Thank you for standing by and welcome to the Trip.com 2021 Q3 Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Michelle Qi, Trip.com IR Director. Please go ahead.

Thank you, Darcy. Thank you, all. Good morning and good evening. Welcome to Trip.com's 2021 Q3 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 Trip.com Group's public filings with the Securities and Exchange Commission. Trip.com Group 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 2021 as well as an outlook for the fourth quarter of 2021. After the prepared remarks, we will have a Q&A session. With that, I will turn the call over to James. James, please.

Thank you, Michelle and thank you everyone for joining us on the call today. In the third quarter we were glad to see the world that continues to transition towards normalcy. Thanks to the rapid vaccine rollouts and easing of travel curbs, people are more comfortable with traveling and are able to do more in destinations. The Chinese domestic travel markets have seen recovery take shape and Europe and the United States have reopened their borders to fully vaccinated travelers. These initial progressive packages have helped to facilitate [indiscernible] and travel within the continent. We are also happy to see many countries have adopted travel best policies to smoothen out for international travel and tourism. In China, the spread of Delta variant, beginning at the end of July disrupted the summer vacation season and hence suppressed travel momentum in the winter. The vaccination rate in the country continues to raise with the expectation that over 85% of the Chinese population will be fully vaccinated early next year. The high vaccination rates and the national rollout of booster shots will help us build resilience to pandemic challenges. The recent discovery of Omicron variant may have started a new round of global concern and has once again given rise to also some travel restrictions. Pandemic concern continues to be an ongoing issue for consumers and investors alike in the next year. It was believed that many [indiscernible] in the face of change is the key to hold on pandemic impacts. We will continue to adopt a new circulation strategy to focus on both, the Chinese domestic and the global travel markets. The [indiscernible] has changed these new opportunities [indiscernible] changing market conditions. In China domestic markets remain focused on qualifying supply chains to enrich our product offerings to cover more user cases…

Thank you, James. Good morning, everyone. I would like to start with a brief overview of our performance in the past quarter and updates on our strategic focuses. In the third quarter, our total net revenue remained stable year-over-year and decreased by 9% quarter-over-quarter, mainly due to natural disasters and the new rounds of infections, which affect multiple provinces in China. We are glad to see the world moving ahead in normalizing international tourism. Yet, the road to global recovery is not without ups and downs. The performance of travel markets in major economies has been diverted, but China's travel market has been frequently interrupted by the resurgences of COVID cases. It has witnessed a strong recovery in July until natural disasters and the Delta variant emerged to slow it down. Industry wise, the hotel occupancy rates and air ticket bookings in Q3 were down by around 30% when compared to the pre-COVID 2019 level for market performances. Nevertheless, our domestic hotel business was able to outpace the market performance by 20% to 25% and our domestic air ticket booking recovery was much higher than the market levels as well. The global market, on the other hand, has been making great progresses in returning to normalcy, especially in Europe and United States. Air ticket bookings in these markets made some major strides towards pre-pandemic levels in the past month. While the global flight volume was still below 2019 level, Trip.com's overall international air ticket booking has increased by around 40% quarter-over-quarter, with air ticket bookings in Europe growing by 170%. Skyscanner also saw air ticket bookings increased by approximately 100% year-over-year, and around 35% quarter-over-quarter. While COVID 19 pandemic has negatively affected the travel industry, there is no doubt the industry will emerge out from the trenches and come back…

