new business units like train and bus tickets have been significant growth drivers for our overall transportation volume and revenue. So just in the short two or three years, they have become a significant growth factor. The other business units have been doing very well and not just new business units, I think the innovations also come in a form of improvement, enhancements in the technology business process and user experience as well. So they help all business units to increase their efficiency, to have better financial profits. We measured these performance by very detailed metrics, in dollar terms, in customer experience, in trying to manage our customer experience by many measures and we calculate the return innovations very carefully. We tolerate failures, but we also reward success very generously and we try to promote the most innovative employees to higher level positions quickly. So that's our approach to innovation at Ctrip. Thank you.

There are no further questions.

I guess there is no more questions. So I think we should conclude this call.

Thank you very much for your participation. We look forward to seeing you next time. Thank you.

Thank you.