Earnings Call: Q2 2018

Sep 6, 2018

Earnings release

Ladies and gentlemen, welcome to the 2nd Quarter 2018 ctrip dotcom International Limited Earnings Conference Call. My name is Serena. I will be the moderator for today. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. As a gentle reminder, this conference is being recorded for replay purposes. Now, I will hand the call to Chief Communications Officer, Victor Zheng to begin. Victor, over to you. Thank you. Good morning, and welcome to Ctrip's Q2 2018 earnings conference call. Joining me today on the call are Mr. James Liang, Executive Chairman of the Board Ms. Jane Sun, Chief Executive Officer and Ms. Cindy Wang, Chief Financial Officer. During this call, we will discuss our future outlook and performance, which are forward looking statements made under the Safe Harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995. Forward looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in Ctrip's public filings with the Securities and Exchange Commission. Ctrip does not undertake any obligation to update any forward looking statement, except as required under applicable law. James, Jane and Cindy will share our strategy and business updates, operating highlights and financial performance for the Q2 of 2018 as well as the outlook for the Q3 of 2018. After the prepared remarks, we will have a Q and A session. With that, I will turn the call over to James. James, please. Thank you, Victor, and thanks to everyone for joining us on the call today. I'm pleased to announce that Ctrip delivered solid results in the Q2 of 2018. In line with the principles I discussed in the last earnings call, our teaming continue to put the customer at the center of everything we do. Ctrip is synonymous with the highest quality travel experience. We will continue to make investment in improving customer satisfaction as we believe this strategy will create more customer lifetime value over the long run. Today, I will explain our strategy of driving both higher customer acquisition and customers retention rates. 1st, we will aggressively drive new customer acquisition. Our focus is twofold. 1st, continue to innovate in product services to fulfill ever changing demands of travelers. For instance, our data tells us that customers like to travel with families. As a result, we've introduced travel products that are suitable for children and elderly with family friendly booking options. 2nd, fully leverage our omni channel travel strategy of more than 7,000 franchised offline stores across 200 cities to create unique points of contact to engage and better convert potential travel customers that are harder to reach through online channels. 2nd, we'll boost user engagement and cross selling opportunities. Today, Ctrip offers over 60 tailor made products and services that not only over cover the basic hotel and the transportation booking, but also fully address travelers' in destination needs, including dining, shopping and local activities, both in China and abroad. As a result, over 40% of today's traffic converts to in destination demand during peak times and in destination traffic is growing over 50% year over year in the Q2. We're seeing more engagements throughout the travel funnel and are already benefiting from those cross selling opportunities. For example, the AI trained cross selling ratio increased significantly from a single digit to over 20% in the past couple of years. With AI and a smarter product innovation, there was still much room to improve our capability to service our customer throughout their whole travel itinerary. 3rd, will enhance customer loyalty. We further upgraded our service system in the past few months by improving customer guarantees and the facilitation capability. These efforts have netted about 20% improvement in our NPS results from April to July this year. We recently introduced Hotel Rewards Club, or in Chinese, program to reward our loyal members with hotel booking discounts and extra benefits. The program already covers tens of thousands of domestic hotels and to date, we've helped save our customers an average over RMB 2,000,000 on a daily basis. In summary, we worked hard to invest a large and loyal travel user base and cultivate a strong travel brand recognition. These efforts are unparalleled in the travel industry. And our work is far from done. With a vast pool of potential new customers in front of us and a large existing base of loyal customers for us to serve even better, we have a clear vision to further extend our leadership in travel and to the best not only in China, but in the world. With that, I will turn the call over to Jane. Thanks, Jane. Ctrip reported solid results in the Q2 of 2018. In particular, accommodation revenue grew healthily at 21% year over year despite our large base. This was driven by consistent growth in volume and steady take rates. We have continued to reinforce our leadership position in the mid to high end star hotel market. Meanwhile, we are aggressively gaining market share in the low star hotel market. We are also helping hotel operators boost sales with our intelligent hotel booking system, while further strengthening our price competitiveness in the low star hotel category. These efforts helped drive