Good evening and good morning, everyone. Welcome to Tongcheng Travel's 2025 First Quarter Results Conference Call. I'm Kylie Yeung, Investor Relations Director of the company. Joining us today on the conference call are our Executive Directors and CEO, Mr. Hope Ma, our CFO, Mr. Julian Fan, and our Chief Capital Officer, Ms. Joyce Li. For today's call, our management team will provide a review of the company's performance in the first quarter. Hope will brief us on the company's strategies, Joyce will discuss our business and operational highlights, and then Julian will address the details of financial performance accordingly. We will take your questions during the Q&A section that follows. As always, our presentation contains forward-looking statements.
Such statements are based on management's current expectations and current market operating conditions and relate to events that involve known or unknown risks, uncertainties, and other factors which may cause the company's actual results, performance, or achievements to differ from those in the forward-looking statement. This presentation also contains some unordered non-IFRS financial measures. They should be considered in addition to, but not as a substitute for measures of the company's financial performance prepared in accordance with IFRS. For detailed discussions of non-IFRS measures, please refer to our disclosure documents in the IR section of our website. Now, let me introduce our CEO, Hope. Hope will be presenting in Mandarin, and our colleague will provide the English translation afterwards. Hope, please go ahead.
[Foreign language]
Thank you and good evening everyone. Welcome to our 2025 Third Quarter Earnings Call. In the third quarter of 2025, China's travel market continued to unleash its growth potential, driven by profound changes in tourism consumption patterns and behaviors. Notably, we have observed a growing trend toward more diversified and personalized consumer demand. Experience-oriented consumption, including emerging segments such as event-driven economy and concert economy, has gained significant traction. The ongoing emergence of innovative service scenarios and business models has infused new momentum into the industry, fostering sustainable growth. Riding on this tailwind, we swiftly identified changing market demands and proactively drove product innovation to meet these evolving needs. Benefiting from these initiatives, our annual pay users in the third quarter reached a historic high and surpassed 250 million, which demonstrates our organizational agility to capture new opportunities and our continuously strengthening brand influence.
Horizontally, we're expanding our business by proactively enriching our bond product and service offerings to cater to diversified user demand while maintaining steady growth in our core domestic OTA business. Vertically, we're deepening our value chain integration through exploring potential growth opportunities to build a solid foundation for our long-term development. Driven by our effective expansion strategy and outstanding execution capabilities, we delivered robust results in the third quarter, marking a new milestone in our overall development. During the National Day holiday, the travel industry exhibited a healthy growth momentum, supported by sustained travel enthusiasm, validating the resilience and growth potential of China's travel industry. As a leading travel platform in China, we will persistently embrace technological innovation to drive product and service upgrades, with a steadfast focus on delivering high-quality, convenient, and diversified travel experiences for our users. Concurrently, we remain committed to executing our core strategy.
While maintaining focus on the mass market to consolidate our domestic leadership, we will continue to expand our outbound business and explore opportunities across the travel industry to seek new growth drivers. On October 16th, 2025, we successfully completed the acquisition of Wanda Hotel Management Company, which we believe will accelerate the growth trajectory of our hotel management business, contributing to the further expansion and strengthening of our company. Going forward, we will further promote the integration of AI technologies and our supply chain resources to persistently enhance operational efficiency and user experience. We have strong conviction that our clear strategic roadmap and excellent operational capabilities will enable us to achieve long-term sustainable growth and generate more value for all stakeholders. Next, I will hand over the call to Joyce, who will share with you our business and operational highlights of the third quarter of 2025. Joyce, please go ahead.
Thank you. Since the start of this year, China's travel market has been demonstrating an upward trajectory characterized by rising demand for immersive natural and cultural experience. Against the backdrop of the evolving consumer preference, we continue to achieve solid growth across all segments, underpinned by the precise execution of our strategies. In the third quarter, our accommodation business sustained its growth momentum, reaching record highs in both daily room nights sold and quarterly revenue. During this period, we focused on addressing users' evolving demand for higher quality hotels, resulting in a meaningful increase in the proportion of high-quality accommodation on our platform, which more than 20% growth in each room night sold. In the meantime, we reinforced our value for money proposition to further solidify our presence in the mass market.
