Good day. Thank you for standing by. Welcome to Tongcheng Travel 2026 first quarter results announcement. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the call over to your first speaker today, Ms. Kylie Yeung, Investor Relations Director of the company. Please go ahead.
Thank you. Good morning, and good evening, everyone. Welcome to Tongcheng Travel's 2026 first quarter results conference call. I'm Kylie Yeung, Investor Relations Director of the company. Joining us today on the conference call are our Co-Chairman of the Board, Executive Director, and CEO, Mr. Hope Ma , our CFO, Mr. Julian Fan, our Chief Capital Officer and President of Wanda Hotels and Resorts, 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'll 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 statements. This presentation also contains some unaudited 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 a detailed discussion of non-IFRS measures, please refer to our disclosure documents in the IR section of our website. Now let me introduce our chairman, Hope. Hope will be presenting in Mandarin, and our colleague will provide the English translation afterwards. Hope, please go ahead.
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Thank you, Kylie, and welcome to our first quarter earnings call. As we enter 2026, China's travel industry has sustained its strong growth momentum. This expansion is being driven by profound structural shifts in consumer travel demand, coupled with favorable new holiday policies. Over the past quarter, the industry has demonstrated exceptional resilience and dynamism, laying a solid foundation for the execution of our strategic initiatives in the year ahead.
During the first quarter, travel demand remained highly robust, driving steady industry growth alongside ongoing structural upgrades. We are seeing personalized experiential travel gradually emerge as a mainstream trend. Today, younger travelers are increasingly willing to book trips exclusively for a single concept or a unique culinary experience, transforming travel from a discretionary expense into an essential lifestyle need. Ultimately, the preferences of these younger consumers are reshaping product design and the broader value chain across the entire industry. Meanwhile, government support for the travel sector remains robust. Notably, China's 2026 Government Work Report explicitly advocated for the introduction of spring and autumn breaks in eligible areas, which was later implemented across multiple provinces. This is a landmark signal, elevating pro-travel policy from regional local experiments to a national directive.
By redistributing consumers' leisure time, these additional holidays will blur the traditional lines between peak and off-peak travel seasons, thus effectively stimulating travel consumption and injecting fresh momentum into the ongoing growth of the travel industry. Against this backdrop, we are delivering solid execution on our strategy and actively seizing growth opportunities arising from structural market shifts. In the first quarter, we achieved decent growth in both revenue and profit, with APU once again hitting a record high. Domestically, we reinforced our market position and deepened user engagement, further solidifying our competitive moat. In the meantime, we accelerated our global expansion by enriching product offerings, successfully capturing greater market share in the outbound segment. Additionally, our hotel management business maintained its strong growth trajectory, scaling rapidly and generating significant revenue growth. We remain highly optimistic about the growth prospects of this segment.
It is steadily evolving into a key pillar of our overall top and bottom line growth, serving as a powerful engine for our long-term sustainable development. Moving forward, we remain steadfast in our strategy, guided by a clear path to growth. With a relentless focus on user value, we will continue to strengthen our core OTA business to capture growth opportunities arising from structural market shifts. Alongside this, we view our hotel management business as the second growth driver for long-term development and will continue to invest to drive its expansion. Furthermore, we will proactively embrace technological innovations, particularly AI, to optimize operational efficiency and elevate user experience. Above all, we are fully committed to delivering sustainable and consistent returns for our shareholders and partners. Next, I will hand over the call to Joyce, who will share with you our business and operational highlights of the first quarter of 2026.
Joyce, please go ahead.
Thank you, Hope. China's travel market entered 2026 with continued vitality, as consumers are demonstrating a growing preference for quality-driven and experience-oriented travel. In addition, the 2026 Spring Festival marked the longest holiday period on record. During the nine-day break, consumers took multiple shorter trips, such as visits to their hometowns and leisure travel. Against this backdrop, we delivered strong execution on our strategic priorities and achieved solid performance across all business lines for another quarter. In the first quarter, our accommodation business sustained its growth momentum with both room nights sold and revenue showing robust growth. Driven by the continued demand for higher quality accommodation options, the proportion of high-quality hotel room nights sold on our platform increased by approximately 4 percentage points year-over-year. During the quarter, we implemented targeted user segmentation and tiered engagement strategies to drive purchase frequency and enhance user loyalty.
