Ctrip: How is the performance of domestic and inbound business during the summer?

The following is a summary of Ctrip's 2024 second quarter earnings conference call. For financial report analysis, please refer to " Ctrip: Between Lagging and Crazy Criticism, Chinese Concepts Finally Have a Normal One! "

I. Review of Core Financial Information:

II. Detailed Content of the Financial Report Conference Call

2.1. Key Points from Executive Statements:

1) Market Trends and AI Innovation:

A. Market Trends

① Trends and Development in the Tourism Market:

• All sectors continued to grow in the second quarter, especially strong performance in cross-border travel. Outbound tourism remains popular, especially in the Asia-Pacific region (such as Japan and Thailand) and popular destinations in Europe.
• The opening of new routes significantly increased search volume for corresponding destinations through AI-driven travel trend data.

② Inbound Tourism Growth: In the first half of 2024, inbound tourism to China saw a significant increase, up 150% year-on-year, especially with a 190% growth in visitors from visa-exempt countries.

③ Travel Trends: More people are using disposable income for high-end travel experiences and services.

B. AI Related

① Personalized Recommendations:

• The company uses AI technology to provide users with fresh and trendy options, reducing planning time and enhancing travel experiences.
• Large language models help the company analyze large amounts of data and provide customized itineraries that match travelers' interests.

② Innovative Marketing Strategies: Introducing innovative experiences (such as "visiting with cats" tickets) through AI data analysis to increase customer engagement and satisfaction.

③ Future Outlook: AI will revolutionize the travel industry, enhancing user experience and operational efficiency. The company is committed to continuing to leverage AI to drive innovation and growth.

2) Operational Highlights

① Market Trends:

• Outbound Tourism: Outbound tourism continues to drive market growth, with international flight capacity restored to 75% of pre-pandemic levels. Bookings for outbound hotels and flights have recovered to 100% of 2019 levels, exceeding industry averages by 20% to 30%.
• Destination Choices: The Asia-Pacific region (such as Singapore, Thailand, and Malaysia) is a popular choice. Northeast Asia (such as Japan and South Korea) has also become popular due to exchange rate advantages and visa convenience.
• Inbound Tourism: In the first half of 2024, inbound tourism to China increased by nearly 200% year-on-year, with inbound tourism revenue accounting for over 25% of international OTA platform revenue.

② Innovative Initiatives:

• Old Friends Club: Launched the "Old Friends Club" for elderly users, offering 700 exclusive products with user consumption exceeding 1.6 billion RMB.
• Family Cloud Function: Introduced the family cloud function to help young people plan and book trips for elderly relatives conveniently
• Entertainment travel products: Entertainment products developed for young people (such as themed tours and cultural experiences) saw a 70% year-on-year growth in GMV and were promoted on a global platform.

③ International business: Revenue from international OTA platforms increased by approximately 70%, with a 76% growth in the Asia-Pacific region. Inbound tourism saw a significant increase, with a nearly 200% year-on-year increase in bookings in the first half of 2024. Inbound tourism now accounts for over 25% of revenue on international OTA platforms.

④ Localization cooperation: Collaborated with 27 cities to promote local tourism and formed marketing alliances with 22 local airports to enhance connectivity between regions and the mainland.

3) Financial Highlights

Outlook: Management holds an optimistic view for the second half of 2024, believing that travel demand will continue to grow strongly. They are committed to executing strategic plans to lay the foundation for sustained growth and success.

2.2, Analyst Q&A

Q: Can you explain why digital humans were used in this earnings call? Additionally, could you provide more details on Ctrip Group's application of AI technology?

A: We used digital humans in this earnings call to demonstrate our commitment to innovation and the use of transformative technology. This not only makes communication more engaging but also showcases our forward-thinking mindset and hints at the potential applications in live streaming and other scenarios, demonstrating the versatility of digital human technology. On our platform, we have already used virtual agents to promote popular destinations such as Shanghai. In addition to generative AI, customer service, Copilot, and virtual agents in software engineering, we have integrated various AI tools to enhance user experience, such as Trip Trends showing popular events and Trip Genie helping plan trips.

Overall, Ctrip Group is dedicated to enhancing operational efficiency and customer experience, driving innovation, and providing greater value to customers through the application of AI technology across various aspects.

