Good day, and thank you for standing by. Welcome to the Trip.com Group 2024 Q1 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Michelle Qi, Head of Investor Relations. Please go ahead.

Thank you, everyone. Good morning. Welcome to Trip.com's First Quarter of 2024 Earnings Conference Call. Joining me today on the call are Mr. James Liang, Executive Chairman of the Board; Ms. Jane Sun, Chief Executive Officer; and Ms. Cindy Wang, Chief Financial Officer. During this call, we will discuss our future outlook and performance, which are forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in Trip.com Group's public filings with the Securities and Exchange Commission. Trip.com Group does not undertake any obligation to update any forward-looking statements, except as required under applicable law. James, Jane, and Cindy will share our strategy and business updates, operating highlights, and financial performance for the first quarter of 2024, as well as the color for the second quarter of 2024. After the prepared remarks, we will have a Q&A session. With that, I will turn the call over to James. James, please.

Thank you, Michelle, and thanks, everyone, for joining us on the call today. The Chinese travel market has experienced remarkable growth over the last year, and 2024 continues to be a strong year for travel. Positioned at the front of this thriving sector, Trip.com Group has achieved significant investments across all business lines in this quarter. In 2024, outbound travel continues to be a pivotal force propelling the Chinese travel market forward, with international flight capacity roughly doubling compared to last year and the visa-free policies further facilitating trips in the APAC region. Outbound travel is becoming increasingly appealing and accessible. Ultimately, outbound hotel and air ticket bookings on our platform fully recovered to 2019 levels during the major holiday periods, indicating a strong rebound in demand. In addition to outbound travel, the China domestic travel market continued to exhibit strong performance in the first quarter, in response to the growing interest of Chinese travelers in exploring their homeland. We are also catering to the increasing travel demands of the silver generation. This demographic, known for their level of leisure travel and cultural experiences, as well as their tendency to travel during off-peak seasons, represents a substantial growth opportunity within the domestic landscape. To address the unique travel preferences, we have already introduced the Old Friends Club initiative, which is designed to empower this cohort to fulfill their travel aspirations. This initiative also has the potential to bridge the gap between peak and off-peak seasons in the Chinese travel market. On the international front, our global business is experiencing rapid expansion, particularly in the APAC region, with revenue growing at an impressive rate of around 80% year-over-year. Additionally, we have witnessed significant growth in inbound travel to China, with a remarkable increase of 400% compared to last year, driven by the benefits of visa-free policies. In response to this flourishing trend, we initiated a program in April aimed at providing free city tours to international travelers with layovers exceeding 8 hours at Shanghai Pudong International Airport. This initiative aims to transform brief stopovers into mini-vacations, thereby offering new opportunities for international travelers to explore China. We can conclude travel remains a resilient and promising business with great opportunities and possibilities in 2024. As we journey forward, we remain committed to creating value for both customers and shareholders, and we are poised to navigate this evolving landscape and achieve new heights of success. With that, I will turn the call over to Jane for operational highlights.

