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Chinese Internet Travel Disappoints As eLong Posts Net Loss

The Beijing Olympics were expected to create great wealth for tourism companies last year, but Chinese Internet travel company eLong.com has failed to deliver as it posted worrisome financial results for the fourth quarter and full year ended December 31, 2008.

While eLong's total gross revenues for the fourth quarter increased 4% year-on-year to CNY91.0 million and net revenues increased 4% year-on-year to CNY85.7 million, operating loss in the fourth quarter was CNY10.3 million compared to operating income of CNY2.1 million in the prior year period.

To make matters worse, the Internet travel company's operating loss increased year-on-year by CNY27.1 million to CNY41.7 million in 2008, and net loss from continuing operations increased year-on-year by CNY50.9 million to CNY76.6 million in 2008, driven primarily by greater sales and marketing expenses and a CNY26.5 million decrease in interest income, partially offset by a CNY4.8 million decrease in foreign currency exchange losses.

The company's management tried to put a healthy spin on these dismal numbers as Guangfu Cui, CEO of eLong, stated: "In 2008, we have fixed the fundamentals of the Company and established our core competencies in our on-line hotel and air businesses."

Looking forward, Chris Chan, the company's CFO, said in a press statement, "In 2009, while cognizant of the uncertain economic climate, we will continue to make prudent investments in information technology and marketing to position the company for long term success. At the same time, we will take a disciplined approach to our spending and streamline our general and administrative and other costs."

Hotel commissions increased 1% for the fourth quarter of 2008 compared to the prior year quarter, primarily due to higher volume, which was partially offset by lower commission per room night. Room nights booked through eLong increased 3% year-on-year to 1,052,000, while commission per room night decreased to CNY65 from CNY66 in the prior year quarter. Hotel commissions for full year 2008 increased 5% compared to 2007, primarily due to higher volume. Room nights booked through eLong in 2008 increased 6% to 3,945,000, while commission per room night of CNY64 declined CNY0.7 compared to 2007.

Air ticketing commissions increased 21% for the fourth quarter of 2008 compared to the prior year quarter, driven by a 24% year-on-year increase in air segments to 463,000, and an increase of 11 basis points in the average percent commission to 5.7%, partially offset by a decrease of 5% in the average ticket price to CNY734 compared to the prior year quarter. Air ticketing commissions for full year 2008 increased 34% compared to 2007 primarily driven by a 26% increase in air segments to 1,788,000, and an increase of 57 basis points in the average percent commission to 5.6%, partially offset by a decrease of 4% in the average ticket price to CNY765.

Gross margin in the fourth quarter of 2008 and full year 2008 was 70% compared to 72% in the fourth quarter and full year 2007, driven primarily by the higher growth of lower margin air revenue relative to hotel revenue.

eLong expects net revenues, net of business tax and surcharges, for the first quarter of 2009 to be within the range of CNY74 million to CNY82 million, equal to a decline of 4% to an increase of 7% compared to the first quarter of 2008.

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