accelerated year over year volume growth of around 40% in the low end hotel market. Transportation revenue grew 1% year over year as strong volume growth across multi model transportation product categories was offset by air ticketing booking process adjustment as we discussed in the previous quarter. Excluding Skyscanner, international air tickets achieved approximately 40% year over year volume growth due to the robust growth in the Q2 for both outbound travel and trip.com. We are growing around 2x faster than the overall Chinese outbound growth rate. Skyscanner's total revenue maintained at a healthy pace of year over year growth of approximately 30% in the 2nd quarter, driven largely by robust traffic growth. Non GAAP operating profit of RMB1.2 billion came at the high end of our 2nd quarter guidance. This is a testament of our scalability, which was offset by domestic ticketing process adjustment and our strong investment in the customer centric efforts. Today, I would like to share some of the progress we have made during the past quarter regarding the customer service improvements, supply empowerment and international expansion. 1st, on customer service improvements. Unrivaled service quality is the key differentiator between Ctrip and other players. As James said earlier, Ctrip teams have made great strides in identifying travelers' pinpoints and developed higher service standards, which consistently exceeded our customers' expectation. We have upgraded our service guarantee across a number of products. We now promise full refunds, for Visa and related air ticket fees in case customers' Visa application is denied. In addition, our Air and Hotel Protection Program promises free cancellation of hotel bookings due to flight delays and cancellation if customers book both hotel and a flight ticket from Ctrip on our platform. We have promised to be proactively in tackling customers' problems even if it is not contractually Ctrip's responsibility. Recently, we announced that when a customer's booking cancellation policy states it's a non cancelable hotel rooms on our platform. And we will provide a refund assistance, which Ctrip will negotiate with the hotel to reduce the loss on behalf of our customers. 2nd, on the supply empowerment. By leveraging the 50 trillion bytes of the data Ctrip generates every day, we advance our technology capability based on our AI research. We're able to help the suppliers identify growth opportunities and improve their efficiencies and enhance the product competitiveness. Since the establishment of Ctrip Hotel University in May, it has received an overwhelming amount of interest and participation within the organization. We have established a hotel training center, big data research center and a user research center as well as a design range of the courses, which help hotels to cultivate talents. By the end of August, we have opened over 70 online offline courses, which attract nearly 380,000 participants with majority of whom are in other hotel decision makers. On average, hotels are able to increase their GMV by 20% after they take the training classes according to the feedback we received. Child friendly rooms are a new niche area that we identify through big data. Ctrip system indicated that 30% of our customers travel with children and later we have observed a growth demand for high family rooms to observe these to serve these travelers. Hotels can now choose to promote child friendly rooms as a unique selling point on our platform. As of today, we have helped co develop child friendly rooms in 23 cities in China. On average, the occupancy rate of these rooms are higher than normal hotel rooms and are associated with increased customers' satisfaction rate. The Ctrip Institute of Customized Travel Business is another good example of our ability to foster the development of the industry throughout the value chain. In response to the major bottleneck faced by our customized tour supplies in lack of qualified trip planner, we planned this pioneering training program in May this year and to systematically cultivate the talents in this area with plans to recruit and train 3,000 plus customized trip planner a year. 3rd, our international business, trip.com and Skyscanner have both continued to make remarkable progresses in their respective targeted market. For the 7th quarter consecutive quarters. We have recently launched both local activities and airport transfer services in the selected market and target to expand these product lines in the other market in the following months. This takes trip.com another step closer to realizing 1 stop Tripp shop capability and offering its customers a seamless end to end travel experience. Skyscanner is already one of the largest travel platform in the world. Despite its large base, it saw nearly 25% global MAU year over year growth in the quarter. Growth in direct booking at Skyscanner continued with 600% year over year growth as more partners migrated to the platform. While trip.com has become the largest direct partner, it still only contributes low single digit percentage on Skyscanner's total worldwide booking. We are confident that we can raise this number to around 20% to 30% in the long run by further improving trip.com's competitiveness, pricing