Thank you, James. Good morning, everyone. As a quick overview, our net revenue in Q1 grew by 29% year-over-year. Our adjusted EBITDA margin for this quarter was 33%. We are delighted to observe sustainable growth in travel momentum this quarter as it occurs amidst a transition from pent-up demand to a more normalized demand environment. This shift indicates a maturing market condition, further contributing to our confidence in the sustainability of strong performance for the rest of 2024. Trip.com Group continues to identify opportunities across different market segments. First, for the China domestic market. In Q1, the China domestic market continued to demonstrate robust growth. Our domestic hotel and air ticket bookings increased by 20% to 30% year-over-year. Notably, Chinese consumers are changing their spending habits, placing great emphasis on quality, experience, and emotional fulfillment. This evolving mindset is prompting travelers to pursue personalized and high-quality travel experiences tailored to their unique preferences, presenting a considerable advantage for the travel industry. Moreover, it is noteworthy that both government pension and social interest in the travel industry have reached unprecedented levels this year, intensifying marketing efforts in many provinces and effectively encouraging travelers to explore diverse destinations, largely contributing to the enduring popularity of domestic travel. Second, outbound travel. The outbound travel market emerged as a driving force behind travel market recovery last year, and its significance persists into 2024. In Q1, the international flight capacity across the industry rebounded to about 70% of the pre-pandemic level compared to 2019. Our platform witnessed outbound travel bookings consistently outpacing the market by 20% to 30%. During the Chinese New Year period, our outbound bookings fully recovered to the pre-pandemic 2019 levels. On a year-over-year basis, our outbound hotel and air ticket bookings surged by more than 100%. Alongside a notable increase in market sentiment and stable supply, relaxed visa requirements in Southeast Asia have further captivated the attention of Chinese outbound travelers. According to CAAC estimates, China outbound travel is anticipated to rebound to 80% of pre-pandemic levels by the end of this year. Third, global market. Expanded beyond China’s borders, we have diligently strengthened our product and service offerings in the global market, particularly witnessing steady growth in the Asia-Pacific region. Our core competence lies in delivering a superior user experience through our one-stop shopping platform, customer service, and offering strong value for our travelers, providing top-notch service via our mobile app and customer support, and furnishing comprehensive information to inspire and aid travelers in making informed decisions. We made enhanced collaborations with our global partners to provide hassle-free travel experiences for travelers around the world. In Q1, the total revenue of our overseas OTA platform, Trip.com, surged by about 80% year-over-year. We remain committed to becoming a go-to platform in Asia within the coming 3 to 5 years. Now I would like to give some strategic highlights in a couple of areas. First, inbound market. While our other segments continue to thrive, the growing potential for inbound travel to China is becoming increasingly evident. China has taken proactive steps to bolster its inbound travel sector by implementing visa-free entry for citizens from more than 15 countries, such as France, Germany, Italy, Netherlands, Spain, Switzerland, and others. This strategic move has already yielded promising results. Our platform has witnessed a significant 400% year-over-year increase in inbound travel bookings with a notable surge in arrivals from key markets such as Singapore, which has surged significantly, followed by Malaysia with a nine-fold increase, and France, Spain, and Thailand each increased by four times. The future of inbound travel to China holds immense promise, bolstered by visa-free policies and innovative payment solutions further enhancing the appeal of visiting China. As we address the pain points and implement solutions, traveling to China will become increasingly enticing, offering exciting opportunities for growth and development in the inbound market.

Thank you, Jane. Good morning, everyone. For the first quarter of 2024, Trip.com Group reported a net revenue of RMB 11.9 billion, representing a 29% increase from the same period last year, and a 15% increase from the previous quarter, primarily due to the strong recovery in the travel market. Accommodation reservation revenue for the first quarter was RMB 4.5 billion, representing a 29% increase year-over-year and a 15% increase quarter-over-quarter. Domestic and outbound hotels have seen robust growth and outpaced the industry. Transportation ticketing revenue for the first quarter was RMB 5 billion, representing a 20% increase year-over-year and a 22% increase quarter-over-quarter. This is mainly due to the robust recovery of outbound air and strong growth in domestic and global air business. Packaged-tour revenue for the first quarter was RMB 883 million, representing a 129% increase year-over-year, and a 25% increase quarter-over-quarter. Domestic package tours have already surpassed the 2019 level. The year-over-year growth was mainly driven by outbound revenue, which increased significantly. Corporate travel revenue for the first quarter was RMB 511 million, representing a 15% increase year-over-year and a 19% decrease quarter-over-quarter. The sequential decrease was in line with normal seasonality. Excluding share-based compensation charges, our total adjusted operating expenses were 6% higher than the previous quarter and were 24% higher than the same period last year. Adjusted product development expenses for the first quarter increased by 7% from the previous quarter. Adjusted general and administrative expenses for the first quarter increased by 9% from the previous quarter. This is mainly due to the increase in personnel-related expenses. Adjusted sales and marketing expenses for the first quarter decreased by 1% from the previous quarter and increased by 32% from the same period last year. The year-over-year increase was primarily due to increased marketing promotion activities in line with business growth. Adjusted EBITDA was RMB 4 billion for the first quarter compared with RMB 2.8 billion in the same period last year and RMB 2.9 billion in the previous quarter. Adjusted EBITDA margin was 33% for the first quarter compared with 31% in the same period last year and 28% in the previous quarter. Diluted earnings per ordinary share and per ADS were RMB 6.38 or USD 0.88 for the first quarter of 2024. Excluding share-based compensation charges and fair value changes of equity security investments and exchangeable senior notes, non-GAAP diluted earnings per ordinary share and per ADS were RMB 6 or USD 0.83 for the first quarter. As of March 31, 2024, the balance of cash and cash equivalents, restricted cash, short-term investment, held-to-maturity time deposits, and financial products was RMB 81.9 billion, or USD 11.3 billion. The strong recovery in the first quarter of 2024 across market segments is encouraging. As we venture into the second quarter, we are delighted to see persistent strong demand on our platform. This demand continues to drive substantial growth across travel segments. Even in the face of challenging comparisons, we have noticed a decline in hotel and air prices, which could potentially affect our revenue growth. Nevertheless, we anticipate this will have a limited impact on our net earnings due to our strong management of operational efficiency. With that, operator, please open the line for questions.

