TCOM 携程

Operator

Ladies and gentlemen, welcome to the Third Quarter 2018 Ctrip.com International Limited Earnings Conference Call. My name is Edward and 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 reminder, this conference is being recorded for replay purposes. Now, I will hand the call to Chief Communications Officer, Mr. Victor Tseng. Please begin. Thank you.

Victor Tseng - Ctrip.com International Ltd.

Thank you. Good morning and welcome to Ctrip's third quarter 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 risk and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risk 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 statements, except as required under applicable law. James, Jane and Cindy will share our strategy and business updates, operating highlights and financial performance for the third quarter of 2018, as well as the outlook for the fourth quarter of 2018. After the prepared remarks, we will have a Q&A session. With that, I will turn the call over to James. James, please.

James Jianzhang Liang - Ctrip.com International Ltd.

Thank you, Victor, and thanks to everyone for joining us on the call today. Ctrip continued making solid progress on every front of our business in the third quarter of 2018. Despite the softer growth of the overall market during the quarter, we increased the multiple by which we are outpacing the industry's average growth. We remain confident and enthusiastic about the huge long-term opportunity presented by both China's and the global travel industry, and are working hard to further extend our market leadership. To start, I would like to share some of our thoughts on China's macro economy. We believe China will continue to be one of the fastest-growing economies in the world going into the next decade. Driven by technology advances, continued urbanization, and the evolution to a consumption and a service-led growth model. This will sustain the growth of China's middle-class over the long-term. Travel industry will naturally benefit from China's sustained economic growth. There are a couple of drivers that I'm particularly excited about going forward for China's travel industry. One, China has the largest network of high-speed rail expanding over 25,000 kilometers, twice that of the European system. By 2020, the high-speed rail will connect more than 80% of Chinese cities with a population over 1 million. This is helping make domestic travel very accessible and economical. In fact, we recently launched the first high-speed rail tour channel on Ctrip App. Within the first month, daily orders reached as high as 100,000. Two, China's commitment to its open economy strategy will continue to drive the growth of international travel. China's outbound travel base is already the world's largest, spending over $200 billion overseas last year, but currently accounts for less than 10% of total Chinese population. In past years, China's new passport issuance maintained annual growth of approximately 20%. Moreover, the Chinese passport can now allow Chinese to travel to 74 countries and territories around the world with no visa or visa on arrival requirements. In spite of the short-term fluctuation in the outbound travel growth, Ctrip is dedicated to expand our core competencies in international destination to meet the long-term demand of Chinese international travelers. Furthermore, leveraging China's advantage as the world's largest tourism source market, we are strengthening our global supply chain capability for non-Chinese users booking through Trip.com and Skyscanner. Third, foreigners travelling to China accounts for fewer than 30 million overnight trips once you take out visitors from Hong Kong, Taiwan, and Macau. According to the Ministry of Culture and Tourism, there is a vast potential to increase its volume when compared to United States which has over 75 million in-bound visitors every year. And according to global research firm Euromonitor in the recent report, China is set to become the world's number one tourist destination by 2030. Our global brands, Trip.com and Skyscanner representing over 90 million monthly active global users are in the prime position to capitalize on our opportunity to bring more foreigners to China. As such, we are excited about the opportunities into China travel industry that lie ahead. And historically, we have outpaced China growth, GDP growth by over 4 times. Ctrip is set to continue strengthening our market leadership position. Next month, we will celebrate the 15th Anniversary of our IPO on Nasdaq. We have established a strong track record and are committed to continuing writing the travel growth wave. During the high tides, we can boost our scale and the profitability. During low tides, we can extend our competitive advantage and accelerate market share gain. We will continue to work hard to extend the advantages of scale while seizing the opportunities presented by the globalization to drive Ctrip's long-term success. With that, I will turn the call over to Jane.

Jane Jie Sun - Ctrip.com International Ltd.

