Ctrip.com International, Ltd. ADS (CTRP) is the leading consolidator of hotel accommodations and air ticket booking in China. The company aggregates information on hotels and airline flights, which enables its customers to make informed and cost-effective hotel and flight bookings. Ctrip generates its revenue from commissions earned on the sales of hotels reservations, air ticketing, package tour products, and other products and services. Revenue from hotel reservations was 57% of total revenue in 2006, and revenue from air ticketing contributed 36%. Revenue from package tours and from other products and services, including advertising services and sales of VIP membership cards, accounted for the remaining 6% of total 2006 revenue. Reservations are taken via call centers and through the company's bilingual websites.
A big reason for the company's success comes from its smart business model. Ctrip has established supplier relationships with over 5,600 hotels around the world and most of them are in China. Ctrip also has the largest air ticket sale network in China and customers can get the air ticket for free through Ctrip's extensive and effective distribution system. This strategy enables the company to offer a broad range of travel choices. Ctrip primarily targets the fast-growing frequent independent traveler (FIT) segment as opposed to the traditional tour-group focused travel agencies. The company expects its growth to be driven by the expanding FIT segment. Moreover, the company has a solid competitive advantage with 95% of its hotel bookings revenue coming from star-rated hotels, which offer higher commissions. It also has the critical mass to convince hotel operators to allocate its rooms to Ctrip and there are more than 2,800 guaranteed allotment hotels. Furthermore, Ctrip's scalable and profitable business platform provides the company with a high degree of operating leverage. Fixed costs comprise more than half of its cost of services, which means that sales can grow without a similar increase in expenses. As a result, Ctrip's revenue gains translate into even faster bottom-line growth. We expect Ctrip to further increase its operating leverage as it shifts customer bookings from call centers to the Internet, which is more cost-effective for the company.