Our first question is from Brian Gong with Citi.

James, Jane, Cindy, and Michelle, congratulations on solid results. My question is regarding how our group has successfully captured pent-up demand and continues to demonstrate strong growth in the first quarter for domestic, outbound, and international platform or business line. So looking ahead, what growth drivers and new initiatives should investors pay attention to in management's view?

Thank you very much for the question. In China, we will focus on steadily expanding our user base in the second- and third-tier cities, improving user acquisition and cross-selling ratios. Additionally, we expect to benefit from the growth of outbound travel in the upcoming years. On the international front, Trip.com will maintain its focus in Asia and strive to become a regional and global leading player. As for new initiatives, we are actively pursuing opportunities in China's inbound travel market, which has a great market size at this multitrillion RMB level. Domestically, we are introducing tailor-made products for the silver generation, which represents another RMB 1 trillion market opportunity. Furthermore, we are introducing new product combinations such as entertainment activities plus travel, responding to the evolving market demands of the younger generation. We remain dedicated to investing in our content strategy and AI development, which are integral to our one-stop business model. These investments aim to enhance user engagement and operational efficiency.

Our next question is going to come from the line of Thomas Chong with Jefferies.

Our recent new data suggests a notable decrease in hotel ADR and slowdown of hotel RevPAR. Have you also observed this trend? Does this indicate a weakening or downgrade in consumer spending? Additionally, what are the price trends for outbound hotel and flights?

Thank you, Thomas. Yes, we also observed a decline in domestic ADR in recent months, which was largely influenced by the shift in travel preference towards outbound destinations as well as the lower-tier cities and the increased availability of hotels and flights. Firstly, as we think that outbound travel has notably increased this year, attracting many high-end travelers away from our domestic options. Secondly, the lower-tier cities now offer excellent value as transportation and accommodation infrastructure have significantly improved over the past few years. Additionally, the increase in hotel and air supply has put pressure on short-term prices across the board, particularly when compared to the high benchmark established during last year's peak season. Overall, we believe the expansion and diversity of travel supplier capacity will greatly contribute to the overall growth and stability of OTAs as distributors, as well as the travel industry as a whole. With regard to the outbound, the outbound air ticket price has normalized as flight capacity continues to recover, and the current level stays around about 115% of the 2019 level compared to over 130% of the 2019 level during the same period last year. Average outbound hotel prices have been quite stable compared to last year.

Our next question is going to come from the line of Joyce Ju with Bank of America.

James, Jane, Cindy, and Michelle. Congrats on another strong set of results. I would like to ask if management could elaborate more on the company's recent business performance, especially during and following the Labor Day holiday. As we are now moving into summer, could management also share your expectations on business momentum for the third quarter and beyond?

Sure. Our domestic and outbound travel bookings reached new high records during the recent Labor Day holiday, specifically outbound air and hotel bookings surpassed 120% of the 2019 level. This achievement is particularly significant, considering the tough comparisons to the same period last year, which was the first major holiday with strong pent-up demand for leisure travels. With regard to the quarter-to-date, domestic travel bookings achieved double-digit growth with hotels leading the search. Outbound hotel and air bookings have fully rebounded to pre-pandemic levels. Such robust growth has significantly outperformed the market in terms of booking volumes. For instance, the market-level domestic hotel occupancy rate and flight passenger volumes were roughly on par with 2023. Outbound flight capacity was slightly over 70% of the 2019 level. In terms of average pricing, our numbers were generally in line with the market. As I explained before, recently, we noticed hotel ADR and average air ticket prices have both seen year-over-year decreases. Trip.com has maintained robust growth in the mid- to high double-digit percentage range, and inbound travel to China has also experienced a multi-fold increase. Now moving to the summer part, it's still quite early to observe early bookings towards the summer given the short booking windows in China. However, we remain confident about the travel momentum in the summer holiday and beyond. In particular, we anticipate significant growth in the outbound travel sector, driven by the ongoing recovery of flight capacity as well as the resolution of the visa backlog. With regard to global markets, we anticipate Trip.com to continue its robust growth while Skyscanner and other overseas brands are also expected to maintain a very healthy growth trajectory.