Thanks, James. Hello, everyone. Ctrip reported solid results in the third quarter of 2018. In particular, accommodation revenue grew 21% year over year, mainly driven by volume growth. In the mid to high-end hotel segment, we have extended our leadership over our peers with the growth that's doubled the hotel industry rate. In the lower-end hotel segment, Ctrip's brand volume growth further accelerated to around 50% year over year. Transportation volume grew 6% year over year. We continued to see strong volume growth across transportation product categories, while revenue growth was still impacted by the domestic air ticketing booking adjustment that we initiated in the second half of the fourth quarter last year. For the trailing 12 months ending September 30, 2018 GMV excluding Skyscanner, increased by approximately 30% year over year, reaching RMB 690 billion. Non-GAAP operating margin reached 20%, continuing its consistent improvement from previous quarter. Today, I would like to share updates on four points: Ctrip's customer base, user engagement, supplier network and international development. First, on customer base, Ctrip has a large growing and a loyal customer base, which includes 110 million monthly active users in China and more than 90 million outside of China across a portfolio of trusted brands, Ctrip, Qunar, Trip.com and Skyscanner. In total, this brings us over 200 million users, making Ctrip one of the largest travel focused companies in the world. Ctrip and the Qunar brand alone generates 130 million annual transacting customers in China that spend more than RMB 5,000 per year on our platform. Despite the large scale in China, there is still huge potential for us to expand our customer base. According to a recent study, China's middle-class population will grow from 430 million in 2017 to 780 million in the next 5 to 10 years. We have seen that when customer has a real travel demand, they prefer to use Ctrip to provide them with not only comprehensive travel products, but also the most reliable services. 70% of our customers are under the age of 35. Over the next – past five years, we think this number, young generation users under the age of 29, continues to grow from 30% to almost 50%, which represents the fastest-growing age group in our portfolio. In addition, our customer has demonstrated strong loyalty and affinity (10:36) on our platform. This is primarily due to our one-stop shopping solution and superior service capability. Once our customer experience the Ctrip services, our annual repurchase ratio is 40% to 50%, while biannual repurchase ratio increased to 70% to 80%. Just as importantly, according to our cohort data, we have been able to also increase their average travel spending each year by multiple folds, resulting in our repeating customer, accounted for around 80% of total transactions. Second, our user engagement, the Ctrip App has become the go-to-platform for Chinese travelers. We make it a super app for travel users. Our users are engaging with us more and more throughout their travel research, reservation process and in-destination funnel. Our App covers over 60 travel-related products and services. Meaning, we offer one of the most comprehensive selections and are capable of covering all demands of a typical customer travel itinerary. We have around 6 million points of interest that include travel destination information, attraction tickets, restaurants, et cetera. And those point of interest are supported by a vast number of user reviews to assist our users in finding, selecting and booking in-destination products. As a result, 30% to 40% of our App traffic during peak travel season is generated from our users, while they are in-destination. Tickets domestic in-destination activity transaction grew 60% year over year and international in-destination transaction grew 120% year over year for in-destination activities during the third quarter. Third, expanding our combined network and strengthening partnership. As we continue expanding our hotel partner network, the number of the hotels with guaranteed allotment increased by 160% year-over-year within China. We have launched a flagship store for Accor and Hyatt and already seeing thousands of incremental daily room-night for the two brands being booked through our flagship store. We are currently further extending this initiative with more flagship stores currently under development. By leveraging our unique insight into our travel market, Ctrip is helping our partners to better utilize our platform to understand our customers. To date, 70,000 hotel managers are taking training courses at Ctrip Hotel University and witnessed a good boost in booking volume post training. For airline partners, Ctrip's also committed to helping airlines to improve operating efficiency and to developing innovative membership service system. For example, last month, Ctrip and KLM signed strategic partner agreement to deepen the mutually beneficial cooperation. Fourth, on international development, Skyscanner is already one of the largest travel platforms in the world. And in the third quarter, its global MAU increased by 26% year-over-year. Direct booking grew approximately 250% year-over-year, contributing around 10% of Skyscanner's total worldwide bookings. In late September, we officially launched a real app for international trains called TrainPal. This is also our first product aimed at international audience to come out of our Baby Tiger program, which is an internal program that has fostered many internal travel innovation and businesses for Ctrip throughout the year. TrainPal utilizes technology to sort through all the available route and provide cheapest fare for our users. To-date, TrainPal users have on average saved nearly 40% on train tickets when using TrainPal. The long-term vision for the app is a one-stop shop for global rail booking, allowing our users in any geography to book a rail system anywhere in the world. In summary, we are seeing our large, growing and loyal base continue to increase their engagement on Ctrip's platforms. We are selling more travel products across our customers' travel itinerary and we have become increasingly diversified, with revenue coming from our international businesses. We have historically outpaced China's GDP growth by a factor of 4. With our strong foundation in travel industry, despite the ongoing macro uncertainty, we are confident that we are the best travel company to capture more travel opportunity and steer to (17:23) growth going forward. With that, I would turn the call to Cindy. She will walk you through the details of our financial results.

