Ctrip: Seizing the overseas market and inbound and outbound tourism

The following is a summary of Ctrip's financial report conference call for the fourth quarter of 2023. For financial report analysis, please refer to " Ctrip: Traveling "Hi" Overseas, But Fear of the Cold at High Altitudes 》

I. Review of Core Financial Information:

II. Detailed Content of the Financial Report Conference Call

2.1. Key Points from Management's Statements:

1. Outbound Travel Market: In the first quarter, the international flight capacity of the entire industry rebounded to about 70% of the pre-epidemic level in 2019. Ctrip's recovery speed continues to lead the market by 20% to 30%. Our booking volume has fully recovered to the pre-epidemic level of 2019, and our packaged tours, hotel, and flight bookings have increased by over 100% year-on-year, with a significant improvement in market sentiment. The relaxation of visa requirements in Southeast Asia further stimulates the willingness of Chinese tourists to travel. According to the Civil Aviation Administration's estimate, by the end of this year, China's outbound travel is expected to recover to 80% of the pre-pandemic level.

2. International Market: We have strengthened our products and services in the global market, especially witnessing stable growth in the Asia-Pacific region. Our core advantage lies in providing excellent user experience, offering strong value to our travelers through our one-stop shopping platform, customer service, providing first-class service through our mobile app and customer support, and offering comprehensive information to help travelers make informed decisions. We have enhanced cooperation with global partners to provide free travel experiences for travelers worldwide. In the first quarter, the total revenue of our overseas OTA platform Trip.com increased by about 80% year-on-year. We remain committed to becoming a leading platform in Asia in the next 3 to 5 years.

Strategic Focus

3. Inbound Travel: The growth potential of China's inbound tourism market is becoming increasingly evident. China has implemented visa-free policies for over 15 countries, such as France, Germany, Italy, the Netherlands, Spain, Switzerland, and more. This strategic initiative has shown promising results. Our platform has witnessed a significant 400% year-on-year growth in travel bookings, with significant growth in key markets, such as a tenfold increase in Singapore, a ninefold increase in Malaysia, and a fourfold increase in Thailand. With the implementation of visa-free policies and the introduction of innovative payment solutions, the future prospects of inbound tourism in China are broad.

4. Silver-haired Population: The demand of the elderly, now referred to as the super generation, is continuously growing. Many elderly people, especially those in urban areas, are willing to invest more in leisure activities such as travel. Furthermore, today's elderly are more active and adventurous than previous generations. Their potential to bridge the gap in China's tourism off-season is also promisingAccording to the estimates of the China Tourism Research Institute, by 2025, the number of healthy elderly people with frequent travel habits is expected to exceed 100 million, with an estimated market size of over 1 trillion RMB. In 2023, the super generation will account for 10% of our total user base. In response to the unique needs and preferences of elderly travelers, we have launched the "Senior Friends Club" plan this year. This plan aims to provide high-quality one-stop travel services for elderly travelers. The products offered are complemented by our outstanding customer service and personalized assistance. The plan has introduced over 700 exclusive products covering more than 40% of the country. Our goal is to collaborate with more partners to develop products specifically tailored to the preferences of the silver-haired generation, injecting new vitality into the domestic tourism market.

2.2 Q&A

Q: Growth driving factors?

In China, we will steadily focus on users in second and third-tier cities to increase user acquisition and cross-selling ratios.

We expect growth from online travel and benefits in the international market in the coming years. Trip.com will maintain its focus in Asia and strive to become a regional and global leader.

For new drivers, we are actually pursuing opportunities in the inbound tourism market in China, which has a huge market size and has added billions of RMB domestically. We are introducing tailor-made products for the silver-haired generation. Additionally, the company is launching new product combinations, such as entertainment activities, targeting the evolving market demands of the younger generation to maintain our investment in content strategy and AI development, which is crucial. Therefore, this one-stop business model. These investments are aimed at enhancing user stickiness, engagement, and operational efficiency.