In the meantime, we expanded our focus on emerging travel scenarios, prioritizing unique and curated experiences. These initiatives have successfully reinforced our market leadership across key target demographics. As for our international accommodation business, we continue to expand cooperation with global suppliers and steadily enrich our global product offerings. We also leveraged our domestic user base to drive cross-sell initiatives and execute precise marketing campaigns targeting high-potential users. These efforts contributed to robust growth in our international room nights sold in the first quarter. In terms of our transportation business, we continue to demonstrate resilience in the first quarter. We remain focused on enhancing user experience by making travel more convenient, seamless, and comfortable. Our algorithm-driven Huixing system provides users with viable end-to-end travel solutions, especially during peak travel periods.
During the quarter, we also strengthened engagement with younger users by developing features that address their evolving preferences for interaction, personalization, and emotional connection. One example is the Weekly Travel Fortune, which provides a playful, travel-themed weekly fortune feature and has resonated well with younger users. These initiatives not only strengthened our brand mindshare among younger demographics, but also reinforced our positioning as an experience-driven platform. In our international air ticketing business, we further solidified our brand recognition through competitive pricing strategies and high-quality services, achieving resilient growth in both volume and revenue in spite of geopolitical headwinds impacting outbound travel demand to certain regions in the first quarter.
Driven by our goal of industry leadership, we remain committed to investing in our hotel management business, cementing its role as the company's second growth driver. During the first quarter, we continued to expand our hotel network by leveraging our comprehensive brand portfolio, competitive technological capabilities, and organizational agility. Our Elong Hotel Technology platform focused on hotel brands with a proven track record of market recognition. Simultaneously, the platform enhanced operational efficiency by exporting AI-driven digital solutions that span the entire life cycle of hotel operations. Meanwhile, our Wanda Hotels and Resorts accelerated its network expansion nationwide, capitalizing on strong brand equity and end-to-end service capabilities, ranging from design to operational management. In a testament to our service excellence, its luxury hotels have successfully hosted a number of heads of state during their visits to China, earning high commendation.
Furthermore, Wanda Hotels and Resorts operates a top-notch in-house design institute with proven track record of design abilities. Recognized for its innovative integration of local culture and modern design, the Dunhuang Ganman Wanda Vista secured the 2025 IIDA Best of Asia Pacific Design Award, one of the industry's most influential accolades. As of the end of March, the total number of hotels in operation exceeded 3,200, with more than 1,900 in the pipeline, reflecting our continued expansion momentum. With a comprehensive brand portfolio, our hotel management business will continue to expand its geographic footprint and elevate operational standards to deliver warm, memorable experiences for guests while generating consistent returns to our hotel investors. Building on our extensive user base, we are committed to enhancing user engagement and improving operational efficiency across all traffic channels. Over the past decade, we have built a strong and enduring partnership with Tencent.
Leveraging the recent ecosystem, we have effectively established a broad user base across China's mass market, particularly in lower-tier cities. Meanwhile, our standalone app maintains strong momentum in acquiring new users, with its DAUs increasing by over 20% year-over-year in the first quarter. During the Spring Festival travel season, we launched a series of creative and targeted marketing campaigns that effectively boosted user engagement and loyalty, further reinforcing our positioning as an experience-driven travel platform. Additionally, we continue to step up our efforts on mainstream social media platforms. Through influencer collaborations and high-quality content, we've further enhanced brand awareness among young travelers seeking personalized experiences. We remain dedicated to strengthening user loyalty by continuously optimizing user benefits and enhancing membership value on our platform. During the quarter, we made significant upgrades to our loyalty program by launching an innovative dynamic platinum membership system.
Under this new system, membership benefits have evolved from a standardized structure to a more personalized model that aligns users' tier status and consumption preferences, enabling us to offer highly targeted, exclusive benefits to users across different tiers. These initiatives have strengthened engagement among high-value users, increased user stickiness, and supported higher repurchase, contributing to sustained business growth. Through targeted marketing campaigns and effective user engagement, we have accumulated the most extensive user base in China's OTA industry. For the 12 months ended March, our annual paying user once again reached a historic high of 254 million, with the accumulated number of travelers served exceeded 2 billion. This indicates an average of more than eight purchases per user annually. In the meantime, our MPUs for the first quarter achieved 46 million.