Our upgraded membership program has been instrumental in enhancing user engagement, enabling users to freely redeem their points on our platform. This, combined with the fast response to user inquiries, has greatly improved user purchase frequency and strengthened user loyalty. In our international accommodation business, we remain focused on strengthening cooperation with third-party partners and expanding our product service offerings. These efforts were designed to better meet the diverse needs of our users and drive further growth in the segment. As for our transportation business, it demonstrated solid growth during the third quarter, supported by enhanced monetization capabilities. Throughout the quarter, we prioritized improving user experience and deepening connections with targeted users. By leveraging our algorithm capabilities and further integrating broad transportation options, we provided users with more seamless, feasible, and convenient travel solutions.
Through engaging and entertaining marketing campaigns, we aim to strengthen market share among younger demographics and enhance our brand positioning as an experience-driven platform rather than merely a ticketing service provider. In the past quarter, we launched an AI-driven interactive game that allows users to discover travel destinations tailored to their disposition. Such entertaining initiatives have successfully enhanced our brand appeal among younger users over the past year. In terms of our international air ticketing business, we're focusing on strengthening user loyalty and solidifying our market position by implementing a disciplined incentive policy and improving operational efficiency. We maintain a balanced approach to growth in both volume and revenue. These efforts contributed to healthy volume growth and further improvement in the monetization capability of the segment, aligning with our long-term growth strategy.
We see significant growth potential in China's hotel industry and have been actively investing in the hotel management business since 2021, which we believe will serve as a key growth driver for the company. Over the third quarter, our efforts were focusing on expanding our geographic network. While prioritizing quality growth to optimize operations, we streamlined our brand portfolio and concentrated resources on several major brands so as to precisely target segmented markets. By the end of September, the total number of hotels in operation has risen to nearly 3,000, with 1,500 in the pipeline. In mid-October, we completed the acquisition of Wanda Hotel Management, a company that possesses multiple upscale hotel brands with a strong presence and influence in the Tier 2 and below cities, along with a network of 239 hotels, both domestically and internationally, at the end of September.
We believe Wanda Hotel's valuable brand equity, combined with profound industry expertise, will diversify our brand portfolio and accelerate the growth and expansion of our hotel management segment, further strengthening our competitive positioning in this industry. Besides, the addition of Wanda Hotel will also have a positive financial impact on the company. By implementing innovative and effective user engagement initiatives, we have built an extensive and steadily expanding user base across China. For the past three months, our travel marks annual paying users' sustained growth trajectory and recorded another historical high of 253 million, representing a year-over-year growth of 8.8%. In the meantime, the cumulative number of passengers served on our platform over the past 12 months exceeded 2 billion, indicating a stable annual purchase frequency of 8x per user.
Furthermore, our MPUs for the quarter also reached a record high of 47.7 million, suggesting a year-over-year growth of 2.8%. Besides, our annual output by the end of September increased by 6% year-over-year to more than RMB 17.4 billion. The Weixin ecosystem remained a crucial traffic channel during the period, where we focused on enhancing operational efficiency as well as maximizing user value. At the same time, our standalone app, a key driver for acquiring new users, maintained strong growth momentum during the last quarter, with its DAU hitting an all-time high of nearly 5 million before the National Day holidays. By introducing innovative products and launching engaging marketing activities, our standalone app has attracted a significant number of younger users. Additionally, social media platforms have become an increasingly important channel for user engagement, particularly among the youngest, experience-oriented travelers.
Through collaboration with influencers and the distribution of creative content, we strengthened user market share and broadened user reach within this high-potential demographic. To further amplify the brand visibility and deepen engagement with targeted users, we have made consistent investments in brand equity. This summer, we collaborated with Tencent Music and exclusively sponsored a three-day music festival in Macau, effectively capturing the attention of a younger audience and significantly boosting brand exposure among them. Additionally, we appointed a popular stand-up comedian as our brand ambassador to reinforce our valuable money proposition and strengthen our positioning as a dynamic and entertaining platform. These efforts have not only elevated our brand presence but also positioned us as a preferred choice for value-conscious, experience-driven travelers, driving user loyalty. As a technology-driven travel platform, we proactively embrace cutting-edge technologies and seek to upgrade our business capabilities and deliver enhanced value to our users.