Q: Domestic hotel prices and RevPAR decline, observed situations, and outbound hotel price trends?

We have also observed a decline in domestic ADR in recent months, largely influenced by the shift in travel preferences towards outbound destinations and lower-tier cities, along with an increase in hotel and flight supply.

I believe this year outbound tourism has significantly increased, attracting many high-end users who originally traveled domestically. Secondly, lower-tier cities now offer excellent value for money as transportation and accommodation infrastructure have significantly improved in recent years. In addition, the increase in hotel and airline supply has put pressure on overall short-term prices, especially compared to the high benchmarks set during the peak season last year.

Overall, we believe that the expansion and diversification of the capabilities of travel suppliers will greatly promote overall growth and stability as an OTA distributor, as well as the growth of the domestic tourism industry. Regarding outbound travel, their ticket prices have been normalizing as the market continues to recover. Current price levels are stable at around 115% of 2019 levels, compared to over 130% of 2019 levels during the same period last year.

Q: May Day, Q2 QTD situation, and summer expectations?

Business has seen growth during and after the May Day holiday. Our domestic and outbound travel booking volumes reached a new high during the recent May Day holiday, especially for outbound flight and hotel bookings, reaching 120% of 2019 levels.Considering last year was the first major holiday, there was a strong demand for leisure travel.

QTD domestic travel bookings achieved double-digit growth, outbound hotel and flight bookings have fully recovered to pre-epidemic levels, such strong growth in bookings clearly exceeded the market. In terms of industry performance, domestic hotel occupancy rates and flight passenger volumes are roughly in line with 2023. Outbound flight capacity is slightly higher than 70% of the 2019 level. In terms of average prices, we are generally consistent with the market, recently noting that both hotel ADR and average airfare prices have decreased compared to the same period last year. Trip.com has maintained strong double-digit growth. Inbound tourism in China has also experienced multiple growth.

For summer travel, given China's short booking window, it is still early to observe early bookings for the summer. However, we remain confident in the momentum of summer holidays and beyond. In particular, we expect significant growth in the outbound travel sector, driven by the continued recovery of flight capacity and the resolution of visa backlog issues. Regarding global marketing, we expect Trip.com, Skyscanner, and other overseas brands to also maintain strong growth.

Q: Recovery of outbound travel, especially in the European market?

We see a strong rebound in outbound business. By the end of the year, the industry should recover to about 80% of pre-epidemic levels, with our company exceeding the market by about 20% to 30%. Several key factors have influenced outbound business:

The first is visa applications. Many countries have provided visa-free entry for Chinese travelers, such as Singapore, Malaysia, Thailand, Gulf Cooperation Council countries like the UAE, Qatar, and Saudi Arabia. So we see very strong growth in business from countries offering visa-free entry.

The second factor is flight capacity. We have seen a strong rebound in flight capacity to Singapore, Malaysia, Thailand, and Gulf Cooperation Council countries. So we have sent many tourists to these countries. During the Spring Festival, the top three long-haul travel destinations were Australia, New Zealand, and South Africa.

We see very strong demand and interest, and when destinations have visa-free policies, restored flight capacity, and customers have time and availability during the summer vacation, we are pleased to see our customers will have more time to travel the world with their children, and countries that show their hospitality will be able to take advantage of this upcoming trend of recovery. However, some countries are still lagging behind. Flight capacity has not yet recovered. Therefore, we are eager to work with these regions to ensure timely processing of applications and increase flight capacity before the summer vacation arrives.

Q: How to seize the opportunity of inbound tourism and the revenue share?

Inbound business is a new opportunity for the Chinese tourism industry. China can offer many things to the world, with a rich history and excellent infrastructure, high-speed rail connecting the country, and each province having very unique resources, so we are very excited to invite friends from all over the world to visit China. Favorable factors include:First of all, visa-free access has been expanded to many countries such as France, Germany, the Netherlands, Belgium, Singapore, Malaysia, Thailand, and more. Looking ahead, we hope to have more opportunities to invite people from all over the world to come to China.