and a strong service capability. Looking ahead, we are excited to achieve our long term ambitions, our persistence in delivering customer centricity, deep involvement in the industry value chain and solid execution in our international business will create anonymous growth potential in the years to come. As always, I would like to take this opportunity to thank our customers, our employees, our partners and our investors for their continuous and support. With that, I will turn the call over to Cindy and she will walk you through the details of our financials. Thank you. Thanks, Jane. Thanks, everyone. For the Q2 of 2018, Ctrip reported net revenue of RMB7.3 billion, representing a 13% increase from the same period in 2017. Accommodation reservation revenue for the Q2 of 2018 was RMB2.8 billion, up 21% year on year, primarily driven by an increase in accommodation reservation volume. We further expanded our total global hotel coverage to close to 1,400,000 properties, an increase of 26% compared with the same period last year. In the Q2, international hotels sustained a 40% room night year over year growth rate, more than doubling the outbound industry growth pace. Transportation ticketing revenue for the Q2 of 2018 was RMB3 1,000,000,000, representing a 1% increase from the same period last year. Ground transportation, including train ticketing, bus ticketing and car services, continue to grow rapidly. Air ticketing segments also maintained very strong volume growth momentum across all platforms. Similar to the Q1, revenue growth was offset by the decrease of per air ticket segment revenue, which is related to the operating adjustment we discussed in previous quarters. We expect the situation will gradually improve in the second half of this year with comparatively easier comps. We have continued to expand our multi model transportation offering, such as free air port shuttle buses and airport parking vouchers. Today, our whole selection of air plus Train, Air plus Bus, Train plus Bus and other car services can truly create a seamless door to door travel solution for customers across China. Tagged tour revenue for the Q2 of 2018 was RMB839 million, up 31% year on year, primarily driven by increase in volume growth of both organized tour and self guided tours. We continue to see the booming development of offline stores. In mid August, we announced the achievement of a new industry record of RMB70 1,000,000 in the GMV in a single day. What shows us more is that 80% of the offline store customers have never booked Ctrip packaged tour products before, making the stores an excellent gateway for acquiring new customers. Indestination activities have become a more crucial part in the total travel market. We recently developed a global thing to do platform covering over 100,000 things to do products in over 1500 destinations all over the world, making it one of the largest platform of its kind. We also established an innovative product called Dauphin PAS developed by Ctrip to cover the most popular things to do in certain destinations at a package rate. The new product can save our customer not only cost, but also time when planning a trip. Corporate travel revenue for the Q2 of 2018 was RMB255 1,000,000, up 28% year on year. The growth in corporate travel business was primarily driven by the expansion of our travel product coverage. We continue to see steady growth in corporate clients in this quarter, with accumulated accounts reaching over 170,000. We also generate revenue from other business, including our financial business. The revenue contribution from financial products and services is still very small, but growing rapidly. We mainly product consumers with financial products as part of our one stop travel shopping experience and the purpose is to enhance the conversion rate. Given travel's unique attribute and our very strong risk control management, this business has enjoyed very healthy profitability. Gross margin was 80% for the Q2 of 2018, compared to 83% in the same period last year. The decrease in gross margin was mainly due to the upgrade of service standard in every front of our business in order to be fully in compliance with the customer centric principles that James emphasized in the Q1 earnings call. Excluding share based compensation charges, total non GAAP operating expenses grew 30.9% year on year and 6.1% quarter over quarter in the Q2 of 2018. Non GAAP operating profit in the quarter was RMB1.2 billion, compared to RMB1.2 billion in the same period last year and RMB966 1,000,000 in the previous Non GAAP operating margin for the 2nd quarter was 16%, increased from 14% in the previous quarter, mainly related to operating efficiency improvements. Diluted earnings per ADS were RMB3.89 or $0.59 For the Q2 of 2018, excluding share based compensation charges and fair value changes of equity security investments, non GAAP diluted earnings per ADS were RMB1.9 9 or US0.29 dollars for the Q2 of 2018. As of June 30, 2018, the balance of cash and cash equivalents, restricted cash and short term investments was RMB57.7 billion or US8.7 billion dollars Now turning to the outlook. For the Q3 of 2018, the company expects the net revenue growth to continue at a year over year rate of approximately 13% to 