Ctrip: International Business, Inbound Tourism, AI—Three Strategic Directions for 2024

Below is the summary of Trip.com's 2023 fourth-quarter earnings conference call. For an interpretation of the earnings report, please refer to " Trip.com: Can it hold steady domestically in 2024 and take over overseas markets? "

1. Review of Key Financial Information:

Looking at Trip.com's earnings report for this quarter, the performance in terms of revenue and profit is generally in line with expectations (the market's profit expectations were significantly underestimated). Overall, there is a slight slowdown in revenue growth momentum, but it is still within a high business cycle; profits have also significantly increased compared to 2019, indicating a continuous improvement in profit margins. In other words, while there are no major surprises exceeding expectations, the company's performance is still in a good cycle of resonance in both revenue and profit.

Although the past four quarters' performance did not create significant deviations from expectations, the market is more concerned about the upcoming Spring Festival period and how the tourism industry will evolve domestically and internationally throughout 2024. The key questions will be whether domestic demand can maintain a high level of prosperity despite a slight decline, whether outbound travel and overseas business can continue to recover and grow rapidly, and whether the company's operating leverage and profit margins can further improve on the basis of 2023. Pay attention to the management's explanations during the conference call.

2. Detailed Content of the Earnings Conference Call

2.1. Key Points from Management's Statements:

1. The core OTA business has reached a historical high, achieving a GMV of 1.1 trillion yuan, and the board has approved the capital return plan for 2024, increasing the remaining repurchase amount to $581 million.

2. Domestic hotel bookings increased by about 130% year-on-year, up 60% compared to the same period in 2019, with a 122% year-on-year increase in net revenue for 2023, a 25% increase compared to the same period in 2019.

3. Outbound travel market: The Chinese outbound travel market maintained the same level of recovery as in Q3, with the gradual easing of supply-side constraints such as increased international flight capacity and certain visa policies playing a significant role. Trip.com's outbound flight and hotel booking GMV has recovered to over 80% of pre-pandemic levels, exceeding the overall market recovery rate of 60%; Thailand, Singapore, Japan, South Korea, and Malaysia remain popular outbound travel destinations on our platform.

4. Pure overseas markets: In the fourth quarter, our overseas OTA brand GMV in the Asia-Pacific region grew by over 70% year-on-year, exceeding 100% growth compared to 2019.

5. Strategic Plan: 1) Globalization; 2) Inbound Tourism Market: Inbound tourism in China is an untapped opportunity. For tourism-dependent countries like Thailand, inbound tourism contributes over 10% to its GDP; for developed countries, inbound tourism can account for around 1-3% of their GDP. Currently, China's inbound tourism level is less than 0.5%; 3) AI: Our AI assistant, Trip Genie, is revolutionizing travel planning through personalized itineraries, instant bookings, and quick responses. By utilizing natural language processing technology, the goal is to simplify travel planning and booking processes.

2.2, Q&A

Q: How should we infer the strong performance during the Spring Festival period will impact the first quarter and the second half of this year?

A: By 2023, our business has fully recovered to pre-pandemic levels. Starting this year, we will no longer use 2019 as a benchmark for comparison.

So far this quarter, the Chinese tourism market has shown strong momentum, especially during the **Spring Festival. The number of domestic tourists has increased by 34% year-on-year, 19% higher than in 2019. Outbound travel continues to recover, with flight capacity during the Spring Festival holiday reaching around 70% of the 2019 level. We have solidified our position, gaining significant market share, with domestic hotel and flight bookings increasing by over 60% and 50% respectively year-on-year. Outbound hotel and flight bookings have also exceeded the 2019 levels. The Spring Festival holiday in January 2023 was a low base period for tourism activities, with momentum picking up after the Spring Festival. Therefore, we expect a stronger year-on-year growth in the first half of 1Q24, while the second half of the year may be relatively soft due to the higher base. As for the international market, our Trip.com business has maintained double to high double-digit year-on-year growth. Therefore, we will continue to see strong growth in the tourism market.