And our next question is going to come from the line of James Lee with Mizuho.

Also, let me add to my congratulations to you on the quarter as well. Let me follow up on an outbound question. I think, Jane, you spoke about outbound getting back to 80% of FY 2019 by year-end. I was wondering what factors we should think about that will either speed up or slow down that process? And also, in terms of destinations, where do you see the most recovery, especially in the western part of the world, especially the European market?

Thank you for your question, James. We are witnessing a strong recovery in outbound business, with projections suggesting that by the end of the year, the industry will reach 80% of pre-pandemic levels. Our company anticipates outpacing the market by 20% to 30%. There are a couple of key factors influencing outbound travel. First, many countries are offering free visas to Chinese travelers, including Singapore, Malaysia, Thailand, and GCC countries like the UAE and Saudi Arabia, which has led to a significant increase in travel to these destinations. Second, we have observed a robust rebound in flight capacity to Singapore, Malaysia, Thailand, and the GCC countries, allowing us to send a considerable number of travelers there. During the Chinese New Year, our top three long-haul destinations are Australia, New Zealand, and South Africa. We are seeing strong demand when customers have free visas, when flight capacity recovers, and when customers have the time to travel. This summer, we’re excited that families will have more opportunities to travel globally to countries known for their hospitality, and we aim to take advantage of these outbound recovery trends. However, some regions are still lagging, with flight capacity yet to recover. We are keen to collaborate with these areas to ensure timely processing of applications and to increase flight capacity before the summer holidays.

And our next question comes from the line of Alex Poon with Morgan Stanley.

Congratulations management on very strong results. My question is regarding the opportunity in the China inbound travel market and how Trip.com plans to capture this market. Additionally, can you talk about the contribution of inbound travel to Trip.com business?

Sure. Inbound business is a new opportunity for the China travel industry. China can offer so much to the world; it has a very rich history, beautiful infrastructure, and high-speed railway stations that connect the country. Each province is very unique. So we are very excited to invite our friends around the world to come and visit China. There are a lot of good offers being extended. First of all, free visas have been extended to many countries, including France, Germany, the Netherlands, Italy, Spain, Switzerland, Ireland, Singapore, Malaysia, Thailand, and others. Going forward, as we move forward, we hope there will be more opportunities to invite people from around the world to come to China. Secondly, for Trip.com, we offer a one-stop shopping platform. Our inventory within China is excellent; we can offer tickets, flight tickets, high-speed railway tickets, and nice tour packages. We also offer free one-day tours for customers who transit in Shanghai. We hope that through concerted efforts between Trip.com and the local community, we can show hospitality to our global travelers. Thirdly, for Trip.com, we offer more than 30 languages on our app and in our call center around the world, providing 24/7 service. If a customer needs to reach our customer service within 30 seconds, we will be able to pick up the phone in their familiar language. We are very excited for this opportunity to showcase the beautiful history, hospitality, and variety of food to our global friends. Inbound travel will hopefully become a significant contribution to our business going forward.

Yes. The contribution of inbound travel to the Trip.com business has improved from the teens level to over 20% of overall revenues in the first quarter of 2024. Thank you.

And our next question comes from the line of Jiong Shao with Barclays.

I think you just mentioned that Trip.com contribution is now over 20% of the revenue. I just want to follow up on that. I was hoping you could elaborate a bit on your Trip.com business. Could you talk about, for example, the regional breakdown or product line breakdown for that business? In terms of the take rate and average room rate for that pure international Trip.com business, as you compete in Southeast Asia and other parts of the world, clearly, there are existing players. Could you talk about what you're bringing as differentiation to grow your market share? What are you doing differently or better than some of the existing players?