In March, we launched our AI-driven travel planner, DeepTrip, which generates viable and personalized travel itineraries for users by leveraging the reasoning capabilities of DeepSeek and the supply chain advantage of our platform. Since its debut, it has served more than 5 million users in total, with a steadily increasing number of orders placed directly through the portal. In the foreseeable future, we will remain focused on iterating DeepTrip's functionalities and expanding its application across our business processes in an effort to cultivate user market share and strengthen user trust. In the area of customer service, we have made meaningful progress in integrating AI technologies to enhance operational efficiency and improve user experience. By embedding AI tools into every stage of the customer service process, we have eased the workload of our customer service staff and shortened handling time.
These AI-powered capabilities allow our staff to better understand user inquiries and provide timely, accurate responses to address user concerns, ultimately enhancing user satisfaction. We will continue our investments in AI capabilities to deliver seamless and efficient service while fostering long-term user loyalty. We remain deeply committed to advancing our ESG performance to align with the highest global standards and best practices. Through years of dedicated efforts, we have achieved exceptional results in ESG performance, earning significant international recognition. Notably, our MSCI ESG rating has achieved the highest level of AAA, placing us among the top 5% of companies globally in our industry. In addition, our CSA score has improved consistently over the past three years and was awarded the Industry Mover by S&P Global.
These achievements underscore our commitment to ESG principles and demonstrate our ability to continuously enhance our ESG performance, establishing us as an ESG leader among global peers. I'll stop here and hand over the call to our CFO, Julian. He will walk with you through our financial highlights for the third quarter. Julian, over to you.
Thank you, Joyce. Good evening, everyone. In the past quarter, China's travel industry maintained robust growth, with travel demand demonstrating strong momentum. During the summer peak season, we observed steady increases in diversified travel scenarios, including family trips, graduation trips, and educational tours. Leveraging our precise understanding of user needs and agile operational capabilities, we successfully captured emerging opportunities across various travel scenarios, driving impressive growth in our core OTA business. In the third quarter of 2025, we achieved outstanding results for both top line and bottom line. We reported a net revenue of RMB 5.5 billion, marking a 10.4% year-over-year increase from the same period of 2024, thanks to our effective marketing investment and enhanced operational efficiency of our OTA business.
We achieved a remarkable adjusted net profit of RMB 1,060 million, reflecting a 16.5% year-over-year growth, with adjusted net margin expanding to 19.2% compared to 18.2% in the same period of last year. Our core OTA business revenue registered an excellent growth of 14.9% year-over-year and recorded RMB 4.6 billion, supported by growth across our accommodation reservation, transportation ticketing, and other business segments. Our accommodation reservation business achieved RMB 1.6 billion in revenue for the third quarter of 2025, representing a 14.7% increase from the same period in 2024. The revenue growth was mainly attributable to the increase in hotel room nights sold, as well as the slight increase in ADR. For the domestic accommodation business, we rapidly responded to emerging user demands and actively explored new consumption scenarios to capitalize on new growth opportunities.
For the international accommodation business, we continued to deepen cooperation with global suppliers and strengthen our footprint in outbound destinations favored by Chinese travelers in order to solidify user market share. Driven by changes of consumer preferences on our platform and our proactive adjustments to users' subsidy strategies, our ADR sustained a year-over-year increase and once again outperformed the industry. Additionally, during the third quarter, our blended take rate maintained at a relatively high level, which was similar to that of the same period last year, mainly fueled by our precise and disciplined marketing strategies. Our transportation ticketing revenue for the third quarter reached RMB 2.2 billion, marking a 9.0% year-over-year increase compared with the same period of 2024. During the past quarter, we continued to optimize our VAF offerings and enhance user experience to improve the monetization capabilities of the segment.
The revenue growth is the testament to our profound user insights and operational refinement. Furthermore, supported by enhanced user market share along with our disciplined operational approach, our international air ticketing business maintained stellar growth momentum and accounted for around 6% of our total transportation ticketing revenue, up about two percentage points year-over-year. Other business segments continued to expand rapidly, with revenue reaching RMB 821 million in the third quarter, marking a growth of 34.9% year-over-year. This growth was primarily fueled by the outstanding performance of our hotel management business. Our tourism business achieved a revenue of RMB 900 million, representing an 8% decrease from the same period in 2024. This decline was mainly caused by travelers' persistent safety concerns regarding travel to Southeast Asia since the beginning of this year and our strategic scaling back of pre-purchase business to reduce operational risks.