Thanks Jane. Good morning everyone. For the third quarter of 2021, Trip.com Group reported net revenue of RMB5.3 billion, representing a 2% decrease year-over-year, and 9% decrease quarter-over-quarter, primarily due to the influence of natural disasters and new round of pandemic outbreak in multiple regions of China. Accommodation reservation revenue for the third quarter of 2021 was RMB2.2 billion, representing 11% decrease year-over-year and 11% decrease quarter-over-quarter recovering to 53% of the 2019 level. This is a net result of steady growth in July, offset it by the disruption of natural disasters and resurgence of COVID cases spreading over multiple provinces beginning at the end of July. Our China domestic hotel bookings have seen high single digit growth year-over-year, while ADR and blended take rates are both affected by the depressed demand. Transportation ticketing revenue for the third quarter of 2021 was RMB1.8 billion, representing a 5% decrease year-over-year and 12% decrease quarter-over-quarter, recovering to 49% of the 2019 level, among which domestic transportations recovery momentum was disrupted by bad -- natural disasters and resurgence of COVID cases in summer, while international air ticket bookings increased by approximately 40% when compared to the previous quarter, mainly contributed by the recovery in Europe. Packaged tour revenue for the third quarter of 2021 was RMB392 million, representing a 20% increase year-over-year and 7% increase quarter-over-quarter, recovering to 24% of the 2019 level. This was contributed by an increase of leisure travel demand in July before the new round of pandemic outbreak. Corporate travel revenue for the third quarter of 2021 was RMB338 million, representing a 20% increase year-over-year and 13% decrease quarter-over-quarter, slightly higher than 2019 level. This segment continues to gain momentum as a result of the expanding user base and improving cross selling from transportation to accommodation. Gross margin was…

Thank you. [Operator Instructions] Your first question comes from Thomas Chong from Jefferies. Please go ahead.

Hi, James, Jane, Cindy, good morning. Thanks for taking my questions. Can you share some color about the company's spend for the international business. How do you think about the pace of recovery in open travel as the restrictions are lift? Thank you.

In the recent months, many countries have adopted broader reopening plans to relax travel restrictions. More and more people are back on the road and travel further. Though some countries have tightened restrictions recently due to the Omicron variant, the temporary turbulence will not change the ultimate trend of travel recovery. Under normal conditions, we may see China gradually relax inbound and outbound travel policies in the second half of 2022. The process reopening is expected to begin with Mainland China reconnecting with Hong Kong and then international openings with other international markets. The pace is largely depending on the relaxation rates and the pandemic control capability in related markets. We'll continue to enhance our product and service competitiveness in the domestic market and we're fully prepared for the recovery of international markets. In the past two years Trip.com Group has demonstrated its resilience by leading the industry recovery despite COVID headwinds, making us a stronger company. We believe that our local focus, global vision strategy will revive our sustainable growth in the long run.

Thank you. Your next question comes from James Lee from Mizuho. Please go ahead.

Great. Thanks for taking my questions. Two quick ones here. Hi, Jane. How should we think about maybe the travel activity heading into Chinese New Year that being first, and second for, I think outbound travel to Hong Kong, any early read that you're seeing on consumer demand and behavior there? Thank you.

Yes, thanks, James. The opening up of Macau really provides a very good leading indicator for further consideration of Hong Kong. So we were just in Macau, holding our Global Partnership Committee and the control of the virus over there is being conducted very well. So that provides everyone in the travel industry some experience as to what will happen if Hong Kong opens up. So we are very much looking forward to a very good control of the virus in Hong Kong continuously. And with that condition, there might be good consideration for opening up of Hong Kong. And that also connects to our plan for the Chinese New Year. Historically, this Hong Kong is a very popular travel destination for Chinese New Year as people try to go visit different cities and doing some shopping in Hong Kong. So hopefully, there will be enough supporting evidence as to the well controlled environment, both in Mainland China and in Hong Kong, which gives us the support to further consideration of opening up Hong Kong in addition to Macau. Thank you.

Great, thank you.

Thanks.

Thank you. Your next question comes from Brian Gong from Citi. Please go ahead.

Thanks James, Jane, Cindy and Michelle for taking my question. So my question is about domestic travel expectation. So how does management see the travel performance outlook in first quarter 2021 and next year or first quarter next year with some local government right now encouraging people not to travel across regions and Winter Olympics held in March, should we still expect domestic performance to be dragged by travel restriction, and also with a low base in the second half of this year should we see more normalized year-on-year growth in the second half next year for domestic market? Thank you.