On top of that, our annual ARPU continued its growth momentum and climbed to almost RMB 79, displaying a year-over-year increase of approximately 9.2%. We view AI era as a time of immense opportunity rather than a threat. Amid its rapid iterations, we proactively embrace innovation to drive business transformation. Our proprietary AI agent, DeepTrip, has undergone rapid iteration over the past year with expanded capabilities and broader application scenarios. It can now anticipate users' underlying needs and recommend highly relevant travel options, even from ambiguous queries, effectively accelerating the conversion funnel from inspiration to booking. We have also expanded DeepTrip's integration with additional transportation resources, including bus ticketing, to deliver AI-driven end-to-end travel solutions. Furthermore, DeepTrip has been integrated into our air ticketing service to address users' pre-booking inquiries and help them identify options with more competitive prices.
On the other hand, we continue to pursue strategic collaboration with leading external AI agents to seize future growth opportunities. To secure a first-mover advantage and deepen our market penetration, we have deployed DeepTrip Skill on platforms such as Skillh ub and ClawH ub, embedding our services within third-party AI ecosystems. In our customer service, we have deeply embedded AI across our entire workflow, driving increasing automation rates for general inquiries. During the quarter, we introduced real-time simultaneous interpretation across both online consultation and voice consultation channels, effectively eliminating language barriers and significantly enhancing global user experience. We've leveraged AI capabilities to empower our customer service team in better understanding user inquiries and delivering faster, accurate responses. As a socially responsible enterprise, we have integrated social responsibility into every aspect of our daily operations.
In late February, we established an emergency response team promptly following the outbreak of conflicts in the Middle East to safeguard user travel and support affected users. In addition, our outstanding performance in ESG has once again received international recognition. We were awarded the Industry Mover by S&P Global for the second consecutive year and were included in S&P Global's Sustainability Yearbook China for the fourth consecutive year. Looking ahead, we will continue to safeguard every journey for our users, create greater value for all stakeholders, and drive long-term sustainable development across the industry. I'll stop here and give the call to our CFO, Julian. He will share with you the detailed financials for the first quarter. Julian, I'll turn it over to you.
Thank you, Joyce. Good evening, everyone. In the first quarter of 2026, China's travel industry demonstrated sustained resilience and continued its growth trajectory driven by robust travel demand. By strategically capitalizing on opportunities arising from structural market shifts, we delivered another quarter of strong performance, laying a solid foundation for the rest of the year. During the quarter, both our top line and bottom line achieved solid growth. Our revenue reached RMB 5 billion, representing a 14.4% year-over-year growth from the same period of 2025. Thanks to further enhanced operational leverage and effective marketing investments, our adjusted net profit reached RMB 941 million, representing a 19.4% year-over-year growth. Our core OTA business delivered strong growth, with revenue increasing 17.3% year-over-year to RMB 4.4 billion for the quarter.
Our accommodation reservation business achieved RMB 1.4 billion for the first quarter of 2026, representing a 14.7% increase from the same period of 2025. The revenue increase was mainly driven by robust growth in both hotel room nights sold and ADR, supported by strong travel demand. In the first quarter, our ADR maintained its upward trajectory, delivering solid growth alongside a stable net take rate year-over-year. During the quarter, we continued to observe structural shifts in user preferences, highlighted by a rising mix of high-quality hotel bookings on our platform. In our international accommodation segment, we further expanded our global supply network while enhancing operational efficiency. Our transportation ticketing revenue for the first quarter was RMB 2.1 billion, representing a 6.2% increase compared with the same period of 2025. Enhancing user experience remains our priority. During the quarter, we consistently enriched and optimized our VAS offerings to better serve users.