In terms of profitability, our gross profit increased by 14.4% year-over-year to RMB 3.6 billion, with gross margin rising to 65.7% for the third quarter of 2025. Our operating profits for the core OTA business achieved RMB 1.4 billion, with margin increasing to 31.2% in the third quarter of 2025. The margin improvement was primarily attributable to our efforts to enhance the ROI of sales marketing investments and improve operational efficiency. The operating profits for the tourism business reached RMB 12.4 million with 1.4% margin. Our Adjusted EBITDA increased by 14.5% and reached RMB 1.45 billion, with a 27.4% margin compared to 26.4% margin in the same period last year. Adjusted net profit grew by 16.5% to RMB 1,060 million, with a 19.2% margin, up from 18.2% in the third quarter of 2024, demonstrating consistent year-over-year margin improvement.
Service development and administrative expenses in the third quarter of 2025 decreased by 3.2% from the same period of 2024. Excluding share-based compensation charges, service development and administrative expenses in total accounted for 13.8% of revenue in the third quarter, compared with 14.7% of revenue in the same period of 2024. Selling and marketing expenses in the third quarter of 2025 increased by 16.9% from the same period of 2024. Excluding share-based compensation charges, selling and marketing expenses accounted for 31.0% of revenue in the third quarter, compared with 29.2% of revenue in the same period of 2024. As of September 30, 2025, the balance of cash equivalents, restricted cash and short-term investment, was RMB 13.6 billion. In the first three quarters of 2025, the Chinese travel market continued its upward trajectory, with travel enthusiasm flourishing.
During the National Day holiday, a nationwide increase in travel activity was observed, further demonstrating the resilience of the travel market. According to official government data, both the summer and National Day holidays recorded solid year-over-year growth in the number of domestic tourists, indicating that travel is one of the key contributors to high-quality economic development. Heading into the fourth quarter, we remain committed to capitalizing on market opportunities, navigating challenges with agility and efficiency, and managing risks with discipline and prudence. We are dedicated to balancing market expansion and profitability, aiming for robust growth in both top line and bottom line. Looking ahead, we will unwaveringly focus on our core OTA business. In this context, we will enhance user value and operational efficiency in our domestic business while actively expanding outbound business and strengthening our global market presence.
Concurrently, we will continue expanding our presence across the travel industry, strategically advancing the development of our hotel management business to unlock more growth potential. Through this strategic initiative, we are poised to further solidify our industry-leading position while maintaining sustainable growth and decent profitability, which we believe will deliver greater value to all stakeholders. With that, operator, we are ready to take questions now. Thank you.
Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Please note that there is a limit of two questions per analyst on today's call. Our first question comes from the line of Qiuting Wang from CICC. Please go ahead. Your line is open.
Hi, management. Thanks for taking my questions and congratulations on the solid performance. I have two questions regarding your future growth engines. The first one is about international business. What is the expected growth rate in the following years, and what are the key growth drivers, and how will the company balance monetization rate and volume growth, and what is the expected margin for next year? The second one is about hotel management business. How many hotels are expected to be open in the next two or three years, and what measures will be taken to effectively manage these hotels? After the acquisition with Wanda Hotel Management, how will the company achieve synergy with your core OTA business? Thanks.
Thank you, Qiuting, for the questions. I'll take these two questions. The first is concerning our international business. Mainly, the outbound business, we would say that the outbound business has been our growth driver for our core OTA business right now. For our outbound accommodation business, we have continued to deepen partnerships with global suppliers and strengthen our presence in regions favored by Chinese travelers. As nations like Hong Kong, Macau, and Asian regions continue to attract high demand and perform exceptionally well on our platform. Our outbound air ticketing business maintained a stellar growth momentum. This has been supported by our competitive pricing strategy focused on expanding user market share, combined with a disciplined marketing approach aimed at maximizing efficiency and return on investment. These efforts positioned us well to capture the increasing demand and deepen our market presence in the outbound travel segment.
In the third quarter, our international air ticketing business accounted for around 6% of our total transportation ticketing revenue, representing a nearly two percentage point increase year-over-year. In 2025, we introduced a margin improvement program for outbound business, as we mentioned, concentrating on marketing and promotional efficiency. As a result, our outbound business turned profitable in the third quarter. Looking ahead, we will continue to enhance our outbound travel offerings through strategic partnerships with the leading global OTAs, hoteliers, airlines, and overseas TSPs. We plan to increase investment in research and development to improve service capabilities and ensure a seamless booking experience. We're also exploring cross-selling opportunities from outbound air tickets to accommodation to drive further revenue and profit growth. In the next two to three years, expanding business volume and user base growth remain our key priorities, with a strong focus on profitability.
