Profit jumped 35 per cent in the period, while eLong suffered a loss of 781,000 yuan.

The prospect of continuing profit gains has driven Ctrip shares up about 22 per cent this year. They closed up 5.2 per cent on Tuesday to US$84.04.

Better efficiency as well as size is helping Ctrip outpace its rivals, according to Richard Ji, an executive director at Morgan Stanley, which estimates that Ctrip has 54 per cent of the mainland's online travel market against eLong's 18 per cent.

'Ctrip sold double the number of hotel room nights and eight times as many tickets as eLong. On average, Ctrip made 40 per cent more revenue per employee, but with 30 per cent lower costs than eLong in 2006,' Mr Ji wrote in a report.

The contrast is even more apparent with profits. Since eLong listed on Nasdaq in October 2004, the company has turned a profit in only the second and third quarters of last year, while Ctrip has been profitable since its listing.

However, a new type of online service is emerging on the mainland. Qunar, founded in May 2005 and whose Putonghua name means 'Where are you going?', is a search engine specialising in travel information.

Qunar, which, chief executive Fritz Demopoulos said, attracted five million users last month, seems at first glance to offer a wider selection and a better price than Ctrip.

Users enter dates and destinations and Qunar returns air fares and hotel rates from 400 travel-related websites, sorted for comparison. According to a study by Qunar last month that compared air fares between five leading mainland cities, the rates discovered by the search engine can be significantly cheaper than those offered by Ctrip.

For flights booked the next day, Qunar fares were on average 13 per cent lower than Ctrip's, the study found. There was an average difference of 11 per cent for flights booked one week in advance, with some Qunar flights 71 per cent lower than Ctrip's lowest price.

For flights booked one month in advance, the differences versus Ctrip were as high as 241 per cent, with an average of 35 per cent.

'Prices change a lot and vary over time,' said Mr Demopoulos. 'In many cases, the lowest prices were offered directly by airlines such as Air China, Hainan Airlines and a number of other domestic and international carriers.

'In other cases, the lowest prices were offered by mid-tier online ticketing agencies such as 96115, 9588 and Shanghai Everbright.'

Zhao Yang, sales and marketing director of Beijing-based mid-tier ticketing agency etpass.com, said the company's good relationship with certain airlines helped it to beat Ctrip on price on some routes. Etpass was founded in May 2005.

Ctrip's revenue was also being challenged by airlines as they invest in direct-to-consumer systems and marketing platforms, said a senior executive at Travelsky, which provides the nationwide electronic system for booking airline tickets.

Hong Kong-listed Travelsky is 42.7 per cent held by 14 Chinese commercial airlines, including the holding companies of the three largest mainland commercial carriers - China Southern Airlines, China Eastern Airlines and China National Aviation Holding Co.

Most of the leading airlines are developing their own websites and call centres for direct sales, said the Travelsky executive. 'Partly, it is to reduce commissions to the travel agents. But more importantly, it is to control the distribution channel,' the executive said.

About 80 per cent of air tickets are sold through travel agents, which charge 3 per cent to 5 per cent as commission during the high season and 6 per cent to 10 per cent for other periods, said the executive.

'As they control the major distribution channels, travel agents, especially the large ones such as Ctrip, have a strong bargaining power over the airlines.

'Developing direct sales also allows airlines to up-sell to clients, which can only be done through a direct relationship. For example, they can offer more targeted services and develop loyalty programmes,' the Travelsky executive said.

The development of e-ticketing makes direct sales easier for airlines, as they do not need to set up shop to physically deliver the tickets. All air tickets for mainland domestic flights are e-ticketed and international flights will follow suit by the middle of next year, said the Travelsky executive.

'To attract people to order tickets directly from them, the airlines are thinking of offering better deals on their own websites than what they offer to the agents. For example, lower-price tickets, popular flights in high seasons, special deals and so forth.''

Attacking Ctrip from a similar direction, mainland hotels are also thinking about developing direct sales. 'The cost structure is much less for direct sales,' said T.R. Harrington, whose company Darwin Marketing is helping a hotel chain to sell directly through the internet using search engines.

Hotels typically pay 10 per cent to 15 per cent, or 40 yuan to 50 yuan per room night, as commission to travel agents.

Ctrip chief financial officer Jane Sun found Qunar's claims of lower prices surprising.

'In China, all the major airlines are state-owned enterprises. The government controls the prices for airline tickets. The price variance will not be large. Moreover, Ctrip is one of the largest travel agents in China. There is no reason that a smaller travel agent can get a better price than us,' said Ms Sun.

She suspected that so-called super-low rate air tickets were for tour groups, not individual travellers.

Even so, price was not a key factor for customers choosing Ctrip, she said. About 80 per cent of these are business travellers, and reliability, timeliness and quality of service were the top three reasons for choosing Ctrip, said Ms Sun, citing a recent customer survey. Pricing ranked last of the 10 criteria in the survey.

Mr Ji agreed. Ctrip's customers are mostly businessmen who are concerned more about quality of service than prices. Qunar, on the other hand, would be more attractive to leisure travellers, who tend to be more price-sensitive,' he said.

Ms Sun also viewed as insignificant the threat to Ctrip from hotels developing direct sale programmes.

'Hotel ownership is very fragmented in China. Even in the US, it took Marriot more than 40 years to emerge as a hotel chain with significant market share. I am not worried about that,' she said.

Ms Sun found the threat from direct selling by airlines more valid.

'However, airlines in China are large state-owned enterprises. To sell tickets directly, it would take them a long time to adjust their internal operations.'

Not so long, according to the Travelsky executive, who was confident that direct sales could account for 50 per cent of all air tickets in three to five years, up from 20 per cent. 'In western markets, mainstream airlines such as British Airways typically sell 30 per cent of their tickets directly, and budget airlines sell more than half directly. Although China's airlines started slowly in direct selling, they can catch up quickly.'

In the first quarter, Ctrip's revenue from air ticketing grew 64 per cent from a year earlier, to 94 million yuan, or 38 per cent of total revenue.

Mr Ji said that even as airlines developed direct sales, Ctrip would have a place as their distribution channel, offering opportunities for customer services.

The largest losers would be small travel agents, which account for 70 per cent to 75 per cent of current air ticket sales, she said.