In our international air ticketing business, we prioritize revenue growth over pure volume expansion. As a result, the segment delivered strong revenue growth, accounting for 6.5% of the total transportation ticketing revenue alongside a healthy growth in volume. Other business continued its trajectory of robust performance, with revenue reaching RMB 961 million in the first quarter, representing a stellar growth of 59.6% year-over-year. The growth was mainly driven by excellent performance of our hotel management business and the consolidation of Wanda Hotels and Resorts. Our tourism business achieved a revenue of RMB 556 million, representing a year-over-year decrease of 5.0%. This decline was primarily attributable to dampened demand for outbound package tours arising from geopolitical risks. In terms of profitability, our gross profit increased by 16.1% year-over-year to RMB 3.5 billion for the first quarter of 2026.
The operating profit margin of our core OTA business was 29.3%, while the OPM of our tourism business was 3.4%. Our adjusted EBITDA increased by 19.8% year-over-year and reached RMB 1.4 billion. Adjusted net profit grew by 19.4% year-over-year to RMB 941 million in the first quarter. Adjusted basic EPS for the first quarter was RMB 0.4, with a year-over-year growth of 17.6%. Service development and administrative expenses in the first quarter of 2026 increased by 6.1% from the same period of 2025. Excluding share-based compensation charges, service development and administrative expenses in total accounted for 16.3% of revenue in the first quarter, compared with 16.8% of revenue in the same period of 2025. Selling and marketing expenses in the first quarter of 2026 increased by 16.4% from the same period of 2025.
Excluding share-based compensation charges, selling and marketing expenses accounted for 33.7% of revenue in the first quarter, compared with 33.0% of revenue in the same period of 2025. As of March 31st, 2026, the balance of cash and cash equivalents, restricted cash and short-term investment was RMB 13 billion. Looking ahead into the rest of the year, we maintain a positive outlook for both our company's performance and the broader China travel industry. The implementation of spring and autumn breaks in extended regions across China will further accelerate the industry growth, as evidenced by solid travel demands during the past Qingming and Labor Day holidays. Furthermore, consumers, particularly the younger demographics, are increasingly prioritizing experiential consumption to foster meaningful connections and emotional wellbeing. This shift in consumer behavior has positioned travel as a highly resilient lifestyle staple, even amid macro uncertainties.
In the coming quarters, we will remain focused on our core OTA business, deepening our penetration in the mass market while consistently expanding our outbound operations to strengthen our global presence. In the meantime, we will accelerate the growth of our hotel management segment with a strong emphasis on expanding hotel network and enhancing execution efficiency. We are also proactively leveraging AI technological innovations to capture new growth opportunities and improve operational efficiency. Finally, we will continue to place great emphasis on our ESG performance and create sustainable long-term value for society and our stakeholders. With that, operator, we are ready to take questions now. Thank you.
Thank you. We will now begin the question and answer session. If you would like to ask question, please press star one one on your telephone and wait for a name to be announced. Please limit your questions to two questions. One moment for the first question. The first question comes from the line of Yang Liu of Morgan Stanley. Please go ahead.
Thanks for the opportunity and congratulations on the solid earnings. I have two questions. The first one is, how have the market conditions and business performance trended recently? The industry data for Labor Day holiday travel seems to be intact. How do we view the market situation in the second half of this year? My second question is, could you please give us more color on the performance for each business segment of the core OTA business in second quarter this year and 2026 full-year? What are the pricing and the take rate trend? Thank you.
Thank you for the questions, Yang Liu. Actually, during the Labor Day holiday, according to the Ministry of Transport, the national passenger throughput still increased by around 3% year-over-year. Amid concern over the impact of heightened airfares arising from the Middle East conflict, the daily average air passenger volume declined by 5%-6% year-over-year during the Labor Day holiday. The total railway passenger volume still recorded a growth of 4% year-over-year. That means it shows a negative impact for the long-haul travel. As we observed, the short-haul and staycation travelers still strong. The demand's still very strong. Our accommodation business still maintain a healthy growth, for both revenue and business volume, achieving a modest 1 year-over-year increase. Of course, the revenue growth outpaced the room night growth, while higher quality hotels significantly outperformed the low-tier properties.