We anticipate rapid growth in the outbound segment, targeting a revenue contribution of 10%-15%, making it a major growth driver with higher margins than our domestic business. Overall, we are on track for break-even this year, with international business poised to positively impact margins and become a significant revenue contributor in the future. In terms of the hotel management business, as a comprehensive travel platform, we are dedicated to expanding our influence throughout the industry chain to ensure sustainable growth. Hotels play a vital role in China's travel ecosystem, and deepening our involvement in hotel management will further solidify our positioning in this travel industry. We have seen significant potential for our hotel management business to become our second growth driver, playing a vital role in our long-term strategy.
Our objective is to become a key player in China's hotel industry by offering a diverse range of brands that create exceptional value for hotel owners and travelers alike. In 2024, we're already ranked eighth in China's hotel group scale ranking, measured by the number of rooms of our hotel portfolio. Last month, we have successfully completed the acquisition of Wanda Hotel Management Company. Now, we are in the process of integration and transition. Wanda Hotel Management has a comprehensive portfolio of nine major upscale hotel brands with strong market influence, as we mentioned. Together with eLong Hotel Technology Platform, we are currently operating over 3,000 hotels. Given its stable and mature development, as well as strong brand influence in the market, the Wanda brand will be retained. This will allow the brand to complement our existing hotel portfolio and strengthen our overall offerings.
The core management team and key staff of the company largely remain in place, continuing to oversee and execute its strategic development and operations. From a financial perspective, as we mentioned, the hotel business we acquired has decent profitability. Although the acquisition impacts only around two months this year, it is expected to contribute positively to our revenue and profit. We believe the acquisition will accelerate the growth of our hotel management business, supporting further expansion and strengthening of the company. We are confident that our clear strategy, roadmap, and strong operational capabilities will drive long-term sustainable growth and create great value for all stakeholders. Thank you.
Thank you.
Thanks.
We'll now move on to our next question. Our next question comes from the line of Yang Liu from Morgan Stanley. Please go ahead. Your line is open.
Thanks for the opportunity and congratulations on the solid result. I have two questions here. The first question is about the management view on the future hotel ADR trend and also Tongcheng's take rate for hotels. Given that the recent high-frequency data suggests some improvement from the value chain, do you think this will translate to an even better ADR trend for Tongcheng? The second question is regarding the competition in the domestic market. We noticed that certain peers announced pretty good GMV data since the fourth quarter this year. Does it bring any incremental competitive pressure to Tongcheng? Does the company need to fight back or need to do anything to retain its market position? Thank you.
Hi, Yang Liu. Thank you for the question. For the hotel industry, actually, we mentioned a lot of times that the domestic ADR has largely stabilized year-on-year in quarter three. Our domestic ADR already turned positive since quarter two, and the trend continued in quarter three. This great improvement is driven by two factors. One is the recovery of the ADR across the industry, and the second is the shift in user behavior in our platform, as users increasingly prefer high-quality products, which has resulted in a shift from two-star hotels to three-star or above hotel bookings in our platform. In quarter three, the proportion of higher-quality accommodation bookings on our platform increased meaningfully, with more than 20% growth in the room net sales.
Given this trend, we expected that the growth in ADR will be a positive factor contributing to accommodation segment revenue growth this year and also for the next few quarters. At the same time, we have adopted a more disciplined and targeted approach for user subsidies. This approach has also helped us to maintain our net take rate at a very decent level, ensuring a balanced focus on both expansion and profitability. Our outstanding performance in accommodation business in the past few quarters demonstrated that the pricing pressures of the industry had rather limited impact on our revenue, as ADR on our platform remained relatively resilient thanks to our extensive exposure in the mass market and our ability to swiftly seize market opportunities.
In the future, we think the trend of ADR improvement is still ongoing because there's a lot of space that will be released for the high-quality hotel booking, along with the user value and user maturity improved in our platform. In terms of the competition landscape, I think you will have Joyce words.
