Trip.com Group Limited (TCOM) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Trip.com Group Special Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Michelle Qi, IR Director. Please go ahead.

Thank you. Good morning, and good evening, everyone. Thank you for joining us on such short notice. We appreciate your participation today. The purpose of today's conference call is to discuss administrative penalty decision issued by the State Administration for Market Regulation of the People's Republic of China in connection with its antitrust investigation of Trip.com Group and to provide additional context regarding the company's response and next steps. Before we begin, please note that today's discussion may contain forward-looking statements including statements regarding the regulatory actions and the potential impact on Trip.com Group's future business development and financial performance. These statements are 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, and actual results may differ materially from those expressed or implied in these statements. A number of potential risks and uncertainties are described in Trip.com Group's public filings with the U.S. Securities and Exchange Commission. Trip.com undertakes no obligation to update any forward-looking statements, except as required by applicable law. Joining me today on the call are Ms. Jane Sun, Chief Executive Officer; and Ms. Cindy Wang, Chief Financial Officer. Jane will provide a brief opening statement followed by a Q&A session. With that, I will turn the call over to Jane. Jane, please.

Thank you, Michelle. Hello, everyone. Thank you all for joining us today. As you are aware, over the weekend, Trip.com Group received the administrative decision issued by the state administration for market regulation of the People's Republic of China. We sincerely accept the decision and will fully comply with the requirements set forth by the regulator. We appreciate the guidance provided throughout this process. and remain committed to conducting our business in a manner that supports the healthy, orderly and sustainable development of China's travel industry. We view this moment not as a disruption, but as an opportunity to further strengthen our business. It marks an important milestone as we continue to refine our operating model and ensure it remains aligned with China's evolving regulatory and industry environment. More importantly, it reinforces our long-term focus on sustainable and high-quality growth. Over the past several months, we have already been upgrading our operational practices to better align with the evolving industry standards and proactively shifting our focus towards sustainable value-driven competition. We believe long-term success depends on creating value for merchants, consumers and the broader travel industry. With this long-term perspective, we're implementing several strategic initiatives to further strengthen our platform, enhance partner collaboration and create a more sustainable value for all stakeholders. First, we're evolving our partnership model towards a more transparent, balanced and sustainable partnership structure that better supports the long-term interest of our partners and our broader travel ecosystem. We are creating our Tier 1 delegated -- we are seizing our Tier 1 delegated distribution program. Our related partner will transition to a new multi-tier partnership framework designed to promote greater flexibility, transparency and shared growth. Second, we're refining our pricing ecosystem. We're discontinuing Tier 2 delegated distribution program and continuing to enhance our platform mechanism. Earlier in March this year, we voluntarily decommissioned our automated pricing tool and strengthened our pricing management processes as part of our efforts to foster a healthier competitive environment. By encouraging healthy competition across a broader range of factors, including service quality, product differentiation, customer experience and overall partner performance, we aim to support more sustainable industry development. and create greater long-term value for consumers and partners. Third, we're further strengthening our partner ecosystem. We are optimizing platform rules to improve transparency and ensure partners have clearer visibility into relevant policies and options. We're also streamlining promotional activities to reduce operational complexity for our partners. At the same time, we'll continue investing in data capabilities technology services and international marketing to support and help our partners improve service, quality and capture new growth opportunities. Fourth, we remain committed to enhancing consumer protection. We continue to strengthen our data security and personal information protection practices, while ensuring that our technology and algorithms are developed and applied responsibly. We are committed to providing consumers with transparent trustworthy services and continuously improving users' experience based on consumer feedback. Finally, we're enhancing our antitrust compliance management system, including strengthening the role of our compliance committee established a normalized antitrust sales assessment mechanism enhancing company-wide training, embedding compliance consideration into every stage of product development and daily operations. We remain firmly committed to operating in accordance with applicable laws and regulations while supporting the long-term development of China's travel industry. We believe that a healthy, open and high-quality ecosystem will create lasting value for our powerless, partners, shareholders and society. Again, thank you for your continued trust and support. With that, we will now open the floor for your questions.

[Operator Instructions] The first question comes from the line of Yang Liu from Morgan Stanley.

My question is with the SAMR decision now delivered, can we consider regulatory risk for Trip.com Group fully behind us? Or are there remaining areas of confirmed?

Thank you for your questions. The decision represents the conclusion of the SAMR investigation, and it is an important milestone for our China domestic business practices. The SAMR provided guidance on the required operational adjustments, and we sincerely accept the decision and are fully committed to implementing the ratification measures in a timely and a comprehensive manner. We view this as an opportunity to further strengthen our governance framework and support long-term development of our business. We remain committed to creating long-term value for partners and users by fostering competition based on service quality and user experience and contributing to a healthier and more sustainable travel ecosystem. Like other leading technology and platform companies around the world, compliance will remain an important part of our day-to-day operations. and we'll continue to work constructively with regulators while delivering value to our shareholders, the industry and the society at large. Thank you.

We will now move to the next question. And our next question comes from the line of Alex Yao of JPMorgan.

So what will replace the former Tier 1 and Tier 2 delegated distribution programs? And with the new arrangements, what prevents hotels from shifting the inventory or lower prices on to competing platforms? And lastly, how should the investors think about the impact on your hotel ADR and take rate?

Thank you, Alex, for your question. Firstly, we believe the decision aims to promote a healthy and more sustainable competitive environment across the industry. And we will continue to work with all hotel partners under a new multitiered partnership framework that promotes greater flexibility, transparency and shared growth. Under our T2 strategy, which focus on first globalization; second, great quality. We will strive to build long-term value to our hotel partners by helping them reach a broad base of high-quality leisure and business travelers and driving incremental demand across multiple travel scenarios, such as inbound travel, the silver generation travel as well as event-driven travel. For travelers, we remain focused on delivering the best overall value through our comprehensive one-stop travel ecosystem and trusted services. Our our average daily rate or the ADR will continue to be driven primarily by market, supplier and demand, and we do not expect these changes to fundamentally alter the dynamic. Similarly, our take rate reflects the overall value we created for travelers and hotel partners with normal fluctuations driven primarily by product mix, promotional activities and partner incentive programs. Thank you.

We will now move to the next question. And our next question comes from the line of Simon Cheung of Goldman Sachs.