Q: Recently, there has been a noticeable slowdown in consumer spending in China. Has the management also observed a similar trend in travel expenses? Could you share some insights into personal or business travel spending behavior? Are travelers tightening their travel budgets? How does this affect Ctrip's business?

A: We have found that the GMV per customer on the platform remains stable compared to last year, indicating continued strong purchasing power. Furthermore, many customers are eager for global travel, and some overseas price increases have offset the pressure on average daily room rates, so we see stable growth. In addition, based on search volume, customers have a high interest in both domestic and international travel. We believe that the travel industry remains robust in the long term.

Q: Could you provide more details on summer travel bookings and the outlook for the second half of the year?

A: Regarding summer performance, the Chinese business is maintaining strong momentum, driven by outbound travel. Bookings for outbound flights and hotels have exceeded 110% to 120% of 2019 levels, outperforming the market by 20% to 30%. Despite a high base, domestic hotel bookings have still achieved double-digit year-on-year growth. On the overseas platform side, Ctrip's growth in the mid-to-high-end market remains in double digits.

Looking ahead to the second half of the year, despite the short booking window in the Chinese market, we expect travel activities to follow a normal seasonal pattern. Due to the low base last year, the performance after the National Day will be more favorable on a year-on-year basis. In the global market, overseas brands such as Skyscanner are expected to continue to maintain healthy growth.

Q: Can you provide a detailed explanation of the ADR trend for domestic travel during the summer? What are the reasons for the soft prices? How does this affect business performance? How do you view future price trends?

A: Although our domestic hotel ADR and average airfare prices have decreased year-on-year, as we enter the peak season, summer prices have slightly increased month-on-month. The increase in hotel and flight supply has put pressure on short-term prices, especially compared to the high base of last year's peak season. For example, the hotel inventory on our platform has increased by about 20% year-on-year, coupled with a significant increase in outbound tourism, diverting mid-to-high-end travelers. The decrease in hotel ADR and airfare prices partially offset our strong growth in booking volume, but in the long run, the increase in supply will be beneficial for us.

Looking ahead, we expect the pressure on ADR to ease in the fourth quarter, and the future will follow normal seasonal changes. In the long term, we believe that the expansion and diversification of travel supply will significantly drive overall industry growth and stability.

Q: Can you provide a detailed explanation of the recovery rate of outbound travel during the summer, and the outlook for the second half of the year? Also, what are the latest price trends?

A: The capacity of outbound flights during the summer has recovered to nearly 80% of the 2019 level, with Chinese airlines having a higher recovery rate. Based on last year's trend, we expect flight capacity to remain stable in the coming months, and international travel services will continue to improve over the next few years.

Regarding prices, the average outbound airfare during the summer is still 5% to 10% higher than pre-pandemic levels, with a slight month-on-month increase.

Q: Can you provide more details on Ctrip's performance in the second quarter, including by market and product line? Additionally, can you explain the profit margin trend of Ctrip in detail?

A: Ctrip achieved approximately 70% revenue growth in the second quarter, accounting for about 10.5% of the group's total revenue. Revenue from the Asia-Pacific region accounts for over 70% of Ctrip's total revenue, with a year-on-year growth of 76%, making it the fastest-growing region. Cross-selling between hotels and transportation continues to increase, with hotel-related revenue accounting for 35% to 40% of Ctrip's total revenue. Contribution from the mobile end has also significantly increased, with 65% to 70% of global orders placed through the Ctrip mobile app, exceeding 75% in the Asia-Pacific region.

Regarding profit margins, the Ctrip brand will continue to prioritize growth while closely monitoring the return on investment in each market. Given the growth potential in international markets, we will continue to invest.

Q: Has the management noticed the recent intensification of competition in the Asian market? How does this affect the business? Additionally, can the management explain in detail the main advantages of Ctrip in overseas markets compared to local and global competitors?

A: Firstly, Asia-Pacific remains the fastest-growing region globally. Secondly, the online penetration rate in this region is relatively low, but the rapid transformation to online and mobile platforms will benefit online service providers. Ctrip is committed to providing one-stop travel services through mobile apps, including transportation, accommodation, and activities, to offer travelers a unique and convenient experience, distinguishing itself from other competitors. We will continue to focus on product innovation and service quality, enhance user experience, and invest in relevant markets to increase brand awarenessWe are satisfied with our current strategy and execution.