Cindy Xiaofan Wang - Ctrip.com International Ltd.

Thanks, Jane, and thanks, everyone. For the third quarter of 2018, Ctrip reported net revenue of RMB 9.4 billion, representing a 15% increase from the same period in 2017. Accommodation reservation revenue for the third quarter of 2018 was RMB 3.6 billion, up 21% year-on-year, primarily driven by increase in accommodation reservation volume. We further expanded our total global hotel coverage by over 20% year-on-year, reaching 1.4 million properties. International hotels continued to outperform in the industry, more than doubling the industry growth rate. Transportation ticketing revenue for the third quarter of 2018 was RMB 3.6 billion, representing a 6% increase from the same period in 2017. Air ticketing maintained strong volume growth, particularly our international air ticketing growth almost trebled outbound industry growth. Similar to the first half of the year, revenue growth was offset by the decrease of per air ticket segment revenue, which is related to the operating adjustments we've discussed in previous quarters. We expect the situation will improve in the following quarters, with comparatively easier comps. Ctrip.com continued to perform exceptionally well in the third quarter and achieved a double-digit growth in air ticketing volumes for the eighth consecutive quarter. Land transportation, including train ticketing, bus ticketing, ferry ticketing and car services continued its strong performance. In September, we launched TrainPal, a rail ticketing app for the international market to help local user find the cheapest railway ticket. Packaged-tour revenue for the third quarter of 2018 was RMB 1.4 billion, up 28% year-on-year, primarily driven by increase in volume growth of both organized tour and self-guided tour. By the end of the third quarter, we have over 7,000 offline stores, covering more than 200 cities in China. Gross transaction value through offline stores increased over 80% year-on-year. Going forward, we will open more stores to increase our penetration in targeted lower end cities. Customized tours also delivered exceptional performance, with gross bookings increased by 65% year-on-year. In the third quarter, the first class of graduates from our customized tour training camp went into the business. We are thrilled that the conversion rate from inquiry to bookings were increased 4 times for these tour planners. Corporate travel revenue for the third quarter of 2018 was RMB 267 million, up 31% year-on-year. The growth in corporate travel business was primarily driven by the expansion of our travel product coverage. Over 70% of our corporate travel users are making bookings, approving orders and changing itineraries by Ctrip-based mobile app. Other business, including advertisement, financial services and others increased by 6% year-on-year in the third quarter of 2018, reaching RMB 503 million. The deceleration of growth compared to previous quarter mainly related to the high advertisement revenue base in the third quarter of 2017. Gross margin was 79% for the third quarter of 2018 compared to 84% in the same period in 2017 and 80% in the previous quarter. The year-over-year decrease in gross margin was mainly due to the decrease of per air ticket revenue due to operating adjustment. The sequential decrease in gross margin was mainly related to higher service costs as we upgraded service quality to be more customer-centric and efforts in expanding our international service teams and increased revenue mix from certain lower gross margin business that we consolidated in previous years. Excluding share-based compensation charges, total non-GAAP operating expenses grew 13% year-on-year and 18% quarter-over-quarter in the third quarter of 2018. Product and development expenses and G&A expenses delivered continued operating leverage as we achieved higher scale economy with a steady head count. Sales and marketing efficiency continued to improve through product innovation for targeting customers and an improved cross-selling ratio. On average, the acquisition cost per user is only a very small fraction of your average annual revenue contribution to Ctrip, even as many of these customers are coming from lower tier cities. Non-GAAP operating profit in the quarter was RMB 1.9 billion compared to RMB 2 billion in the same period in 2017 and RMB 1.2 billion in the previous quarter. Non-GAAP operating margin for the third quarter was 20%, increasing from 16% in the previous quarter, mainly related to the operating efficiency improvement. The company adopted a new financial instrument accounting standard from January 1, 2018 and measured its available for sale equity securities at fair value with gain and losses recorded through the income statements. The impact of applying this new standard for the third quarter of 2018 resulted in a loss of approximately RMB 2.5 billion in net income, net of tax. Diluted loss per ADS were RMB 2.08 or $0.30 for the third quarter of 2018. Excluding share-based compensation charges and fair value changes of equity securities investment, Non-GAAP diluted earning per ADS were RMB 2.88 or $0.42 for the third quarter of 2018. As of September 30, 2018, the balance of cash and cash equivalents, restricted cash and short-term investments was RMB 63.3 billion or $9.2 billion. On October 15, 2018, the company has elected to pay back $476 million in cash in connection with its outstanding convertible senior notes due 2018, including interest, instead of a potential dilution of more than 1.5 million ordinary shares. Now, turning to the outlook. For the fourth quarter of 2018, the company expects the net revenue growth to continue at a year-on-year rate of approximately 15% to 20%, which is calculated on the estimated net revenue of the fourth quarter of 2018 under the new revenue recognition standard and a net revenue of the fourth quarter of 2017, which effectively adjusted. This forecast reflects Ctrip's current and preliminary view, which is subject to change. That concludes our prepared remarks. Operator, now please open the line for questions.