This trend reflects our ability to capture evolving user preferences as travelers increasingly prioritize the premium and quality accommodation experiences. As a result, our hotel ADR, again, recorded a single-digit growth during this period. Meanwhile, the outbound travel demand remained strong overall for the accommodation, particularly in the accommodation segment, where the room nights grew by nearly 50% year-over-year for the outbound accommodation segment. The rise in fuel prices and the airfares have created a pressure on both the supply and demand end of the aviation market, which has had a noticeable impact on both the industry-wide and also our air ticketing volume since the beginning of May. Actually, as we observed within the impact of the higher oil prices as a short-term fluctuation, as the summer travel season approaches, we believe the rigid travel demand will help mitigate the impact of rising airfares.
During the hot wind, we will place greater emphasis on improving internal efficiency during May and June, which we believe will help optimize our long-term cost structure and enhance operational resilience for transportation segment. For the second half of this year, it's still very early to have the visibility because of the short booking window for travelers. I can share some colors and views for quarter two for each business segment. As I mentioned earlier, the higher airfares and reduced flight capacity may restrain the long-haul travel demand. As a result, we expect the transportation segment to face some pressure on growth year-over-year in quarter two.
However, the impact of air ticketing revenue is expected to be partially offset by incremental revenue contributions from short distance transportation services such as airport transfer, ride sharing, car rental, et cetera, supported by our continued cross-selling efforts and one-stop-shop strategy. Meanwhile, we continue to see strong demand for short-haul travel and vacations, as I mentioned, particularly in lower-tier cities, which will support the growth in our accommodation segment, driven by both volume expansion and ADR increase in quarter two. Other revenue is expected to maintain a solid growth momentum, mainly attributable to the continued expansion of our hotel management business and growing contribution from our membership program. One thing I would like to highlight is that since the second half of 2024, we have accelerated our globalization efforts and strengthened the operations of our standalone apps.
In the first quarter of 2026, and also the second quarter of 2026, these initiatives performed beyond our expectations and contributed meaningfully to revenue growth. In our accommodation and transportation segment, outbound visits contributed nearly 6% of the revenue, while standalone apps already accounting for nearly 9% of our total revenue contributions in quarter one and quarter two. Based on current trends, we expect this growth momentum to be continued in the rest of 2026. Thank you.
Thank you.
Thank you for the questions. One moment for the next question. Our next question comes from the line of Wei Xiong from UBS. Please go ahead.
Sure. Thank you. Good evening, management. Thank you for taking my questions. Firstly, since the beginning of this year, 12306 has strengthened the regulation over OTAs by restricting express ticketing services and increasing public communication efforts to encourage users to book directly through its own platform. How should we think about train ticketing business? Secondly, I want to follow up on the point that airfares have risen significantly because of the higher fuel surcharges. Could management elaborate on the potential impact on travel demand and your business? Thank you.
Thank you, Xiong, for the question. I will answer the first one. I think Julian will have to take the second. In terms of the impact from 12306, I think our core objective in terms of train ticketing business has been always to help users find reliable travel solutions that are faster, more convenient, and more cost effective. We will continue to optimize the capability of our Huixing system to enhance transfer recommendations and alternative travel solutions across both long and short distance transportation scenarios. While train travel remains the most important transportation option for short and immediate distance travel during the peak travel periods, we'll also place greater emphasis on alternative transportation solutions, including ride sharing, airport transfers, intercity bus services, and urban transit options such as buses and metro systems, enabling our users to flexibly shift across different transportation modes.
The revenue contribution from the train ticketing as a percentage of OTA revenue has declined from around 35% in 2018 to around less than 20% in recent quarters. With express ticketing service accounting for only a low single-digit percentage of our transportation revenue. The reduction in contribution has already been offset by revenue growth from the other short and immediate distance transportation solutions. In response to evolving market dynamics, we will further optimize the cost structure of the transportation business and streamline the fixed cost to protect overall profitability while improving the middle to long-term margin profile of the transportation segment.
For the airfares, yeah. I think everybody has seen that recently, rising oil prices driven by geopolitical tensions have led to a sharp increase in fuel surcharges across China's aviation market. Of course, higher fuel surcharges have pushed up airfares and weighed on air travel demand, particularly among more price sensitive travelers. During the recent holidays, as I mentioned, China civil aviation passengers volume declined by approximately 5%-6% year-over-year. We believe this reflects more of a transportation substitution effect rather than a weakening in overall travel demand. In practice, some users shifted from air travel to alternative transportation options, such as high-speed train or self-driving for short to mid-distance trips. We view fare surcharges increases as more of a short-term industry cycle rather than a structural or long-term disruption to travel demand.