18%, which is calculated on the estimated net revenue of Q3 of 2018 under the new revenue recognition standard and the net revenue of the Q3 of 2017, retrospectively adjusted. This forecast reflects Ctrip's current and preliminary view, which is subject to change. This concludes our prepared remarks. Operator, now please open the line for questions. Thank you. We'll now begin the question and answer session. Please note this session is only open to sell side analysts due to time restriction and each analyst is only allowed to ask one question each time. If you have additional questions, please join back to the queue. Our first question, we have Alicia Yap from Chintigo. Please go ahead. Hi, thank you. Good morning, James, Jane and Cindy. Thanks for taking my question. My question is related to the overall macro And if this is true, how will Ctrip being impacted? And have you seen any of your business line being affected by any softer consumer consumption pattern over the past few months? In the event if China economies get worse next year, Which business segment of Ctrip business will get the biggest hit? And if any slowdown on the economic environment, how will that affect the pace of the margin recovery or margin improvement trend next year? Thank you. Okay. Yes, there's recently a lot of domestic rhetoric about the Chinese economy, but I think we should really put this into long term perspective. In the long run, I'm still very optimistic of Chinese economy because if you look at the per capita income, China is still only a fraction of that developed country. And in terms of the per capita capability, such as innovation and industrialization, China is lower than the developed countries, but China is well ahead of other developing countries with a similar level of income. For example, Thailand and Brazil and China will have a much better prospect of growth than these countries. So if you believe the per capita level innovation and then industrialization is the key for future growth, China will do well. Of course, recently there's some setback in terms of, for example, in export sector and because the consumption patterns are shifting to service and you will see some slowdown in the manufacturing sector. But the overall wage growth and overall consumption should be pretty healthy as we especially as we see in the travel sector. So as being one of the high end service sector, travel will do much better than other sectors. This year, so far, the pattern is seeing that overall travel consumption not slowed down significantly. There was a bit of slowdown in the outbound travel because of currency issue, but we see very healthy growth in the domestic travel business. And China will likely to continue to invest very heavily in infrastructure like airports and high speed railway and that's very good for our business. And we and in the coming future, we will heavily invest into developing these products, especially related to high end mass travel related to high speed railway and short weekend travel, I think we will see huge potential in these areas too. So the overall we're still very optimistic with the overall travel consumption and that will definitely grow faster than the overall economic growth, which I believe is still going to be healthy too. Thank you. Next question, operator. Our next question, we have Bin Fong from HSBC. Please go ahead. Hi, good morning management. Thank you for taking my question. My question is on the hotel business. So on the international hotels, can you comment about how you see the progress so far in terms of the growth and also how it impacts the margin? The reason I'm asking is that if we look at international hotel, it should have a bigger ticket size, but yet because we are tapping into the market, so that will be associated with higher OpEx. So net net, how should we see the margins profile of international business and how does it impact us as it grow bigger? How does it impact our overall hotel margin? And then domestically, lower end hotel, because I think management also give us some remarks in terms of how the growth in the low end, but we call like low end actually has a lower margin, right, in terms of the margin profile if we compare to our core mid to high end hotel segment. So how should we think about that? Thank you, management. Thank you. The accommodation market in China overall is huge and still very fragmented with online penetration rate only about 20% to 25%. Ctrip proved to be the leader ever since we've been in this market. And most importantly, we are the only company who has sustainable profit in this segment. In terms of the strategy, our overall strategy in the accommodation market for the mid to high end hotels, we will continuously making investment in building the most comprehensive product offerings with competitive pricing for both domestic and international hotels. And we will further solidify our leadership in the mid to high end hotel market. For example, for the outbound market that you asked, Ctrip continued to more than double the industry growth rate in the outbound retail market segment. In the Q2, we achieved over 40% of year over year growth. And although we are already a clear leader in this segment, for the lower end of the hotel market, given