Operator

Please note this session is only open to sell-side analysts due to time restrictions. An analyst is only allowed to ask one question each time. Binnie Wong from HSBC, please go ahead.

Binnie Wong

Good morning, James, Jane, and Cindy. Thank you for taking my question. Hi, James. My first question is on the macro headwinds. Would you please kindly share with us how the travel industry, both domestic and outbound travels, have been affected by challenging macro conditions and also renminbi depreciation, which could negatively affect the outbound travels? Also being a industry leader with growing outbound revenue contribution, how do you see we can weather through these macro headwinds? And my second question is just a housekeeping question on the revenue guide of 4Q of 15% to 20%? Any color on the growth by segment? Thank you. Those are my two questions. Thank you.

James Jianzhang Liang - Ctrip.com International Ltd.

First, on the macro condition, I think despite the short-term fluctuation due to the sentiment and the trade friction, the long-term prospect of China's economy is still very positive. Actually, I wrote a few articles commenting on that, the argument is that China's per capita GDP is still lag by a wide margin. It's potential measured by technology capability, measured by infrastructure or human capital level. So China should have been much richer, given all these factors. For example, China should be – there's no reason China should be poorer than Greece and Argentina, which has almost double China's current per capita level. The reason Chinese are still much poorer than it should be is because China's low urbanization rate. China's urbanization rate currently is only 50%. If you compare it to other countries of similar level of development, it should be 70% to 80%. So within the next 10 or 20 years, China still have potential to further urbanize by 20% to 30%. That you're talking about 1% to 2% a year. That itself is going to generate 3%, 4% annual growth per year. So the next 10, 20 years, China is still going to be one of the fastest growing major economies in the world. And they will certainly benefit all sectors, especially travel. And particularly for travel, China – Chinese probably will be the most traveled compared to other countries because as I said, the infrastructure in China are still well ahead of its peers because due to high-speed railways and because the amount of money continue to go into the infrastructure and because China – the location of China, you have a lot more interesting destinations around China and within China compared to the current leader in traveling like the United States. So, I think if you're talking about like the percentage of GDP devoted to travel, China is probably one of the, I think, on the high end. So that's why I'm still very positive about the overall economic growth and the potential for travel. And Ctrip certainly will leverage the scale of the Chinese travelers, there's large sorts (31:18) of travelers and to not only to capture the Chinese travelling market, but also international travel market, including inbound market and markets in other countries. So Ctrip is very swiftly (31:35) well-positioned to capitalize on all these factors.

Binnie Wong

Thank you.

Cindy Xiaofan Wang - Ctrip.com International Ltd.

Yeah. I'll walk you through the revenue guidance for each segment. So, our total net revenue is expected to grow at around 15% to 20% year-on-year. For each line item, accommodation reservation is expected to grow at about 20% to 25%. And transportation revenues will grow at about 10% to 15% year-over-year. Packaged-tour business will continue to have a healthy growth at around 25% to 30% and corporate travel business will continue to grow at around 20% to 25%. Thank you.

Binnie Wong

Thank you. Thank you all management. Very clear. Thank you.