The industry has already experienced a similar period of airfare volatility in the past, and travel demand has generally remained resilient over the long term. Despite softer air travel demand, the overall travel consumption is still there during the holiday. The railway passenger volume continued to grow steadily, and also, our accommodation demand across the industry also remained healthy. Of course, just like I mentioned, the accommodation business continued to outperform the industry, also remain a modest growth with high-quality hotel demand released. Also, we have monitored a solid ADR growth as well. We have to admit that we might have wind for transportation business in quarter two. Under these circumstances, we still do something. We enhance our pricing and recommendation capabilities, including fare comparison, travel timing suggestions, and alternative routing recommendations to our users.
Helping the travelers better navigate airfare volatility and identify better value travel options. This supported user conversion and also satisfaction, even amid the higher airfare environment. In the meantime, we reacted swiftly to improve the efficiency of our transportation business by tightening promotional spending, refining our organizational structure, and exercising stricter control over fixed costs for this segment, including the personnel-related expenses. These initiatives have mitigated the impact on profitability in the near term or in quarter two, while also supporting healthier margin expansion for the transportation segment in the long run. Thank you for the question.
Thank you for the questions. One moment for the next question. Our next question comes from the line of Brian Gong of Citi. Please ask your question.
Hi. Thanks management for taking my question. This is [inaudible] asking on behalf of Brian Gong of Citi. We have two questions, the first question is what are the reasons for the increased percentage of selling marketing expense in third quarter? What will be the trend of cost structure including your S&M, cost of revenue and G&A in third quarter and two years this year. And what will be the margin trend for core OTA as well? And then my second question is what the current margin level of your hotel management business? When do you expect the margin of your hotel management business. Thank you.
Thank you for the question. Our marketing expense is adjusted flexibly in response to evolving market conditions. The first quarter as we saw encouraging early booking trend ahead of the nine-day Chinese New Year holiday this year and selectively step up our marketing efforts to better capture the demand, while maintaining the pros to our channel. At the same time, our [inaudible] continue to improve, supported by growing revenue scale and also the internal of application the AI.
As the result, the combine of service development to revenue decline by nearly 1 percentage point year-over-year. Driving an increase of 0.8 percentage point in adjusted net margin in the past quarter, quarter one. Since the end of April optimizing the of culture or transportation segment with allocating our marketing investment toward the accommodation segment to capture the growing demand for [inaudible]. As a result, we still respect the adjusted net margin in quarter two to continue proving year-over-year. Reflecting our operational flexibility and discipline code of short-term market headwinds. Over the 2026, as we discussed at the very beginning of this year, to optimize our breaking our marketing allocation margin improvement will be delivered for the full-year of 2026. In terms of the hotel management, Joyce will give you more color.
Thank you for the questions. In terms of the margin level of our hotel management business, we can look at the margin profile from two perspectives for Elong Hotel Technology platform and Wanda Hotel and Resorts. For Elong Hotel Technology platform, the segment has experienced rapid growth over the past few years with a significant increase in the number of hotels under management. As we have been focused on accelerating market penetration and expand our footprint, our blended take rate remains lower than that of the leading industry players.
While in contrast, Wanda Hotels and Resorts is a more established platform with a mature operating model and a stable profitability. With its established brand influence, its full structure is comparable to the leading global hotel management groups, which supports a stable and sustainable revenue model. Following the consolidation, Wanda has provided an immediate improvement to the overall financial performance of our hotel management business. Still, at the same time, we have been investing in building our direct sales capabilities, the Wanda and Elong membership program, to gradually strengthen brand awareness and customer loyalty.
While the contribution from our own membership programs remains below that of the more mature hotel management platforms, we expect it to become an increasingly important driver of margin improvement in the future. As the business is still at an early stage, we expect profitability to improve gradually as scale, operational efficiency, and sales contribution continue to increase. Looking ahead, our de-merging strategy will remain disciplined and balanced. We will continue to expand the scale of the management hotel network while improving operational efficiency, optimizing the revenue structure, and enhancing direct sales channel capabilities. With a combined platform and a growing scale, we expect the overall operating leverage of the hotel management business to improve gradually over time. Thank you.