Q: The Civil Aviation Administration of China (CAAC) predicts that by the end of 2024, outbound flight capacity will reach 80% of the 2019 level. Considering that flight capacity during the Spring Festival holiday reached 70%, this pace seems relatively slow. From your perspective, what factors may lead to a slow recovery? When does management expect outbound travel to fully recover?

A: We are confident in the full recovery of outbound travel. Firstly, our platform has observed significant user interest in outbound travel, indicating strong demand. Additionally, China's increasing openness to inbound tourism is also part of the demand for international travel-related channels. Secondly, the situation of market suppliers is improving. We have noticed a steady increase in the number of inbound and outbound flights. Furthermore, visa policies are becoming more convenient. Lastly, in most markets outside of China, it will take two to three years to fully recover international tourism. With outbound travel expected to recover 70% to 80% in 2024, year-on-year growth is projected to reach approximately 65% to 90%. This clearly indicates the potential for strong growth in outbound travel in the coming year. Q: In the fourth quarter and up to the present in the first quarter, what common consumer behaviors have you observed, leisure travel or business trips? Has consumption decreased or remained the same? Have there been any changes in destinations?

A: China is a vast country with many different segmented markets. Segments such as entertainment, music, festivals, health, and tourism have performed exceptionally well. Based on the search volume on our platform, customers have increased their travel demands. Many customers are looking to visit different places, both domestically and internationally. With the relaxation of travel restrictions, gradual recovery of visa applications, and flight capacities, we hope to see more customers traveling domestically and worldwide by 2024. Therefore, there is a strong demand for travel, and we will do our best to provide customers with the best services and products.

Q: Sales and marketing expenses in several quarters have been significantly lower than the levels in 2019. Considering the more proactive globalization strategy now, there may be more expenses in overseas markets. How do you view this trend?

A: Regarding the sales and marketing expenses in the fourth quarter of last year, we have significantly improved our marketing efficiency. In addition, we have made substantial investments in content generation, which has also contributed to enhancing marketing efficiency. Our long-term goal is to further improve the marketing efficiency in both the Chinese and international markets, focusing on increasing direct traffic and enhancing cross-selling on the platform. Of course, in terms of Trip.com's business, we are also exploring opportunities to further enhance our brand awareness outside the Chinese market.

Q: The international platform Trip.com has achieved strong growth. Could you provide more details about Trip.com, such as global footprint, GMV, revenue contribution, and profitability? Which markets does Trip.com primarily focus on? What are Trip.com's main competitive advantages in these markets compared to competitors?

A: We expect Trip.com to contribute 15% to 20% of the group's total revenue in the next 3-5 years and achieve double-digit growth. Trip.com mainly focuses on the Asian market, which is the preferred outbound travel destination for Chinese and other Asian tourists. The booking growth in the Asian (excluding China) market has exceeded that of mainland China. Trip.com's growth strategy first leverages the strong air traffic from Sky Scanner, then expands from metasearch to mobile applications, extends products from air travel to hotel bookings, and broadens its business scope from Asia to other global regions. At the same time, we anticipate that Trip.com will achieve profitability within the same period, thanks to scalability, improved marketing efficiency through a strong mobile app user base and brand name, and a shift in revenue structure.

Regarding Trip.com's competitive advantages, firstly, Trip.com is a mobile application that provides a smooth, user-friendly search and booking experience. We also utilize artificial intelligence tools to offer personalized recommendations and special deals, thereby enhancing user engagement. Furthermore, our comprehensive one-stop mobile solution covers almost all travel needs, making it particularly attractive to mobile app users. Our extensive experience in China further solidifies our expertise in this field. Thirdly, we provide 24/7 service, offering round-the-clock customer support via phone, online chat, or email to ensure users have a reliable contact point for any issues they may encounter. Lastly, benefiting from the group's strong market influence and good supplier relationships, trip.com is able to offer highly competitive products.

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