Operator

Thank you. Ronald Keung from Goldman Sachs. Please go ahead. Ronald Keung - Goldman Sachs (Asia) LLC: Thank you, James, Jane, Cindy, and Victor, and congratulations on a very solid set of results. My question after revenue would be margins. Can you share with us sort of your margin outlook for the fourth quarter? And just really, if you could share a bit of the color for 2019 given your mid-term margin of 20% to 30% non-GAAP target in one to two years. Just want to hear your latest thoughts on the margin outlook. Thank you.

Cindy Xiaofan Wang - Ctrip.com International Ltd.

Thank you. In the fourth quarter, we expect our non-GAAP operating profit will be in the range of zero to RMB 100 million, implying a non-GAAP operating margin at about zero to 1%. The steep margin drop quarter-over-quarter was mainly due to a couple reasons. First, a worsened seasonality resulted from the new revenue accounting standards because the October holiday revenue previously recognized in the fourth quarter, but now largely in the third quarter already. And the second reason is also because of the macro slowdown which impacted our revenue growth year-over-year. And also non-GAAP operating expenses will be relatively stable similar to the year 2015 and 2016 as opposed to the fourth quarter of 2017, which we had unfortunate PR incident. So, that's why we actually intentionally cut down our sales/marketing spending about 15% quarter-over-quarter last year. So, we will slightly increase our sales/marketing expenses in the fourth quarter to capture more market share. And in terms of our guidance for the 2019, maybe because with Ctrip app, the customers book a trip – is now becoming very easier. The booking window for our customer is now becoming very short. And plus, there also will be some short-term uncertainty on the macro next year. So, it's very, very difficult for us to provide a clear picture as to the absolute growth rate for next year at this moment. However, as James said, our strategy is very clear. We have a confidence in the long-term growth of China's economy. Therefore, we will continuously make investments in our service and technologies, as well as cost-efficient sales/marketing channels to further extend our competitive advantages and accelerate market share gaining, especially during the low time. Thank you. Ronald Keung - Goldman Sachs (Asia) LLC: Thank you.

Operator

Thank you. Mr. Gregory Zhao. Go ahead, sir.

Gregory Zhao - Barclays Capital, Inc.

Hi, James, Jane, Cindy, and Victor. Thanks for taking my question. So first one is, last night, Priceline, the earnings – sorry, bookings earnings conference call, the CEO mentioned he loves China and described how important China is for their growth. And he also mentioned their stake in Ctrip, Meituan and the recent investment in Didi. So have you seen any changes of your partnership with Bookings or are there some changes or updates to the competitive landscape? And my second question is, can you give us some updates of the hotel take rate, so especially in the higher-tier cities and the low-end hotels respectively and with the industry trend of the take rate? Thank you.

Jane Jie Sun - Ctrip.com International Ltd.

Thanks for your questions. For the Priceline investment in Ctrip and our partnership with them, we always highly respect our partner. I think in the past, working with the best in the industry, in the hotel business really helped our team to learn from the best and our partnership with them always are very engaging. And we have very high respect for them. And going forward, I think our team will also use our strength, which is a one-stop shopping platform and also the excellent customer services to further penetrate into the market we have. Regarding take rate, I think it's holding very steady.

Gregory Zhao - Barclays Capital, Inc.

Thank you very much.

Operator

Thank you. Ms. Alicia Yap from Citigroup. Please go ahead.

Alicia Yap - Citigroup Global Markets Asia Ltd.

Hi. Thank you. Good morning, James, Jane, Cindy, Victor. Thanks for taking my questions. I have some follow-up questions on the margins. So, Cindy, if you can clarify that 79% gross margin, is that a new norm? And should we actually expect a little bit lower into the fourth quarter given your step up, for customer service quality? And how should we think about this line on gross margin, should we actually expect that to gradually rebound? And then I think Jane, on your prepared remark, on the margin, when you talk about the trailing 12 months GMV, you also talk about the non-GAAP OP margins of 20%. Just wanted to clarify, are you referring to trailing 12 months, Ctrip actually achieve that 20% margin? And can we also expect that in 2019, we could also achieve that? Thank you.

Cindy Xiaofan Wang - Ctrip.com International Ltd.