it's still very, very fragmented and offline driven, Ctrip was decisively focused on volume growth and market share gaming. And Ctrip's lower staff hotel segment continuously to saw very strong volume growth at around 40% year over year as well. So of course, in terms of profitability, the lower end has comparatively lower profitability, but high end market, especially the outbound, the most profitable outbound hotel market, we also had a very strong growth momentum, which to some extent offset with each other and in result we can achieve a very healthy profitability in the accommodation market overall. Thank you. Okay. Our next question, we have John from Aiwa. Please go ahead. Good morning guys and thanks for taking my question. I have a question on your lower tier city penetration strategy because if you look at your major competitor has a pretty big user base and I know that we have been penetrating through mostly offline. How does the management think about the long term how to convert these lower tier city users to our online platform hence drive the profitability in the long term? And second, Skyscanner, if you could give a bit more detail about your direct booking revenue contribution, that would be great. Thank you. Sure. So for Ctrip, both domestic market as well as the international market represents great opportunities for us. First of all, on the market, as James said, the GDP per capita for China is rising. And Ctrip is very well positioned in the 1st tier cities and state capitals and coastal cities. However, as the GDP per capita grows, we will further penetrate into the area, which has strong growth in capital growth. So our strategy is a couple of fold. First of all, in the cities with strong economic growth, we have selectively opened about 700 7,000 offline stores. And these stores are very well located in the city center, which have a couple of functions. 1 is the branding. We want to make sure these stores brings a very good brand awareness to the local people. Secondly, these stores also will offer a comprehensive product. And Ztrip is the only company, which can launch and promote 60 products simultaneously. So for example, not only the customers will be able to book air tickets in the nearby airport, They can also make reservations after the air ticket is booked or when the storm is coming, we'll automatically promote the high speed railway products to them. And for the next 5 to 10 miles, we also have best product to offer to our customers if they choose to use flights or high speed railway to go their hometown. So all that represents a very competitiveness competitive product offerings to our customers. So that's our strategy penetrating into the lower tier cities. Secondly, on the international cities, as we discussed before, Skyscanner is very well known for price comparison capability. And for Ctrip, we are able to instill our direct booking services onto their platform. And so far based on our observation, the customer satisfaction rate has increased significantly. Therefore, we have methodically increasing the percentage of the direct bookings on Skyscanner. And going forward in the long run, we'll be able to take about 20% to 30% to make sure the customers who are using Skyscanner will be able to book it on their platform seamlessly. That will increase further on their customers retention, on the customers returning customers rate as well as the earnings ability. So I think our comprehensive product offering as well as the strong service capability will empower Skyscanner in the future. Thank you. Our next question, we have Elaine from Deutsche Bank. Please go ahead. Thank you management for taking my question. I have a follow-up question on the international business. Can management elaborate more on the future strategies, especially on the changes that took up with the domestic consumer spend being affected by the currency and to the outbound? And how about the strategies for the trip.com and scanners to offset the risk? And if possible, can management give us a revenue contribution for the international business? Thank you. Yes. So for international business, people who are making very good money will be able to afford to going abroad. And Ctrip targets at mid to high end customer pool. So that portion of customer in relative terms are more resilient to the currency fluctuation. So we will further extend our leadership in this field from a couple of fronts. First of all, the first booking normally is international air tickets, and we have very strong hold in the international tickets because our platform connects global airlines and GDSs. That enable us to provide the best engines to calculate the fares switching time as well as the pricing for our customers. So that is why we grow very strongly in the international front and has become number 1 in terms of total tickets booked compared to all the other players in the global places. Secondly, also with the investment in Skyscanner, they also have a very strong presence in Europe and the rest of the world, which enable us to also have access to the customers around the world. And the engine we built not only serve the Chinese customers very well, but also can serve the global customers for international air tickets. And