Thank you, Julian. In terms of competition landscape, as we mentioned a lot of times before, we believe established OTAs with deeper supply chains, user understanding, and service capabilities maintain strong defensive moats. First, for the new entries in the OTA market, supply chain will be one of the major challenges for them. As a leading OTA with over 20 years of industry experience, we have an extensive hotel supply chain and deeply established relationships with TSPs. Efficiently managing hotel supply requires complex systems and close communication with hotels, especially when handling the price fluctuations and room availability constraints. These strong supply chain advantages are difficult for new entries to replicate quickly. Secondly, purchase of travel product services tends to be relatively low frequency and involves longer, more complicated decision-making processes.
Therefore, converting users into paying customers in the OTA space is particularly challenging, as it requires a thorough understanding of users' preferences and behaviors. Thirdly, our focus on OTAs is on delivering superior service and user experience, heavily investing in innovative value-added products tailored to market demand, coupled with a dedicated customer service team addressing user needs rapidly. These competitive edges are not easily matched by newcomers. Besides, we have upgraded our membership program to enhance user engagement by providing fast response to inquiries and allowing users to redeem their points as cash on our platform. These enhancements aim to boost purchase frequency and deepen user loyalty. The OTA market is complex and requires significant time, resources, and experience to build sustainable competitive advantages. We expect near-term competition to remain relatively stable, and our current strategy continues to focus on improving operational efficiency with profit expectations unchanged.
We remain regular to make adjustments as market dynamics evolve. Thank you.
Thank you. We'll now move on to our next question. Our next question comes from the line of Brian Gong from Citi. Please go ahead. Your line is open.
Yeah. Thanks, management, for taking my questions, and congratulations on the solid results. Two questions. First, management just talked about ADR and wondering how should we think about room net growth in the first quarter and any initial colors for next year. The second question is our take rate on transportation has been persistently improving this year, but I heard that airline ticketing pricing has been under pressure, and it seems airline companies also lower commission fees to some extent. Not sure if this will impact our transportation revenue growth ahead. Thank you.
Thank you for the question, Brian. I would like to give you some color for the Q4's performance first and then provide more colors on the transportation side from the airline companies. As mentioned, throughout this year, the company remains focused on striking the balance between top line and bottom line, as well as enhancing user value and R2. In quarter four, actually, the margin improvement will remain our key priority while we simultaneously pursue maximum growth and market share gains, both for accommodation and transportation. For accommodation business, we believe that the growth will be driven by both volume expansion and also the ADR improvement, like what I mentioned. Our volume is expected to continue outpacing the market growth, while our ADR will benefit from the ongoing upgrade in hotel star mix, driven by the shift in user preference, like I mentioned in the previous question.
For transportation, actually, the ATV has already turned positive in quarter three because we monitored that there's more demand released in the long haul in the summer vacation and also the October holidays. Because the October holidays, we have eight days' holidays this year. Actually, for the industry, the ATV has already turned positive, and also the ATV has also turned positive in our platform as well. We do not hear any pressure for the commission decrease from the airline companies. We do not have any information from that. For the fourth quarter, the transportation business volume growth will be still in line with the market. The market is only single-digit, while the take rate still has some space to improve, driven by cross-sell, and VS will continue to contribute to the revenue growth.
In the long run for the transportation business, actually, we will continue to emphasize innovation in our products and services to meet the diverse needs of our users during their travel journeys, thereby increasing the monetization of our transportation business. As our platform progresses toward becoming a fully integrated one-stop travel solution, we are starting to explore opportunities for cross-selling from long-haul transportation to a broader area of short-haul options with our Weixing and AI capabilities. Our goal is to develop comprehensive travel combo solutions that extend beyond selling individual tickets, which will help enhance the monetization capability and drive revenue growth in the future for our transportation segment. In terms of the color for next year, actually, it is still too early to say because of the booking window that has shortened lately.
We may give you more information on that, I think, in the next call, February/March next year. I think that will be more accurate than now. Thank you for the questions.
Thank you.
I think that's very clear.
We'll now move on to our next question. Our next question comes from the line of Wei Xiong from UBS. Please go ahead. Your line is open.
Sure. Good evening, management. Thank you for taking my questions and congrats on the solid quarter. First, I want to ask about the margin trends. After our encouraging effort to improve cost efficiency this year, how should we think about the room for margin expansion next year, as well as the drivers behind? Second, just regarding AI, because given the technology advancement, we do see investor discussion on the potential AI disruption to vertical platforms like OTA. I want to get your latest thoughts on the topic, as well as our strategy to navigate such potential risks. Thank you.