Thank you, Alicia. Yeah, let me first clarify about the margin. So, we are actually – Jane actually talking about the trailing 12 months GMV which grow – the growth rate is around 30% to the level of RMB 690 billion level. And the margin, non-GAAP operating margin of 20% is only for the third quarter of 2018. In terms of the gross margin, so the decrease of gross margin is mainly due to a couple reasons. The first is our service cost in relation with our customer-centric initiative to further enhance our service quality. And the second is because we opened a few new international call center this year to serve the increasing customer demand from our international markets for Trip.com and Skyscanner. And the third reason is mainly because of the seasonality reason. Given it's peak season, especially for our packaged tour business, which has a comparatively lower gross margin and the increasing revenue mix from certain packaged tour business that we consolidated in the previous year also dragged down some of our gross margins in the third quarter. In the future, we will continuously invest in service-related technology and gradually improve our operational efficiency in the service center for both our domestic market as well as Trip.com, especially after Trip.com can achieve certain level of scalability in the newly established call center. However, it takes some time. So, in the next couple quarters, we forecast our gross margin will be in the range of 75% to 80%. Thank you. Thank you.

Alicia Yap - Citigroup Global Markets Asia Ltd.

Thank you.

Operator

Thank you. Billy Leung from Haitong International. Please go ahead.

Billy Leung - Haitong International Research Ltd.

Hi. Hi, management. Thanks for taking my question. I just want to go into detail of our operating leverage. I mean, we've done well in quarter three. But can we just go into detail of what we are doing to actually improve this operating margin? I mean, what kind of initiatives we're doing? That will be great. Thanks.

Cindy Xiaofan Wang - Ctrip.com International Ltd.

We actually closely monitor our operational efficiency across all our expenses line items. For example, in the sales/marketing channels, we have a very, very consistent strategy that we will look at the investment ROI for each of the channels. So that's what makes Ctrip – where we acquire new users, our mobile customer acquisition cost actually is only a very small fraction of our customers' annual revenue contribution to Ctrip even though in the last couple of quarters, a large portion of our newly acquired customer actually are coming from the lower tier cities. And our team will continue to work very hard to streamline our operation efficiency going forward. Thank you.

Billy Leung - Haitong International Research Ltd.

Thanks.

Operator

Thank you very much. Ms. Natalie Wu from CICC, go ahead please. Hello, Ms. Natalie Wu from CICC, please go ahead with your question.

Yue Wu - China International Capital Corp. Ltd.

Yes. Can you hear me?

Cindy Xiaofan Wang - Ctrip.com International Ltd.

Yes. We can hear you, Natalie.

Yue Wu - China International Capital Corp. Ltd.

Great. Thank you. Thanks for taking my question. Cindy, you just mentioned for the fourth quarter, you expect a 10% to 15% growth for the transportation business. But I thought about your transportation, 15% to 20% comes from ground ticketing, 20% from Skyscanner, and about 20% from international flight, excluding Skyscanner, all of the above growing at about like 30% year-on-year. So – but certainly you expect no growth for your domestic flight business in the fourth quarter. But as I recall, the change for the bundling rule for your domestic flight business actually took place in the third quarter. So, there should be no like a comparison issue for the year-on-year growth for that in the fourth quarter, right? So, just wondering what's happening here and how should we see the business going forward? And also, my second question is about the recent hotel cancellation rule. Just saw you announce the cancellation rule last week. Wondering if there any impact on your P&L or the complete impact could be shifted to the hotel operators? Thank you.

Cindy Xiaofan Wang - Ctrip.com International Ltd.

Thank you, Natalie. For the domestic air tickets, yeah, we still – although we have some negative impact on the revenues per ticket because of the change of our operation rules, we actually still see a quite healthy volume growth in the last couple of quarters. And we already, for the domestic air ticket, our goal is to further strengthen our partnership with all the airlines and at the same time, we see domestic air ticketing now becoming more traffic source as opposed to our revenue contributor. For the second question regarding the cancellation rule, yes, Ctrip, although there may be some macro uncertainties, but what we observed is that Ctrip actually, compared with the industry, Ctrip business is much more resilient than the industry average for a couple of reasons. First, as I said, we have a very consistent and efficient customer acquisition strategy. And the second is thanks to the best service platform we built, Ctrip's existing customer base actually is more towards the mid to high end. And what we observed is our high-end or higher tier city users hold up spending much better than lower tier cities especially during macro slowdown. Therefore, Ctrip will continuously make investment in our service and related technology to further strengthening our leadership and very strong branding to be the best service provider. That's the background that we promote that cancellation rules. It definitely will have and already have some negative impact on our operating – gross margin as you see our gross margin actually decreased a bit compared with last year. But we think this initiative actually helping us build a more solid foundation for our future growth. Thank you.