Thank you for the questions. Please hold for the next question. Our next question comes on the line of Leo Yu from CLSA. Please go ahead.
Hi. Good evening, management. Thanks for the opportunity. I have two questions. First on AI. As the AI agents and the AI chatbots are becoming more important user entry points, how should we think about impact on our traffic acquisition and the user behavior for OTAs? How will Tongcheng position itself in the emerging AI ecosystem? The second one, I want to follow up on the hotel. We saw the industry ADR had a slight decline on a same store tier basis during the Labor Day holiday. How should we think about the industry trend, going forward, and what is the implication on our accommodation business? How long can we still enjoy the tailwind in the hotel ADR? Thank you.
Thank you for the questions. In terms of our positioning in AI period, as we mentioned before, we view AI agents as a new interaction interface rather than a direct replacement for existing channels. While AI may reshuffle how users search for travel information, the high-value travel transactions continue to rely on the comprehensive supply integration, real-time inventory management, and reliable service fulfillment, whereas well-established OTAs remains strong advantages. Recent adjustments by some AI platforms in their e-commerce initiatives also highlight the current limitation of AI in handling complex travel transactions. At the same time, AI is introducing new traffic distribution mechanisms and creating incremental opportunities. We're focused on ensuring that our content and service capabilities can be effectively accessed, referenced, and transacted within AI ecosystem, enabling a seamless closed loop from inspiration to booking.
At this stage, traffic contribution from AI channels remains relatively small and has not had a material impact on our overall traffic structure or user behavior. Strategically, we're actively positioning ourselves within the emerging AI ecosystem as a trusted travel service partner, leveraging our extensive transaction data, operational expertise, and user insights to deliver accurate recommendations and bookable solutions across AI platforms. In particular, we have established a deeper collaboration within the Tencent ecosystem by enabling traffic redirection from Yuanbao to our mini programs and apps, where users complete bookings within our ecosystem. Supported by our long-standing partnership with Tencent, we believe we maintain a strong strategic cooperation priority within the Tencent ecosystem as AI-driven traffic continues to grow.
Importantly, this model allow us to maintain direct user relationships and retain transaction data within our own ecosystem, which further strengthen our capabilities in personalization, user engagement, and long-term user value enhancement. On the other hand, we continue to pursue a strategic collaboration with the leading external AI agents to capture future growth opportunities. As part of our strategy to capture early-stage opportunities and broaden distribution, we have embedded DeepTrip functionalities into platforms such as Skillhub and ClawHub, extending our service presence across external AI ecosystems. Over the long run, we believe competition in the AI era will still come down to operational capabilities and service quality. By strengthening our product offerings, service fulfillment, and ecosystem partnerships, we are well-positioned to capture opportunities brought by AI while reinforcing our core competitive advantages.
For ADR, yeah. During the recent Labor Day holiday, the industry ADR on a same-star basis, same-star tier basis, saw a slight year-over-year decline for sure. On our platform, the ADR still continues the increasing trend year-over-year, primarily driven by the ongoing increments in our hotel mix and continued user upgrades toward higher quality accommodations. Over the past years, the bookings for three-star and above hotels increased meaningfully, with their proportion on our platform in quarter one rising by approximately 4 percentage points year-over-year. Still, for the three-star and above hotels, only occupied less than 30% in our platform. As a result, our blended ADR continued to record healthy growth. Based on these trends, we expect the ADR improvement to remain a supporting factor for accommodation revenue growth over the coming quarters.
Meanwhile, we have obtained a more disciplined and refined approach to user incentives through more targeted subsidy allocation and improved marketing efficiency as well. We have been able to keep our net take rate at a healthy and stable level while supporting sustainable business growth. Overall, we are very optimistic about the ADR on our platform improvement ongoing, supported by our extensive exposure in the mass market and our ability to respond quickly to changes in demand and capture emerging opportunities. Thank you for the question.
Thank you. At this time, there are no further questions on the line. I would like to hand the call back to Ms. Kylie Yeung for closing remarks.
Thank you, operator. 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.
That concludes today's conference call. Thank you for your participation. You may now disconnect.