Regarding Ctrip's differentiation advantages: Firstly, we are a one-stop travel platform; secondly, we develop our business through mobile channels, which allows us to gain advantages in sales and marketing expenses in the long term; finally, we are committed to providing the best travel services for local customers.

Q: Since there will be increased investment in AI, can you explain the scale of investment? What is the expected profit margin trend for the second half of the year?

A: Overall, we expect the profit margin to follow a typical seasonal pattern. The third quarter is usually the highest in profit margin, slightly higher than the second quarter, while the fourth quarter is typically the weakest season of the year.

You may have noticed that we increased sales and marketing expenses in the second quarter, which is in line with our expectations and previous communications. Due to seasonal changes and changes in revenue structure, the proportion of marketing expenses in the coming quarters may slightly increase, but compared to pre-pandemic levels, there is still a significant improvement in efficiency. In the long term, we will improve marketing efficiency in each market by prioritizing the development of direct traffic and cross-selling. Over the next few years, we expect the profit margin of our China business to benefit from economies of scale and a favorable revenue structure, especially in outbound travel and accommodation. Meanwhile, our overseas business will continue to be in the investment and expansion phase, and the overall group profit margin will reflect this business mix. In the long term, we believe there are no structural barriers preventing us from achieving profit margins comparable to international peers.

Q: You mentioned some internal AI initiatives, such as Trip PLUS and Trip Trends. Can you explain in detail how these features operate at the operational level? What impact do these AI initiatives have on the business?

A: Trip PLUS and Trip Trends are part of our AI innovation applications and are at the core of dynamic content strategy. We aim to increase user awareness, provide relevant information, and simplify travel planning. The curated lists provided by Trip help travelers choose the best experiences, including hotels, attractions, restaurants, and nightlife. Trip PLUS covers over 190 countries and regions, involving 14 popular themes, with over 70% of users using Trip. Best, of which over 80% are satisfied. Partners selected have seen significant increases in traffic and revenue on our platform. Trip Trends tracks popular travel topics and events, provides trend insights, and customizes content based on different user needs.

In addition, we have launched the AI-driven travel assistant Trip Genie, which continuously upgrades features. For example, the new version in the second quarter allows friends to participate in travel decisions together, enhancing the user experience. Trip Genie is positively correlated with user loyalty and cross-selling ratio. We have also improved internal tools, such as AI-assisted instant messaging tools, significantly improving call center efficiency and user experience. In the future, we will continue to invest in AI to enhance user experience and operational efficiency.

Q: Can you provide a detailed explanation of the opportunities in the inbound tourism market in China, and how do we plan to further seize these opportunities? Additionally, what is the revenue contribution of inbound tourism to Ctrip's overall business?

A: The Chinese inbound tourism market has tremendous potential. We are pleased to see China making progress in addressing challenges for foreign tourists entering the country, such as visa, payment, and internet access issues, and look forward to collaborating with industry partners to expand inbound business.

Ctrip has advantages to seize these opportunities. Firstly, our all-in-one mobile app provides comprehensive travel information and competitive product services. Secondly, the rapid growth of our user base reflects an increase in inbound tourists, attracting new users from major source markets. Inbound hotel and flight bookings on the Ctrip platform have grown by about 20% year-on-year, with inbound tourism contributing over 25% to Ctrip's overall business.

Q: Over the past decade, Ctrip has been very active in domestic and international mergers and acquisitions. It has decreased in recent years due to the pandemic. What are the current dynamics or opportunities in terms of mergers and acquisitions?

A: We have been actively seeking various opportunities in the tourism industry globally. However, thanks to investments in recent years, we already have the most valuable tourism assets within the group. Therefore, the current top priority is to maximize synergies between different brands within the group and drive business growth through organic growth.

Q: Considering that both profit margins and cash flows are relatively stable now, how should we view the future stock capital return policy?

A: Ctrip Group manages capital with a long-term holding mindset, focusing on four priorities. Firstly, investment in growth is a top priority, especially in global markets where we focus on building sustainable competitive advantages to drive business growth. Secondly, we achieve higher long-term returns through strict cost management. Thirdly, we prudently manage leverage to maintain strategic flexibility. Lastly, shareholder returns are provided through dividends or buybacks to offer stable returns while strategically managing cash.

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