Okay. Thank you for the question, Xiong Wei. In terms of the margin expansion, actually, as we discussed, as always, our strategy for 2025 and beyond is to balance the revenue growth with profitability improvement. Margin improvement remains a key priority while we continue to pursue maximum growth and market share gains. In the second half of 2025, the quarter three and quarter four, the net margins for both the company and our core OTA business will improve year- over- year, mainly driven by gross margin expansion and operational leverage. The broad applications of AI have significantly improved automation and efficiency across customer service and tech development processes, such as coding, further supporting our margin performance. Looking ahead, we still see a lot of room for our service development and G&A expenses ratio to trend down in the second half of 2025 and 2026, as overall operating efficiency continues to improve.
This efficiency gain will remain an important long-term driver of margin expansion. While on selling and marketing expenses in the second half of 2025, specifically, we expect the ratio to stay broadly stable compared with last year since we have already realized the savings in G&A and delivered solid margin improvement. We will maintain an appropriate level of marketing investment to support growth and strengthen our marketing position and to seek more market share and opportunities. That said, we will continue to strengthen the ROI and efficiency of sales marketing spending over the long term to ensure sustainable margin improvement for our business in the next two to three years. That is my comments on margin expansion. In terms of the AI, Joyce, please.
Sure. First of all, I would say that the development of AI technology will largely benefit OTA like us. As we mentioned a lot of times before, we have remained dedicated to developing our technology, which has been instrumental in improving our operational efficiency and enhancing the user experience. I think DeepTrip is a vivid example of how we embrace this advancement of AI technology. I would say that we have kept investing in the involvement of DeepTrip's functionality, and it has already overcome the limitation of traditional travel recommendations and delivers reliable and actionable insights to users. It offers effortless access to a wide range of options on our platform and supports seamless closed-loop booking. Moving forward, DeepTrip will continue to evolve through the itinerative updates to meet users' needs more effectively.
I think DeepTrip benefits from our extensive resources, including a comprehensive portfolio of online travel products and services. While general-purpose large models can generate travel guides, they often lack the ability to match recommendations with actual real-time travel resources availability. DeepTrip provides a more practical and actionable solution by directly integrating travel products into the planning and booking process. Our strong connections and close relationships with supply end enable us to secure competitive pricing and high-quality products to satisfy diverse travel needs. Secondly, I think AI technology has helped improve our operational efficiency and reduce manual work. Julian also has touched on that. Currently, generative AI has reduced our coding workload by 20%. Generative AI also handles over 60% of our accommodation-related online consultations and more than 70% of internet phone inquiries. It delivers improved accuracy and efficiency.
We have made significant progress in integrating AI into our customer service operations, embedding AI robots across the entire service process to lighten staff workload and shorten the response times. This enables our team to better understand user inquiries and provide timely, accurate answers, resulting in a 10% reduction in handling time. We will continue investing in AI to deliver seamless, efficient service and foster long-term user loyalty. In parallel, AI will also help us identify new application scenarios, product innovations, or traffic opportunities, supporting both revenue expansion and efficiency-driven profitability improvement in the future. Thank you.
Great. Thank you, management.
Thank you. We will now move on to our next question. Our next question comes from the line of Thomas Chong from Jefferies. Please go ahead. Your line is open.
Hi. Good evening. Thanks, management, for taking my question. My question is about the impact coming from a recent Japan incident and how is the latest market situation right now, and how does that affect the business performance, if any? Thank you.
Thank you, Thomas. Currently, we expect that there will be a large impact on our business, but we strongly believe that people's desire for urban travel remains very strong, so they will be willing to explore the other destinations. We believe for OTA users, it is quite easy for them to change the travel plan and destinations, but the impact on the group tours of our tourism business may be a little more obvious. We will closely monitor the further policy developments and adjust our product mix and marketing strategies accordingly to mitigate the impact. Overall, we do not expect a material impact on our full-year performance at this stage. Thank you.
Thank you. There are no further questions at this time, so I'll hand the call back to Kylie for closing remarks.
Thank you. We are closing the call now. If you wish to check out our presentation and other financial information, please visit the IR section of our company website. Thank you, and see you next quarter.
This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.