Q2 2024 Earnings Summary
- Robust Growth in Outbound and International Travel: Trip.com Group is experiencing strong growth in outbound travel, with outbound air and hotel reservations exceeding 110% to 120% of 2019 levels, consistently outperforming the market by 20% to 30%. The APAC region accounts for over 70% of Trip.com's total revenue and showed the strongest growth, increasing by 76% year-over-year.
- Significant Opportunities in Inbound Travel Market: The inbound travel market to China represents a significant opportunity valued at RMB 1 trillion, with inbound hotel and air reservations on Trip.com platform growing about 200% year-over-year. Inbound travel now contributes over 25% to the Trip.com brand's overall business, highlighting its importance and potential for further growth.
- Competitive Advantages and Growth Potential in Global Markets: Trip.com Group is well-positioned in the fast-growing APAC region where online penetration is still low but rapidly increasing, providing significant growth opportunities. The company's focus on one-stop travel services and mobile growth strategies gives it competitive advantages in overseas markets, with 65% to 70% of orders placed through Trip.com's mobile apps globally, and over 75% in the APAC region.
- Decrease in domestic hotel ADRs and average airfares year-over-year due to increased supply and increased outbound travel, which partially offset strong volume growth and may impact revenue and margins.
- Potential impact of decelerating China's consumption growth on travel spending. While management notes GMV per traveler remains consistent, there is concern that macroeconomic trends could affect travel demand.
- Increased investments in international markets and higher marketing expenses expected in upcoming quarters may pressure margins. Management indicates that overseas operations will remain in the investment and expansion cycle, and marketing expenses ratio is expected to slightly increase.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Margins | Q3 2024 | “Margins: Management expects margin expansion to stem from operational scalability and improved sales and marketing efficiencies, though this may be partially offset by expenses related to international expansion.” | “Seasonal margin trends: Q3 typically has the highest margin.” | no change |
Flight capacity | Q3 2024 | “Outbound Travel: Anticipated significant growth driven by the recovery of flight capacity and resolution of visa backlogs.” | “Stable flight capacity: Outbound travel capacity is expected to remain stable.” | lowered |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Outbound Travel Recovery | Described consistently as a key driver with international flight capacity recovering (70%-80% pre-pandemic levels) | Highlighted robust recovery with outbound bookings even surpassing 2019 levels in some markets | Consistently bullish, with current period emphasizing even stronger booking recoveries and high demand. |
Accelerating International Expansion | Focus on APAC growth, improved product competitiveness and global market presence | Continued emphasis on APAC’s rapid growth, mobile-first strategy and rising revenue share | Stable emphasis, with increased focus on leveraging mobile and one-stop solutions to cement market leadership. |
Inbound Travel to China | Recognized as an emerging revenue segment with modest revenue contributions and strong growth potential | Marked by significant year-over-year growth (200% increase in inbound bookings) and higher revenue share | Upbeat shift, with stronger current period growth and greater strategic focus on leveraging inbound travel opportunities. |
Domestic Travel Performance Challenges | Mentioned in Q1 with declining ADRs and airfares due to increased supply | Detailed concerns over lower domestic ADRs/airfares caused by inventory expansion and a shifting demand toward outbound | Growing concern, as current period sentiment highlights pricing pressures that offset volume gains compared to prior peak periods. |
Macroeconomic Headwinds & Constraints | Discussed flight capacity lagging at about 70% and visa processing backlogs affecting outbound growth | Noted improvements in flight capacity (up to 80% pre-pandemic levels) and enhanced visa processing aiding growth | Mixed sentiment, with ongoing external constraints slightly easing in the current period while still under close watch. |
Increased Marketing Investments | Q1 showed increased sales and marketing spend with modest efficiency gains ; Q4 highlighted improved efficiency | Q2 confirmed further marketing expense increases tied to promotion activities, with expectations of efficiency improvements | Stable upward trend in investments, with margin pressures partly offset by ongoing marketing efficiency enhancements. |
Leveraging Mobile & One-Stop Platforms | Emphasized strong mobile usage and a comprehensive one-stop platform with multi-language support | Continued focus on mobile-first strategies with AI integration and expanded one-stop services driving higher mobile transactions | Consistently positive, with enhanced integration of AI and mobile features reinforcing the competitive advantage. |
Intensifying Competitive Landscape | Some focus on expanding in lower-tier cities and competitive differentiation | No explicit discussion of intensifying competition in the current period | Absent in current period, suggesting a possible strategic shift toward market opportunity rather than head-to-head competition. |
Emergence of New Growth Segments | Noted early potential in the senior population, accounting for around 10% of the user base and attracting tailored services | Strong emphasis on the “Old Friends Club” for the silver generation, with significant spending and customized offerings | Evolving positively, as the senior segment is increasingly targeted with specialized products and shows robust spending growth. |
Shifts in Sentiment (Domestic Pricing & Capacity) | Q1 highlighted robust domestic peak performance tempered by concerns over declining ADRs and capacity recovery issues | Q2 further detailed weakening pricing power domestically due to surplus inventory and demand shifts towards outbound travel | More cautious sentiment in the current period as past peak performance is now being moderated by concerns over pricing and capacity dynamics. |
-
Margin Outlook
Q: How will margins trend given investments in AI?
