eLong, Inc. (LONG)

Q2 2010 Earnings Call Transcript

August 16, 2010 8:00 pm ET

Executives

Guangfu Cui – CEO

Mike Doyle – CFO

Analysts

Eddie Leung – Banc of America/Merrill Lynch

Fawne Jiang – Brean Murray

Nan Li [ph] – SIG

Question-and-Answer Session

Operator

Thank you. At this time, we will open the floor for questions. (Operator Instructions). Our first question will be coming from the line of Eddie Leung from Banc of America/Merrill Lynch. Please go ahead.

Eddie Leung – Banc of America/Merrill Lynch

Hi, good morning, Mike and Guangfu. A couple of questions. The first one is regarding your air business. Could you share with us more color about the commission rate cuts you mentioned in the call and how should we think about this issue going forward? And a couple of related questions. Could you also talk about your air ticket volume outlook and the reason – in the second quarter, it seems like the air ticket volume on a sequential basis did not grow rapidly, even given a strong travel industry. So that would be my two questions. Thanks.

Guangfu Cui

Eddie, this is Guangfu. I will take your questions and maybe Mike can add something later. I'll just take a step back and to give a broader answer, we are closely monitoring the airline commission environment. We have met with the higher level officers in sales and marketing department of each of the big three Chinese airlines to better understand their intentions and to reaffirm our commitment to providing our airline partners value from our expanding distribution to customer base.

There are several factors impacting our current commission level. Number one, in periods of peak demand such as in the summer, the airlines needs slight assistance to distribute our inventory and reduce the incentive component of our commission. Number two, en routes originating from Beijing and Shanghai airlines have the promotion incentive component of our commission due to the Shanghai World Expo. Number three, some international carriers have reduced base commissions and other incentive commissions.

As a reminder, less than 12% of our business comes from international routes and the airlines that have taken recent actions made up the minority of our international volume. We don't know yet the duration of the air commission cuts. But we are continuing to simply our air operations to improve efficiency and margins and meet the needs of our target customers. We believe that this is the best way to ensure against any impact of potential reduced commissions.

But (inaudible), we are eliminating cash transactions in most cities in China and we expect by the end of the year we will complete eliminating cash transactions at eLong. And we want to focus on serving the credit card customers or other online banking customers and reduce the labor-intensive cash handling, express delivery of itinerary, that type of business.

As has always been the case, the supply and demand situation is constantly changing. Delivery of new planes and the World Expo, and launching of new routes and expansion of high-speed rail are just a few of the factors that can impact the market. However, it is clear that the airlines are attempting to drive more direct business. It is our objective to maintain fair pricing parity with our online partners and continue to demonstrate our value as a meaningful and cooperative decision partner.

Thank you, Eddie. And Mike, do you have anything to add?

Mike Doyle

No. Just as it pertains to our outlook, I think, as others in the industry have seen, a lot of the air growth in the last quarter did come in the back of package tours and group tours. We have just only been in the package tour business for a short time, so the volume for us is immaterial. We didn't actually see a lot of volume improvement from package volumes during this peak booking period and we don't offer group packages. And we have seen the increased aggressive actions of airlines trying to drive direct business to their websites. And as Guangfu mentioned, we did have some impact of eliminating cash as a payment option in some of our cities.

Eddie Leung – Banc of America/Merrill Lynch

Got that. I will go back to the queue. Thanks.

Operator

Thank you. Next question will be coming from the line of Fawne Jiang from Brean Murray. Please go ahead.

Fawne Jiang – Brean Murray

Good morning, Guangfu and Mike, and congrats on a very good quarter. A follow-up question regarding the airline commission rate. You mentioned that you are trying to push the users to use credit cards to complete the transaction. I just wonder, what's the percentage of credit card transaction for the air tickets for the second quarter?

Mike Doyle

Yes. We have a number of non-cash options that we offer our customers that we look at the mix of cash payment transactions and non-cash, and our non-cash is about 85% of total transactions. Non-cash would include credit cards, debit cards, and alternative payment methods such as mobile payment platform, Alipay, Tenpay, and the like.

Fawne Jiang – Brean Murray

Got you. And what's your percentage for online booking in Q2 approximately?

Mike Doyle

Our online transactions are now more than one-third.

Fawne Jiang – Brean Murray

Okay. I want to understand your hotel business a little bit better. Just want to – can you give us some color on your eCoupon program, like how effective you see the program so far and how long you are planning to keep that program?

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