Yes, so what we have seen for the domestic travel is four S, by saying four S, we have seen people are paying more attention to safety. So we encourage our suppliers to make sure they have very good safety measures such as providing hand sanitizers, masks to our travelers. The second S is most people prefer to travel with much smaller groups rather than big groups. So, normally our customized tool is selling very well. Our customers prefer to hire car and to ride with family van to take their family around. The third S is with a much short booking results because of the virus control a lot of time we will get notifications from different destinations. So, the booking window we have seen is much shorter. And the last one of the four S is short distance. So what we have seen is people prefer to travel nearby their home town, anywhere within the 300 kilo becomes the radius. People feel more comfortable to travel to. And also we have seen young generation prefer to travel much more. So we have seen the young spenders who were born in 90s and Generation Z travel quite a lot. So these are the trends we have seen so far. Again, I think a lot of it will be depending on how well the virus is being controlled during the first quarter and the second quarter. However, these demands are not disappearing from our data of the search. Customers pent up demand is accumulating and very strong just as what we saw in May holiday this year, the search of the demand is very strong. So we are very hopeful that the vaccination rate will be continuously increasing, the measures of the virus control will prove to be effective, and then gradually the market will increase. So your assessment, the second half of 2022 will be stronger than the first half we very much hope so. Thank you.

Thank you. Your next question comes from Ronald Keung from Goldman Sachs. Please go ahead.

Thank you. Thank you, James, Jane, Cindy and Michelle. My question is more on, if the recent travel patterns that we saw in recent months last for longer and with Omicron and governments dynamics zero COVID strategies, then how does management see the trajectory for domestic and international travel in 2022 if the recent trends last longer, and how will we plan our costs accordingly, and implications to either cash flows or margins in the next one to two years? Thank you.

Thank you. Yes, thank you, Ron. Our margin actually decided by both the top line as well as the cost to control, our cost to control on the top line on the revenue side. Of course, we are in the travel industry so our performance will be pretty much decided by the industry growth. However, as always, we will do our best to continuously outpace the industry growth for example, in the third quarter, this year, we outpace the 10% to 20% at least for different segments compared with the industry growth in the travel industry. On the cost side, we will continuously to weather the COVID to weather the storm, we have to have a very disciplined cost policies cost structures to weather the storm. Firstly, we have very strong cash position. At the end of Q3, we have about U.S. $10.5 billion in the cash balance, which probably is the best among one of the best in the travel industry. Then secondly, on the cost side, our total adjusted costs and operating expenses actually decreased by more than 35% in Q3 compared with before COVID level, thanks to our very largely flexible cost expenses structure, and as well as efficient operating management. During the past few quarters, we streamlined our operations across different business lines, in addition to certain adjustments related to the COVID. And in addition, our improvements on the content cross-selling and technology have further lifted our marketing efficiencies. In terms of the cost trend, going forward we will expect a very modest increase in the personnel expenses only in our international markets. And for the domestic markets, we expect our total headcount will be pretty much stable, especially for our core businesses. But we need to add some investment just to capture the pent-up demand that has already been seen in the international market, especially in the Europe market. On the sales, marketing expenses, we will continuously to adapt -- adopt and our ROI driven strategy. And we will have very disciplined policies in terms of sales and marketing spending, both for the domestic China market as well as for the international market.

Thank you.

Thank you. [Operator Instructions] Your next question comes from Alex Yao from JPMorgan. Please go ahead.

Hi, good morning management. Thank you for taking my question. I have a question on the investment activities. So in light of the potential we opened in China, and also more regions and the markets in the rest of the world, are you guys contemplating any additional and new investments activity to capture those are reopening opportunities? Thank you.

Yes, so thanks, Alex. In terms of investment strategy, historically we're very disciplined. There are three principles we adhere to. First of all, it needs to be very closely related to our core competence. And secondly, we need to really look for the companies that is number one, or number two in their verticals and certainly the valuation needs to be very reasonable. So historically, we are very, very selective and very careful in terms of our investment. However, in terms of our organic investments in our core competence for the long-term investment, such as technology, and services and products, we're taking advantage of this slow season to make sure we focus on the projects, which were strengthening our competitiveness in the long-term. So with limited resources, we're also prioritizing our internal projects to make sure we give the priority for the projects which will extend our competence in the long run. Thank you.

Thank you. There are no further questions at this time. I'll now hand back for closing remarks.

Thank you everyone for joining us today. You can find the transcript and webcast of today's call on investors.trip.com. We look forward to speaking with you on our fourth quarter 2021 earnings calls. Thank you and have a good day.

Thank you very much.

Thank you.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.