A: Management expects margins to follow seasonal patterns, with Q3 margins slightly above Q2 and Q4 being the slowest season. Marketing expenses ratio may slightly increase in upcoming quarters due to seasonality and revenue mix shifts but will still show significant efficiency gains compared to pre-COVID levels. In the long term, China's business margins will benefit from scalability and a favorable revenue mix, particularly in outbound travel and accommodations. Overseas operations will remain in the investment and expansion cycle; overall group margins will reflect this business mix. In the very long term, they foresee no structural limit to achieving future profit margins comparable with international peers. -
Revenue Growth
Q: Can you provide details on Trip.com's Q2 performance and margins?
A: Trip.com achieved robust revenue growth of approximately 70% in Q2, contributing roughly 10.5% to the group's total revenue. The APAC region accounted for over 70% of Trip.com's revenue, increasing by 76% year-over-year. Hotel-related revenue accounted for 35%–40% of Trip.com's total revenue due to increased cross-selling. Mobile app usage was significant, with 65%–70% of orders placed globally via mobile apps and over 75% in the APAC region. Management will continue to prioritize growth and invest in the brand given ample international opportunities. -
Travel Demand Trends
Q: What is the outlook for travel demand and how are prices affecting performance?
A: Domestic hotel ADR and average airfares decreased year-over-year but improved slightly sequentially during the summer. Increased hotel and air supply put pressure on prices, with listed hotel inventories up 20% year-over-year. Outbound travel increased significantly, diverting mid- to high-end travelers from domestic options. The decrease in ADR and air ticket prices partially offset strong volume growth. Management expects ADR pressure to ease somewhat in Q4 and to follow normal seasonality in the future. In the long term, the expansion and diversification of travel supply will contribute to overall growth and stability. -
Outbound Travel Recovery
Q: How has outbound travel recovered and what's the outlook?
A: Outbound flight capacity recovered to nearly 80% of 2019 levels during the summer, with Chinese airlines showing even higher recovery rates. Flight capacity is expected to remain stable over the next few months. Average outbound airfares during the summer are still 5%–10% above pre-COVID levels and slightly increased quarter-over-quarter. -
Competition in APAC
Q: Have you observed increased competition in Asian markets, and how does it impact your business?
A: The APAC region offers ample growth opportunities and is the fastest-growing travel market globally. Online penetration remains relatively low, but a rapid shift from offline to online and mobile benefits all online players. Trip.com's one-stop travel services via mobile apps offer a unique and convenient experience, differentiating it from competitors. The company focuses on product innovation and service quality to enhance user experience and is investing to increase brand recognition. -
Inbound Travel Opportunities
Q: What are the opportunities in China's inbound travel market?
A: The inbound travel market to China represents a significant opportunity valued at RMB 1 trillion. Trip.com is well-positioned to capitalize by offering comprehensive travel information and competitive services through its one-stop mobile app. Inbound hotel and air reservations grew about 200% year-over-year, now contributing over 25% to Trip.com's overall business. -
AI Initiatives and Impact
Q: Can you elaborate on your AI initiatives and their business impact?
A: Trip Best and TripTrends are part of Trip.com's AI-driven content strategy aimed at easing trip planning. Trip Best offers curated lists covering over 190 countries across 14 themes, with over 70% of users consulting it and over 80% finding it helpful. Featured partners have seen significant improvements in traffic and revenue. The AI-powered assistant Trip.Genie allows friends to co-edit itineraries and has positively impacted user loyalty and cross-selling ratios. Internal AI tools like AI-assisted instant messaging have improved call center efficiencies and user experiences. -
Capital Return Policy
Q: What are your plans regarding M&A and capital return policy?
A: While actively exploring global opportunities, management's priority is maximizing synergies among existing brands and focusing on organic growth. They manage capital with a long-term ownership mindset, focusing on investing for growth, disciplined cost management, prudent leverage management, and providing consistent returns through dividends or buybacks while managing cash strategically.