Yue Wu - China International Capital Corp. Ltd.

Great. Thank you.

Operator

Thank you. Ms. Wendy Huang from Macquarie, please go ahead.

Wendy Huang - Macquarie Capital Ltd.

Hi, management. So, couple of years, you talk about your long-term, medium-term GMV growth and also revenue growth can be at 30%. Yet in the past two years, and although as Jim mentioned earlier, the GMV growth remain healthy at a 30% rate, but the revenue growth has been persistently low, probably due to dilution of the take rates. So is it fair to think that actually your long-term revenue growth will be persistently low as 20% despite of the 30% of GMV growth outlook? And then, how will you kind of balance your spending amidst the increasing, I will say, the macro uncertainties as well as a need for the long-term growth sustainability. Thank you.

Jane Jie Sun - Ctrip.com International Ltd.

Thank you, Wendy. Yes, in terms of the growth trajectory, our mid to long-term growth, although we actually had the PR incident in fourth quarter last year and domestic – our domestic air ticket revenue adjustment in the first three quarters this year. But yes, our trailing 12 months GMV still grow at about 30% level. Our top priority from now through the year 2020 will still be more aggressively outpace industry growth and gaining market share, given the huge travel TAM, both domestically and internationally. And therefore, if the macro will not further deteriorates significantly, our original 2020 GMV target is still – we think is still achievable. And as I said, we will continuously to – although there might be some macro slowdown or uncertainties ahead of us, but our strategy is clear, we see huge potential, we are optimistic on the future growth of China's economy. So that's why we will continuously to make investment in service, technology, as well as in the cost-efficient sales and marketing channels to further expand our leadership here in the markets, in travel markets. Thank you.

Operator

Thank you very much. Mr. James Lee from Mizuho Securities. Sir, please go ahead.

James Lee

Thanks for taking my questions. Jane, I was wondering maybe you can talk about competition with Meituan a little bit. And maybe you can talk about from their perspective, their subsidy strategy in high-star hotels. Where are they now? Do you see a need to respond? And just curious why or why not. And can you also talk about your own strategy in the low-star hotels, where are you now versus Meituan and do you need to step on the gas here? Thanks.

Jane Jie Sun - Ctrip.com International Ltd.

Sure. I think we focus mainly on what our customer is looking for and develop our strategy really circling around our customer. So what we have seen is on our platform, our customers' age right now, 70% of our customers are below 35-years-old. And the loyalty and the stickiness have been increasing every year. And included in this portfolio, the customers that below 29 have been increasing from the original 30% to around the 50% right now. So that is very healthy migration from a pure business customer to a more diversified customers. So our number in the results also reflected our focus. So for Ctrip, our high and reliable service attracts the business travelers very well, as well as the middle to high-end customers very well. And their contribution to our platform every year has increasing. Right now, we have seen on average RMB 5,000 per year per person on our spending. And that number has been increasing year over year. That's a reflection of our strength. Secondly, our marketing strategy is also not only focused on the stronghold for Ctrip in the first tier cities and economic developed cities, we also look at the other third tier, fourth tier cities. So on Ctrip brand, as we disclosed, the year-over-year growth for volume is more than 50% in these low-end hotels. So for us, the high-end customers in first tier cities, we really win because of our one-stop shopping platform and a strong customer service capability. For the fourth tier, fifth tier cities, we win really because we are very aggressive in penetrating into these new areas, and we have seen very good results from these areas. And thirdly, I think our product is also very innovative. We sold such a comprehensive offer of different products. So when we launch high-speed railway packages, these high-speed tickets enable us to reach to the cities, which will take in the old days maybe four, five hours to reach. Now, within one hour, two hours, our customer will be able to reach. So that give us anchor for us to use our product as an anchor to effectively convert these customers onto Ctrip's platform. And we also have seen great results for that. So in summary, I think, again, Ctrip's strength is always technology investment, one-stop shop platform, product innovation, and a strong customer service reliability. So these items year-in, year-out represents Ctrip's strengths and we'll compete by utilizing these strengths. Thank you.

