Ctrip: Will there be surprises in 2025? (3Q24 Conference Call)

The following is the summary of the Q3 2024 earnings call for $Trip(TCOM.US) and $TRIP(09961.HK) . For the earnings report interpretation, please refer to “Playing Out” of the Country, Trip.com Still Performs Well .

1. Core Information Review of the Earnings Report:

2. Detailed Content of the Earnings Call

2.1 Key Information from Executive Statements:

1）Chinese Travel Market:

The Chinese travel market showed strong performance in Q3 2024, with robust recovery in both domestic and international travel.

During the National Day holiday, the number of travelers and travel bookings exceeded pre-pandemic levels.

User preferences indicate a growing demand for family travel, food, culture, and seasonal specialty tourism.

Younger groups are more inclined to spend on travel, with increased demand for concerts, music festivals, exhibitions, and sports events.

2）Company Initiatives:

Launched entertainment + travel products, such as the 2024 Desert Music Festival in collaboration with a certain city.

AI plays a key role in enhancing the travel experience, simplifying the planning process through personalized solutions.

Emphasized the importance of ESG practices, receiving the 2024 Forbes China Best AI-Driven and Digital Employer Award.

3）Outbound Travel:

This quarter, the international flight market has recovered to about pre-pandemic levels, with outbound hotel and flight bookings reaching 120% of 2019 levels, exceeding the industry by 40%.

Japan is the preferred destination for Chinese outbound tourists, with increased interest in long-haul destinations.

Travel bookings during the National Day holiday from tier-4 and tier-5 cities increased by 100% and 300% respectively.

4）Domestic Travel:

Demand remains strong, with travel patterns more evenly distributed across the country, and travelers increasingly exploring inland and lesser-known destinations, promoting local tourism development.

5）International Business:

The international OTA platform's flight and hotel bookings increased by over 60% year-on-year, with bookings in the Asia-Pacific region growing over 70% International OTA platforms have become the highest downloaded OTA applications in multiple markets.

The inbound hotel booking volume on the platform has increased by approximately 100%, indicating a growing interest from global tourists in China.

Various services are offered to enhance the travel experience for international tourists, such as booking attraction tickets, travel itineraries, providing currency exchange, E-SIM card solutions, etc.

6）Senior Travel Group:

In the first three quarters of this year, travel bookings from users aged 50 and above increased by 26% compared to the same period last year, with the age group of 61 to 65 showing the most significant growth.

More than half of the silver-haired travel group comes from first-tier and new first-tier cities, with per capita spending 30% higher than the average spending level of the group.

The silver-haired group has become active content contributors, accounting for 7% of the total number of creators and generating over 10% of travel-related content.

2.2 Q&A Analyst Q&A

Q: Could you please provide an in-depth introduction to the recent performance after the National Day holiday? Additionally, what should investors expect for 2025?

A: After the National Day holiday, the Chinese travel market has shown normal seasonality, with year-on-year momentum strengthening and occupancy rates exceeding last year's levels. Trip.com Group has grown beyond the industry average, with strong year-on-year growth in outbound flights and hotel bookings, exceeding 120% of the same period in 2019, and hotel and flight bookings maintaining double-digit growth. In 2025, normal growth is expected for related businesses in China, emphasizing inbound and outbound cross-border travel, with the Trip.com brand expected to maintain strong growth and expand into Asian and global markets.

Q: Regarding hotels, what changes have you observed in hotel prices? Has the growth of hotel inventory in China begun to slow down? Please also share your outlook for 2025.

A: Industry data shows that hotel prices are still below last year's levels, but the gap has narrowed from double digits to mid-single digits, which is in line with expectations. The number of hotel suppliers on the platform continues to grow, reflecting long-term market confidence, but the growth rate has begun to normalize. As of the end of the third quarter, the number of hotels listed on the Chinese platform has increased by 6-7% compared to last year. In the long run, I believe the expansion and diversification of travel suppliers will significantly contribute to the overall growth of the travel industry.

Q: Can you provide an update on the changes in outbound flight capacity for the summer and the fourth quarter? Given that some airlines have reduced flights, when can we expect a full recovery?

A: In the third quarter, outbound flight capacity reached about 80% of the 2019 levels, and I am pleased to see that flights from certain airlines and countries (such as Canada) have increased, with further improvements in capacity expected over the next year.

