Most investors understand the macro aspects of why travel services in China are a good sector to look at. China’s middle and upper classes are burgeoning. The ranks of the middle class are estimated to top 250 million by 2010. As Chinese become wealthier and increase their purchasing power they have certain desires. Entrance or aspiration to the middle class is first heralded by the purchase of an expensive mobile phone such as one by Nokia or Motorola. The next major purchase is a car or a house.

But in between these major milestones, consumers turn towards travel, both domestic and, as Chinese are able to get more visas to countries like Malaysia and Italy, to international travel. Of the $6 billion USD a year of luxury products Chinese consumers are buying, only 1/3 of it is bought in China. The rest is bought on business trips or vacations to Italy, Hong Kong, and other hotspots.

For the last several years, Ctrip has focused on growing its primary business in hotel booking and air ticketing that focuses on the ‘frequent independent traveler.’ In 2004 revenues from hotel reservations equaled $34.5 million USD and accounted for 78% of C-Trip’s revenue. In 2005 hotel-booking revenue had increased to $45 million USD but only accounted for 65% of total revenues, largely as a result of a surge in e-ticketing. 5.5 million hotel rooms were booked through Ctrip in 2005. However, 2005 witnessed a dramatic increase in the number of airline tickets sold through Ctrip as the number went from 1.7 million in 2004 to 3.7 million in 2005. Revenue from air ticketing jumped from $8 million USD and 18% of revenues in 2004 to $20 million USD or 29% of revenues by the end of 2005.

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