secondly, the unique product offering for Ctrip is a comprehensive product offering. So as we discussed before, not only we can book air tickets, hotel, we also offer customers whatever they need during the trip. So for example, we have local attraction tickets, We have chauffeur cars, rental cars to receive customers and bring them to the destinations. And for the customers who book the product, the whole trip on Ctrip, we also have one stop shopping services. In case the flight is delayed, we will automatically inform their drivers, their also the service providers along the way. So when customers is traveling with Ctrip, we want to make sure they have peace in mind. And recently, there are lots of unexpected incidents globally. For example, there is earthquake somewhere, our team will be able to reach our customer and take them back home if the customer choose to with our SOS program, which is the which Ctrip stands out for its excellent services during these critical times. So all that offers our customer a very comprehensive service and product that is outstanding for the customer. So for the international revenue, when we start our business, it was 0. Now it becomes 25% to 1 third of our total number. Yes. For example, the accommodation, international hotel accounts for about 20 percent of the total accommodation revenue and international air ticket now contribute to over 40% actually close to 50% of the total air ticket revenue. And for the packaged tour business, majority of our revenue coming from the international tour. I think we have a very consistent growth strategy, which is continuously to outpace the industry growth, especially in the less competitive outbound travel market. We achieved double or triple the industry growth in the past few years, and we'll continue this growth trend. And especially if there's any adjustment or slowdown in the market in the industry, it will be the best opportunity for a leader to be more Our next question, we have Wendy from Macquarie. Over to you. Thank you. First, the gross margin further declined to 80% this quarter. So is this the bottom of the gross margin? And how should we think about it in the longer term given the revenue mix change and also some of the initiatives that you're doing? And also, you are doing lots of new programs to improve the customer experience. I'm just wondering whether this is our competition pressure or is it more our longer term impact after the air streaming bundle sales regulation? Why are you doing so many customer experience program in this junction? And also whether we should take this as a structural change, which actually may pressure your margin in the longer term. Lastly, if you can give some breakdown on the Q3 revenue guidance, that would be helpful. Thank you. Thank you. There's a couple of reasons why you maybe observed a slightly decrease the gross margin. The first reason is the deleverage due to the air ticket revenue adjustment, which do have some impact on the margin. And the second reason is we opened a couple of overseas service centers to provide better local services to Sky Standard direct booking customer as well as more incoming international customers to trip.com platform. Last, but the most important reason is because of our customer centric philosophies that James emphasized during last earnings call. Our team has been executing diligently to further enhance it in every front of our business. For example, now if the customer's visa gets rejected, we can we will provide full refund of related air ticket and free cancellation of the 1st night hotel picking in case of any flight delay or cancellation. There's no service charge at the distributor in relation to any change or cancellation air ticket. Although actually our service team and the tech team behind the scenes do put continuous effort to make sure all customers have the best service experience when booked through Ctrip. These are just some initiatives we take and sometimes even beyond our own contractual responsibilities. And you have some short term impact on the margin on the gross margin. However, we strongly believe that from a long term perspective, a company that creates the maximum value for customers is the right foundation to continue growing market share leadership. In last couple of years, we also made heavy investment in service related technology. For example, now our AI assisted chatbot help us to solve more than 70% 75% of our after sale services. Now we have a clear vision and confidence to become the best service provider in the travel industry in the world, also in the most cost efficient way. Though there is some short term pressures on the gross margin, in the next couple of quarters, we think our gross margin will be stabilized at around 80%. And as always, we will continuously to improve our operational efficiency across all business line items and continuously improve operating margins as we promised. Thank you. Sorry. In terms for the Q3 guidance, our Q3 net revenue is back to grow at 13% to 18% year on year, showing continuous improvement from the Q2. And although we are still going through the tough comp base because last Q3 was especially high base, but the negative impact will gradually decrease toward the Q4 of this year. In