Q: Regarding recent trends, has there been any change in travelers' overspending? Have recent stimulus measures promoted travel consumption?

A: In the third quarter, I am pleased to see that the average spending of users is comparable to last year's levels and approximately 20% higher than the pre-COVID level of 2019. Regarding stimulus measures, it may be too early to determine the direct impact of recent stimulus measures, but a healthy economic environment should benefit all industries, including travel Q: Can you provide detailed insights into this quarter's operational and financial performance, such as the situation of domestic hotels and international business?

A: In the third quarter, Trip.com's flight and hotel bookings saw a strong year-on-year growth of 60% - 70%, with the Asia-Pacific region accounting for over 70% of total bookings, and the growth in bookings in this region was particularly prominent, with hotel and flight bookings in the Asia-Pacific region increasing by over 70% year-on-year. We are pleased to see steady progress in our one-stop travel and mobile app strategy, for example, in the third quarter, hotel-related revenue accounted for over 40% of total revenue, and cross-selling from transportation to hotels continued to rise.

Trip.com's mobile app is the brand's main channel, contributing 65% - 70% of global orders, exceeding 70% in the Asia-Pacific region. From a financial perspective, Trip.com contributed approximately 9% of the group's total revenue this quarter, up from 7% in the same period last year, and we will continue to invest in the Trip.com brand in international markets, especially in the Asia-Pacific region.

Q: I would like to follow up on Trip.com's global business; can management elaborate on the strategy in Asia? Given that this is a huge market opportunity and international peers may increase their investments, how do we plan to further gain market share?

A: Asia is a very important market for us, accounting for 50% of the growth in the travel industry. We focus on a few key areas: first, providing a one-stop booking platform to meet customers' global travel needs; second, we have excellent staff available 24/7 to ensure customer peace of mind; third, ensuring an outstanding user experience on the app; finally, leveraging our business volume to offer many high-quality products to global customers. In the future, we will focus on providing the best products and quality services for Asian customers.

Q: Regarding your AI initiatives, can management elaborate on the AI-related measures and share more operational highlights if possible?

A: We have made significant investments in technology and AI, with many engineers working hard to ensure AI supports operations. There are mainly four uses of AI on the platform: first, AI helps improve user experience; previously, customers had to search for suitable products, but now they can interact smoothly with the system using AI, which recommends suitable products based on customers' travel habits; second, by using AI, engineers can reduce coding time by 15% - 30%; third, AI enhances customer service levels, ensuring high-quality service for customers; fourth, content generation, improving the accuracy and efficiency of generating videos, images, and content through AI. In the future, AI will be a useful tool for improving efficiency and enhancing user experience.

Q: I think you emphasized some operational benefits brought by AI; I would like to know if you can further elaborate on the financial impact of AI in the short and long term?

A: We have consistently integrated new technologies into operations, evolving from mobile technology to non-generative AI and then to generative AI. In terms of financial impact, so far, all investments have been minimal compared to our financial situation, especially in terms of revenue and profit. It remains quite challenging to quantify the financial benefits of new technologies at this time. However, from an operational perspective, AI will definitely improve user engagement and conversion rates, while also significantly enhancing service efficiency and internal operational efficiency. These improvements will ultimately be reflected in financial performance.

Q: First, in the post-COVID era, the group has set a standard in terms of operating profit margin, continuously generating a large amount of free cash flow. Can you introduce the use of capital? Secondly, in terms of gross merchandise volume (GMV), you have reached a certain scale. How should we view the operating leverage in terms of product and marketing costs in the future? Will it bring us surprises quarter by quarter?

A: The company generates a large amount of free cash flow and is currently prioritizing maximizing the synergy of different brands in international markets. Approximately 6 million shares (about 1% of the issued shares) have been repurchased. The future scale of capital returns will depend on multiple factors, and we expect to expand the capital return plan by 2025, which may include dividends and repurchases (subject to board approval).

The OTA business model is scalable and has achieved high operational efficiency, with sales and marketing expenses accounting for less than 1% of total bookings, influenced by high customer loyalty and mobile app cross-selling ratios. It is expected that the marketing expense ratio will increase in the fourth quarter due to seasonal and business revenue structure fluctuations. In the long term, marketing efficiency will be improved by prioritizing direct mobile app traffic and cross-selling, while also introducing AI to enhance efficiency, but continued investment in international markets is still necessary.

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