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Unimpressive Online Travel Results For eLong.com

Chinese online travel company eLong.com (LONG) has reported an operating loss as part of its unaudited financial results for the second quarter ended June 30, 2007.

"While eLong's top-line results were in line with our expectations, we are not nearly satisfied with our performance. We have begun a comprehensive turnaround program to improve the company's execution," said Henrik Kjellberg, chairman and interim CEO of eLong. "Management is committed to making structural improvements in our hotel and air products, our customer service and our overall management talent. It will take time to regain momentum, but we are confident that eLong can successfully improve its performance and better leverage the growing Chinese travel market."

Gross margin in the second quarter of 2007 was 73.5%, a decrease of 364 basis points compared with 77.1% in the prior year period. The company says gross margin decreased due to the increased mix of lower margin air commissions and increased compensation expense related to investments in its call center talent and infrastructure.

Travel revenues, comprised of hotel, air and other travel service revenues, increased 16% to CNY75.4 million for the second quarter 2007 compared with the prior year period. The company recorded an operating loss of CNY 2.2 million for the second quarter, compared with an operating loss of CNY1.2 million for the second quarter of 2006, with greater sales and marketing and service development expense offsetting the company's increased gross profit.

Hotel commission revenue increased 12% year-over-year primarily due to higher room volume. Room nights booked through eLong increased 11% to 922,000, while commission per room night remained largely unchanged at CNY65. eLong says it has grown its hotel offering over 28% since second quarter 2006, and now features discounted rates at nearly 4,500 hotels in over 300 cities across China.

Air ticketing commission revenue increased 44% primarily due to a 41% increase in air segments to 347,000, as well as a modest 2% increase in commission per air ticket to CNY40.

It recorded a net loss of CNY 1.8 million for the second quarter, compared with a net income of CNY10.2 million for the second quarter of 2006. As of June 30, 2007 cash and cash equivalents were CNY1.17 billion, down 2% from CNY1.20 billion at December 31, 2006.

eLong expects total revenues for the third quarter of 2007 within the range of CNY79.0 million to CNY87.0 million, an increase of 6% to 17% from the third quarter of 2006.

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