terms of each business line items, accommodation reservation will grow about 20% to 25% year on year, and transportation revenue will grow about 5% to 10% year over year. And packaged tour business will continuously to have a very steady growth rate of about 20% to 25%. Corporate travel will grow at about 25% to 30%. So the total revenue will grow 13% to 80%. In terms of the I think it's probably still too early to give full year guidance. But because of the comparatively lower comp base in the Q4 of last year, we think our growth momentum will pick up a little bit in the 4th quarter. Thank you. Thank you. Our next question was Amos from 86 Research. Please go ahead. Hi, good morning. This is Joanne Lin from 86 Research. Thanks for taking my questions. I have one question regarding transportation ticketing. Just to clarify, so you mentioned that international air contributes close to 50% of air ticketing business. Does that include Skyscanner and whether this is market share for revenue or volume contribution. Also looks like domestic air ticketing revenue declined faster than the Q1 on a year over year basis and also declined sequentially. Just wondering how should we expect domestic air ticketing business to trend in terms of volume and revenue growth for the quarters to come? How much of the growth for outbound air was contributed by chip.com? Thank you. Yes. In terms of the growth trajectory for the domestic air ticket, we are still gaining market share and have a very healthy growth in terms of the volume. But of course, the per ticket revenue was negatively impacted due to the adjustment. But I think the per ticket revenue has been stabilized, and our take rate on the domestic air ticket is roughly about 1% to 2% close to 2%, which we think will be stabilized. And the close to 50% contribution from the international air ticket is from the revenue contribution because the per ticket revenue is higher than the domestic one. So the volume contribution is still comparatively low, but ourtrip.com as well as the outbound international air ticket continues to see very strong growth momentum and taking a lot of market share in the market. Thank you, Cindy. So that's 50% includes Skyscanner. This does not include. It's Ctrip number. Thank you very much. Thank you. Our next question, we have Natalie from CICC. Please go ahead. Hi, good morning management. Thanks for taking our questions. This is Yu Zheng on behalf of Natalie. We have a quick question on the competition hotel segment. Probably your major competitor has been trying to upsell. It's a hotel segment moving from lower end to the mid and high end hotel. I wonder how should we think about this and what is our strategy to defend our leadership? Thank you. Yes. So for Ctrip, our strength is in the high to mid to high end hotels. So our volume in these hotels would bring lots of volume to these hotels. And we have seen very healthy growth, particularly when the economy has some slowdown as we discussed and also when the currency shows some weakness, we have seen strength in our team to gain market share in this segment. Secondly, in the lower tier cities, our goal is market share gain. So we are very willing to lower the price and to gain market share and expose our brands in the cities, which normally Ctrip has not touched. So we will be very aggressive in penetrating in the lower tier market by aggressively gain market share in the lower tier. So, so far in both end, we have seen strong growth in volume as well as the revenue growth, and we'll keep up this momentum in both segments. Thank you. Our next question, we have Gregory from Barclays. Please go ahead. Hi, morning management. Thanks for taking my question. So my question about currency, some headwinds. So as you mentioned in the opening remarks, your outbound business has seen very solid growth. So just want to understand if RMB depreciation generates any headwinds to your outbound travel demand? And also very quick follow-up. So would you please give us more quantitative update of your mid and long term revenue growth and margin expansion outlook? Thank you. Yes. So outbound business represents the mid to high end consumers. And Ctrip always is very strong in this segment. When a market shows a little bit turbulence, that's the best time for us to gain even more market share because our customers in relative terms are more resilient. And secondly, our service is being enhanced every year. So we are able to stand out during the time that the market shows some weakness to gain market share. Thank you. So mid to long term. Yes. In terms of the mid to long term, we are consistent with the previous long term guidance. So by the year 2020, our total GMV were achieved at around RMB1.2 trillion and with the continuous improvement in operational efficiency, we believe our non GAAP operating margin will go back to the 20% to 30% level. Thank you. Thank you. Our next question, we have Jade from Oppenheimer. Please go ahead. Great. Thank you, management, for taking my question. Appreciate the color on the international volumes in the press release. Can you give us a sense of what your domestic transportations volumes were this quarter versus growth rate? And then can you give us some guidance around your non