Q4 2023 Earnings Summary
- Strong recovery and growth in both domestic and outbound travel markets, with the company outperforming market growth and solidifying its market position. During the recent Chinese New Year holiday, domestic hotel and air reservations increased by more than 60% and 50% year-over-year, respectively, and outbound hotel and air reservations both surpassed 2019's level. The company anticipates a stronger year-over-year growth in the first half of Q1, indicating continued momentum.
- Significant contribution expected from Trip.com's international expansion, particularly in high-growth Asian markets. The company anticipates that Trip.com will contribute 15% to 20% of the Group's total revenue over the next 3 to 5 years with a mid- to high double-digit CAGR growth, driven by scalability and marketing efficiencies. The combined size of the top Asian markets, excluding China, surpasses that of Mainland China in terms of gross bookings, highlighting substantial growth potential.
- Enhanced marketing efficiencies leading to improved margins and profitability. The company has seen a significant improvement in marketing efficiencies due to enhanced conversion rates, internal cross-selling initiatives, and investments in content generation. The long-term goal is to further enhance marketing efficiencies in both China and international markets by focusing on increasing direct traffic and improving cross-selling within the platform.
- The Chinese economy is experiencing macroeconomic challenges, including a weak property market, poor stock market performance, and low consumer confidence, which could negatively impact consumer spending on travel services offered by Trip.com.
- Outbound flight capacity may recover slower than expected, with the Civil Aviation Administration of China projecting it will reach only 80% of pre-COVID levels by the end of 2024, potentially hindering Trip.com's growth in the outbound travel sector.
- Trip.com's globalization strategy may increase marketing and operational expenses, potentially pressuring margins and profitability, especially as the company invests to enhance its brand awareness and market share in competitive overseas markets.
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Trip.com's Growth and Profitability
Q: Could you provide more details on Trip.com's global footprint, revenue contribution, and profitability?
A: Trip.com is expected to contribute 15% to 20% of the Group's total revenue over the next 3 to 5 years, achieving a mid- to high double-digit CAGR growth. This growth is driven by robust product logistics, supply chains, service standards, and technologies applied across various regions. Trip.com focuses primarily on the Asian market, the top outbound destinations for travelers from China and other parts of the region. The combined size of the top Asian markets, excluding China, surpasses Mainland China in terms of gross bookings. We anticipate Trip.com will become profitable within the same timeframe, aided by scalability, increased marketing efficiencies, and a shift in revenue mix favoring hotel bookings. Trip.com's competitive advantages include a smooth and user-friendly mobile app, AI tools for personalized recommendations, a comprehensive one-stop mobile model covering nearly all travel needs, 24/7 customer service, and highly competitive product offerings due to our strong market presence and supplier relationships. -
Margin Outlook and Marketing Expenses
Q: How are you thinking about margin trends, especially with increased spending for globalization?
A: In the fourth quarter last year, we saw significant improvement in our marketing efficiencies due to enhanced conversion and internal cross-selling initiatives. Investments in content generation also helped improve marketing efficiencies. Our long-term goal is to further enhance marketing efficiencies in both China and international markets by increasing direct traffic and improving cross-selling within our platform. For the international Trip.com business, we are exploring opportunities to enhance brand awareness outside of China. -
Recent Business Performance and Outlook
Q: How should we extrapolate the strong Chinese New Year performance into Q1 and the rest of the year?
A: As of 2023, our business has fully rebounded to pre-COVID levels. From this year forward, we will stop using 2019 as a benchmark for comparison except for our outbound travel segment. The China travel market has shown strong momentum, especially during the Chinese New Year. The number of domestic tourists grew by 34% year-over-year or 19% above the 2019 level. Our domestic hotel and air reservations increased by more than 60% and 50% year-over-year, respectively, during the Chinese New Year holiday. Outbound hotel and air reservations have both surpassed the 2019 level. We anticipate stronger year-over-year growth in the first half of Q1 this year, followed by a comparatively softer second half due to a high base. In international markets, our Trip.com business has maintained a mid- to high double-digit year-over-year growth. -
Outbound Travel Recovery Outlook
Q: What factors might contribute to the slow recovery of outbound travel, and when do you anticipate a full recovery?
A: We have strong confidence in the full recovery of outbound travel. Significant search interest in outbound travel indicates robust demand from users. The market supplier situation is improving, with a steady recovery in inbound and outbound flights. Visa policies are becoming increasingly favorable, with some markets offering visa-free entry for Chinese travelers showing better recovery. Most markets outside China are projected to require 2 to 3 years to fully recover international travel. Even a 70% to 80% recovery of outbound passenger volume in 2024 indicates year-over-year growth of approximately 65% to 90%. During the recent Chinese New Year holiday, our Group already saw outbound air and hotel reservations fully bounce back and beyond the 2019 level. -
G2 Strategy and Globalization Efforts
Q: Could you elaborate on Trip.com's achievements and how the G2 strategy helps reach long-term globalization goals?
A: Our G2 strategy focuses on globalization and great quality. Long-term growth relies on progressing our globalization strategy to build global products, supply chains, services, and technology for worldwide users. Asia is a top travel destination for travelers from China and other regions. By leveraging our strong supply chain, diverse product offerings, and industry-leading service and technology, we strive to provide exceptional service for users in Asia and around the world. Regarding great quality, our mission is to provide the best travel experience with the best technology. We have introduced TripGenie, an AI-based travel assistant to enhance the travel planning experience. We are also using AI to improve the efficiency of customer service, content generation, and IT operations. -
Traveler Spending Behavior and Trends
Q: What have you seen in terms of travelers' spending behavior in leisure and business travel?
A: We have seen increased travel demand across various segments such as entertainment, music festivals, wellness, and travel. Customers are exploring different places both domestically and globally. Interest in exploring different regions of the world has been enhanced compared to pre-COVID levels. With easing travel restrictions and gradual recovery in visa applications and flight capacity, we hope 2024 will be the year to take more customers to travel within China and globally. Travel demand is very strong, and we are committed to providing the best service and products to our customers.