Thank you. Firstly, a clarification on the contribution: a 20% contribution actually is the inbound contribution to the overall Trip.com business rather than the Trip.com's revenue contribution to the total group. With regard to the Trip.com revenue contribution to the total group, which is around 10% in the first quarter of 2024, more than 70% or around 70% actually comes from the Asia markets. With an increased cross-selling ratio, our mobile hotel bookings now contribute to more than 35% of the total revenues of the Trip.com business. The take rate for hotel and air reservations on the Trip.com is similar to those of our outbound business. Recently, we have turned profitable in terms of contribution margins for the Trip.com business, and we expect the Trip.com to achieve a healthy margin as it scales further in the long-term period. With regard to the core competence of our Trip.com business, there are many players in both the international and Asia markets. However, Trip.com has unique selling points for our users. Firstly, Trip.com's mobile app offers a smooth and user-friendly search and booking experience, complemented by AI tools for personalized recommendations and special offers, further enhancing our user engagement. For example, Trip.com's global mobile app order share has increased to around 65% in the first quarter. In several key markets, the number has reached over 75%. Secondly, we have a comprehensive one-stop model that caters to nearly all travel needs, which is particularly appealing to mobile app users. Our extensive experience in China further enhances our expertise in these areas. Third, we provide 24/7 customer service via phone calls, online chat, or emails, ensuring our users have reliable support for any issues they encounter. Fourth, Trip.com offers highly competitive offerings, leveraging the group's strong market presence and well-established supplier relationships. Lastly, with strong product and service offerings in China, a surge in inbound travel presents an excellent opportunity for our Trip.com business to capitalize on its unique advantages. Thank you.

And our next question is going to come from the line of Alex Yao with JPMorgan.

Congratulations on a solid quarter. Trip.com has been growing very rapidly in the past few years. Can you talk about Trip.com's addressable market size and the competitive landscape in Asia?

Sure. When we look at the market size, outside of China, the total Asia market is equivalent to 1.5 times China's market. So it's quite significant. Secondly, we feel we have a couple of advantages. First of all, we offer a one-stop shopping platform, which is really convenient for our consumers. Secondly, our users' experience on mobile is excellent. In China, more than 90% of our customers use mobile, so we'll be able to amplify our experience in global markets. Thirdly, our excellent customer services ensure we serve our customers outside of China and within China. Lastly, we have a very strong outbound business, which enables our team to negotiate very good deals for our global customers. These are the strengths we have. We will ensure that we provide excellent products and services to our global customers.

Our next question comes from the line of Simon Cheung with Goldman Sachs.

I just have one small question. Again, in relation to the margins, which have consistently, I guess, been exceeding market expectations. I've been receiving a lot of inbound inquiries asking about the different margin profiles for your Trip.com business, your outbound business, and your domestic business. Perhaps you can share with us if you have any data you can provide regarding the respective business, the relative margin profile, maybe the take rates? And secondly, how should we think about the margin trend? We have seen your sales and marketing as a percentage of revenue consistently trending lower. In this particular quarter, we also see product development trending lower on a year-on-year basis. Any color would be appreciated.

Yes, we have achieved a healthy margin level for our domestic business, thanks to the large scale and scalability it has achieved. The outbound business normally has a slightly higher margin due to average higher selling prices. At the same time, related costs, including service costs, product development costs, as well as sales and marketing costs, are quite similar to those of the domestic business. Therefore, outbound travel usually is the higher-margin business for us. Regarding the Trip.com business, as I said before, we closely monitor the contribution margin of the Trip.com business. Although it is still in the investment period, our Trip.com business as a whole has achieved at least a breakeven level in terms of contribution margin recently, and we strongly believe that Trip.com will also become a profitable, healthy growth business in the future. In summary, we expect our margins to align with typical seasonal patterns, reflecting strong business growth and disciplined cost management. Looking ahead, our margin expansion will primarily stem from operational scalability and improved sales and marketing efficiencies. However, this may be partly offset by additional expenses associated with our expanding international operations. Thank you.

Thank you. Thanks to everyone for joining us today. You can find the transcript and the webcast of today's call on investors.trip.com. We look forward to speaking with you on our second quarter of 2024 earnings call. Thank you and have a good day.

This concludes today's conference call. Thank you for participating. You may now disconnect.