GAAP operating margin for 3rd quarter? Sure. Given the very early still very, very early stage of our development stage, so at this current stage, we will be still very focused on the market share gaming And not only the transportation category, but across all the business line items, our growth rate will achieve at least double the industry growth. And in terms of the margin guidance for the Q3, we expect our non GAAP operating profit will be in the range of RMB1.8 billion to RMB1.9 billion, implying non GAAP operating margin at around 20%. Thank you. Our next question, we have Gerry from UBS. Please go ahead. Hey, thank you. Yes, my question is still on the operating margin. In the Q2, actually operating non GAAP operating profits a little bit better than we thought than consensus thought. So, it looks like sales and marketing was a little bit lower. So, could you touch on, if there were any drivers there for the better efficiency? And then as we look into the rest of the year and the next year or 2, as we get that operating margin higher, what are some of the key drivers to get us there? I would assume maybe product mix is a big driver, but any comments again on the operating expense efficiency? Thanks. Yes. In terms of our investments in acquiring new customer, we have a very consistent strategy. We will look at the return on investment in each of the sales marketing channels. Once the channel can generate positive ROI for us, we will continuously to make investments in that channel. And in terms of the leverage of the operating margin in the long run, I think each of the expenses line item will have room for the operational efficiency and scalability improvement. And again, as I said, we are very confident that our non GAAP operating margin will be go back to over 20% level in the next 1 to 2 years. Thank you. Our next question, we have Peter from Wells Fargo. Please go ahead. Good morning. Thanks for taking the question. You've spoken a bit about the competition in the lower priced hotels. Wondering if you could talk about the competitive landscape in the Tier 1 and Tier 2 cities, in particular with alternative accommodations in Airbnb? And then secondly, following up on a number of questions on currency headwind. Just to be clear, thus far, you have not seen any sort of deceleration in bookings or air travel growth outbound as a consequence of the currency changes? Thank you very much. Sure. For the 1st tier, second tier cities, we're always very strong in these cities because our business starts from here. Secondly, regarding the alternative accommodation, Ctrip founded the largest alternative accommodation company in China, which is Tujia, and they are growing more than triple digits consecutively, very healthy growth. So I think we are also gaining a lot of market share in the alternative accommodations as well. Thirdly, regarding the currency, we are very prudently monitoring the overall global market. However, in the relative terms as we discussed, because of our customers are relatively high income compared to the other segment, we our customers are relatively resilient during the time of turbulence. So we cannot say in absolute dollar amount what the market is going to be. But in the historical trend, when the market shows some weakness, Ctrip's growth rate compared to the market growth rate were extent. And therefore, in these times, we will be able to gain market share in relative terms. I hope that helps. Yes. The recent data that we have observed has already been included in our Q3 guidance. Thank you. Thank you. Our next question we have Kevin from Cowen. Please go ahead. Hi, thank you very much. I had a question on trip.com. Can you give more color on the traction trip.com is experiencing across the different geographies? Where are you seeing the biggest strengths? And to what extent has the new brand rolled out in Western Europe, the U. S. And Latin America? Thanks. Yes. Trip.com is growing very well, although it's very small. Our product offering mainly is being a couple of things. First of all, the air ticketing is very strong for us. And as we discussed, the infrastructure we developed in international air tickets serve the Chinese customers very well and also it can serve the global customers very well. So trip.com take the strength of our international air tickets and is replicating in different areas and has gained lots of traction in the targeted market. Secondly, we also instilled our direct booking facilities on Skyscanner. So wherever Skyscanner has a strong presence, trip.com also have gained lots of market share in terms of the direct booking facilities. And thirdly, trip.com not only has one product for air ticket, it also offers a lot of other products such as transportation, cars, attractions, information, etcetera. So we are hoping trip.com will become offers a comprehensive product, which can lead by the international air tickets, but also make it very convenient for the customers who are using the product on trip dotcom. Thank you. Thank you. That's all the time we have for questions. I will now hand session back to Victor for closing remarks. Please go ahead, Mr. Victor. Thanks to everyone for joining us today. Q3 2018 earnings call. Thank you, and have a good day. Thank you.