Secondly, Trip.com also provides a one-stop shopping platform. Our inventory in China is excellent, and we can offer airline tickets, high-speed rail tickets, great packages, and free day tours for customers transiting in Shanghai. Therefore, through the joint efforts of Trip.com and the local community, we hope to show our hospitality to global travelers.

Thirdly, the Trip.com app offers over 30 languages, and our call centers are located worldwide, providing 24-hour service. If customers need to contact our customer service within 30 seconds, we will be able to answer the phone in a language they are familiar with. We are very excited to have this opportunity to show our global friends the beautiful history, hospitality, and food diversity. So we hope that inbound tourism will become an important contribution to our business in the future.

The proportion of inbound tourism to Trip.com's revenue has increased from over 10% to over 20% in Q1 2024.

Q: What is the current regional distribution or product line segmentation, room rates, and take rate level of Trip.com?

In the first quarter of 2024, Trip.com's revenue accounted for approximately 10% of the group's total revenue. Over 70% of this revenue comes from Asia. With the increase in cross-selling ratio, hotel booking revenue now accounts for over 35% of Trip.com's total revenue.

The take rate for hotel and flight bookings on Trip.com is similar to our outbound business.

We have already achieved profitability in the contribution margin of Trip.com business recently. We expect that with further scale, Trip.com will achieve a healthy profit margin.

Q: What advantages does Trip.com have in international competition in Southeast Asia and other countries compared to existing players?

Firstly, the mobile application provides a smooth and user-friendly search and booking experience, complemented by AI tools that offer personalized recommendations and special deals, further enhancing our user engagement. For example, Trip.com's mobile share increased to approximately 65% in the first quarter, with numbers in several key markets exceeding 75%.

Secondly, we have a one-stop service model that caters to almost all travel needs, which is particularly attractive to mobile app users. Our extensive experience in China further enhances our professional skills in these areas.

Thirdly, we provide 24/7 customer service via phone, online chat, and email, ensuring reliable support for our users when they encounter any issues.

Fourthly, Trip.com offers highly competitive products, leveraging the group's strong market position and good relationships with suppliers, especially having very strong products and services in ChinaOur travel business provides Trip.com with excellent opportunities to capture market demand.

Q: What is the scale and competitive landscape of the Asian market outside of China?

In terms of market size, the entire Asian market outside of China is equivalent to 1.5 times the size of the Chinese market. We have the following advantages:

Firstly, we provide a one-stop shopping platform, which is very convenient for our consumers. Secondly, our users have an excellent mobile experience. In China, over 90% of customers use mobile devices, so we will be able to extend our experience globally. Thirdly, we have outstanding customer service. We aim to ensure that the service we provide to customers outside of the Chinese market is as good as that for domestic customers in China. Finally, we also have strong business capabilities, enabling our team to negotiate very good deals for our global customers. So, these are our advantages. We will ensure to provide excellent products and quality service to our global customers.

Q: Overview of Trip.com's business, outbound business, and domestic business margins and take rates? Continuous reduction in sales expense ratio, future margin expectations?

We have achieved a healthy profit level for our domestic business, thanks to the scale and scalability we have achieved. The outbound business typically has higher profit margins, attributed to the higher average selling prices. At the same time, related costs, including service costs, product development costs, and sales and marketing costs, are very similar to those of the domestic business. Therefore, outbound travel is usually a higher-margin business for us.

Regarding Trip.com's business. Although the Trip home business is in the investment phase, overall it has at least reached a breakeven level of contribution margin. In the long run, we firmly believe that the Trip.com business will also become a profitable and healthy growing business. In summary, we expect our profit margins to follow a typical seasonal pattern, reflecting strong business growth and cost and management discipline.

Looking ahead, our margin expansion will mainly come from operational efficiency, sustainability, and improving sales and marketing efficiency. However, this may be partially offset by additional expenses related to expanding our international operations.

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