James Lee

And just a quick follow-up question, Jane. Thanks for your answer. So it sounds like you don't need to change your subsidy strategy or discounting strategy very meaningfully for high-star hotels, because you have a strong hold in that market in a low tier – low-star hotels, because you have a strong value proposition there. Is that a fair assumption? And also, and secondly, maybe help us understand how your call center asset are actually very important competitive advantage in high-star hotels? Thanks.

Jane Jie Sun - Ctrip.com International Ltd.

Yeah. I think our team is very agile. We monitor the market very carefully, but we always compete our strengths, which is we talked about the product offering, one-stop shop, penetrate into the low market through our product innovation. I think year-in, year-out, everything. We start our business, there were lots of competitors. And using price competition, can win market share, but cannot win in the long-term. So I think the – we, again, we will win the market and customer loyalty based on our strengths of customer service, technology investment, product innovation, and service.

James Lee

Great. Thanks so much.

Jane Jie Sun - Ctrip.com International Ltd.

Thanks.

Operator

Thank you. Ms. Tian Hou from T.H. Capital. Please go ahead.

Tian X. Hou - T. H. Capital LLC

Good morning, James and Jane, Cindy and Victor. My question is related to the accessibility of your services. Like James said, China urbanization is still – it has long way to go and also we have a lot of population to grow, second baby, third baby. And Ctrip services actually mainly are in the major cities. And it's like which we all know, when we go to lower-tier cities, you ask people what is a Ctrip, they may say in Chinese is the mole of the shoes. So I wonder how Ctrip is going to make your services accessible by those lower-tier cities? And you have been doing some efforts in that front. I wonder if you can give us some elaboration or introduction about your past efforts and the results, as well as your future steps to increase your accessibility towards existing population and the future growing population. Thank you.

Jane Jie Sun - Ctrip.com International Ltd.

Thank you, Tian. So in the lower end of the market, given all out (57:46) penetration is still quite low so at current stage, yes, Ctrip's top priority in this segment will be more aggressively gaining market share. Even in the short-term, it might be at the expense of taking lower take rates. As James explained, Ctrip actually, our one of the competitive advantage for us now is to – already built a travel super app in the China market. We have the most comprehensive product offerings, not only to cover the mid to high end of the markets, but also we have like ferry ticket, bus ticket, all kind of products that fits perfectly for those targeted lower end of the customer need. And Ctrip App now – and according to our cohort data, we have been able to also increase our average travel spending for each year by multiple fold, resulting in our repeating customer accounts for more than 80% of the total transactions. And this one-stop shopping center model, the super app model also significantly help us in terms of user acquisitions. So our mobile customer acquisition cost is only a very, very small fraction of our average annual commission we earn per user. Even though most of new users actually already coming from the lower tier cities, thanks to the very comprehensive product offerings that fits their demand. Yeah, James.

James Jianzhang Liang - Ctrip.com International Ltd.

Let me just add one more thing. I think for lower tier cities, train, high-speed railway will be the most important transportation tool. And Ctrip is very well-positioned to leverage strength in train products and the recently launched high-speed rail tour product. As you know, Ctrip has the highest market share and fastest – it's still a very fast growth in the high-speed train, since we launched high-speed train tour product.

Tian X. Hou - T. H. Capital LLC

Thank you. Okay. Go on.

Jane Jie Sun - Ctrip.com International Ltd.

So in summary, by adding all travel-related products and services into our super travel app, we will make sure that once our customer have the real travel demands, they will definitely find either Ctrip or Qunar will be their first choice. Thank you.

Operator

Thank you very much. I will now hand the session back to Victor Tseng for closing remarks. Please go ahead, sir.

Victor Tseng - Ctrip.com International Ltd.

Thanks everyone for joining us today. You can find a transcript and webcast of today's call on ir.ctrip.com. We look forward to speaking with you on the fourth quarter 2018 earnings call. Thank you and have a good day.

Jane Jie Sun - Ctrip.com International Ltd.

Thank you.

Cindy Xiaofan Wang - Ctrip.com International Ltd.

Thank you.

Victor Tseng - Ctrip.com International Ltd.

Bye.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participation. You may now disconnect. Thank you.