Ladies and gentlemen, welcome to the Second Quarter 2018 Ctrip.com International, Limited Earnings Conference Call. My name is Celina, 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 Tseng, to begin. Victor, over to you..

Thank you. Good morning and welcome to Ctrip's second 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 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 second quarter of 2018, as well as the outlook for the third quarter of 2018. After their prepared remarks, we will have a Q&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 announced that Ctrip delivered solid results in the second quarter of 2018 in line with the principles I discussed in the last earnings call. Our teams 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 investments 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.

First, we will aggressively drive new customer acquisition, our focus is twofold. First, continue to innovate in product services to fulfill ever changing demands of travelers. For instance, our data tells us that customers like to travel in families.

As a result we've introduced travel products that’s suitable for children and elderly with family friendly booking operator options.

Second, fully leverage our omni-channel travel strategy of more than 7,000 franchise 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. Second, will 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 end 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 demands during peak times, and in destination travel is growing over 50% year-over-year in the second quarter. We're seeing more engagements throughout the travel funnel and are already benefiting from those cross selling opportunities.

For example, with AI train [ph] cross selling ratio increased significantly from a single-digit to over 20% in the past couple of years. With AI in a smarter product innovation, there will still much room to improve our capability to service our customer throughout their whole travel itinerary. Third, we 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, program to reward our loyal members with a hotel booking discounts and extra benefits. The program already covers tens of thousands domestic hotels in to-date, so we've helped save our customers an average over RMB2 million on daily basis.

In summary, we worked hard on this a large and loyal travel user base and cultivates a strong travel brand recognition. These efforts are unparalleled in the travel industry. And our work is half undone.

With a vast pool of potential new customers in front of us and the 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'll turn the call over to Jane..

Thanks, James. Ctrip reported solid results in the second quarter of 2018. In particular accommodation revenue grow 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.

And meanwhile, we are aggressively gaining market share in the low-star hotel market. We're also helping hotel operators boost sales with our intelligent hotel booking system, while further strengthening our price competitiveness in a low-star hotel category.

These efforts helped to derive accelerated year-over-year volume growth of around 40% in the low-end hotel market. Transportation revenue grew 1% year-over-year. A strong volume growth across multi-model transportation product category 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 second quarter for both outbound travel and Trip.com. We are growing around 2 times faster than the overall Chinese all time growth rate.

Skyscanner’s total revenue maintained at a healthy pace of year-over-year growth of approximately 30% in the second quarter, driven largely by robust traffic growth. Non-GAAP operating profit of RMB1.2 billion, came at the high end of our second quarter guidance.

This is the testament of our scalability, which was offset by domestic ticketing process adjustment and our strong investments 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 improvement, supply empowerment and international expansion.

First, our customer -- our service improvement, unrivaled service quality is the key differentiator between Ctrip and other players. As James said earlier, Ctrip team have made great strides in identifying travelers pin points 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 refund for Visa and related air ticket fees in case customers’ Visa application is declined.

In addition, our air and hotel protection program promises free cancelation of hotel bookings, due to flight delays and cancelation, if customers book both hotel and flight ticket from Ctrip under our platform. We have promised to be proactively in tacking customers' problems, even if it is not contractually Ctrip’s responsibility.

Recently, we announced that, when a customer’s booking cancellation policy state it’s a non-cancellable hotel rooms on our platform we will provide a refund assistance, which Ctrip will negotiate with the hotel to reduce the loss on behalf of our customers. Second, 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 supplies 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 designed range of the courses, which help hotels to cultivate talent.

By the end of August, we have opened over 70 online offline course, which attract nearly 380,000 participants, with majority of them are in either hotel decision makers. On average, hotels that able to increase their GMV by 20% after they take the training process according to the feedback we received.

Child friendly rooms our 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 child friendly rooms to serve these travelers. Hotels can now choose the most child friendly rooms as a unique selling point on our platform.

As of today, we have helped co-develop a 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 customer 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 suppliers in lack of qualified trip planner, we planned this pioneering training program in May this year and to systematically cultivate the talent in this area with plans to recruit and train 3,000 plus customized trip planner a year. Third, our international business.

Trip.com and Skyscanner have both continued to make remarkable progresses in their respective targets to market. Trip.com continues to perform exceptionally well in the second quarter and has now achieved trip digit growth in air ticket volume for the seventh quarter consecutive quarter.

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 markets in the following months. This takes Trip.com another step closer to realizing one stop trip 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 of Skyscanner continued with 600% year-over-year growth, as more planners migrated to the platform.

While Trip.com has become the largest direct booking partners it still only contributes low single-digit percentage on Skyscanner's total worldwide bookings. 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 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's 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 trust and the support. With that, I will turn the call over to Cindy. And she will walk you through the details of our financials. Thank you..

Good evening everyone. For the second quarter 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 second quarter of 2018 was RMB2.8 billion, up 21% year-on-year primarily driven by increase in accommodation reservation volumes.

We further expanded our total global hotel coverage to close to 1.4 million properties, an increase of 26% compared with the same period last year. In the second quarter, international hotels obtained 40% room night year-over-year growth rate, more than doubling the outbound industry growth pace.

Transportation ticketing revenue for the second quarter of 2018 was RMB3 billion, 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 first quarter, revenue growth was offset by the decrease of per air ticket segment revenue, which is related to the operating adjustment we’ve discussed in previous quarters. We expect the situation will gradually improve in the second half of this year with comparatively easier comp.

We have continued to extend our multi-model transportation offering such as free air or shadow buses and airport parking vouchers. Today our full 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.

Packaged tour revenue for the second quarter 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 million in the GMV in a single day. What tells 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.

In destination activity 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 product in over 1,500 destinations all over the world. Making it one of the largest platform of its kind.

Also established an innovative product called boarding [ph] pass 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 costs, but also time when planning a trip. Corporate travel revenue for the second quarter of 2018 was RMB255 million, 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 for other business including our financial business.

The revenue contribution from financial products and services is still very small, but growing rapidly. We are mailing product consumers with financial products as part of our one stop travel shopping experience and the purpose is to enhance the conversion rate.

Given travels unique attributes and our very strong risk control management, this business has enjoyed very healthy profitability. Gross margin was 80% for the second quarter of 2018, compared to 83% in the same period last year. The decrease in gross margin was mainly due to the upgrade of service standards in every front of our business.

In order to be fully in compliance with the customer centric principles that James emphasized in the first quarter earnings call. Excluding stock-based compensation charges, total non-GAAP operating expenses grew 30.9% year-on-year and 6.1% quarter-over-quarter in the second quarter 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 million in the previous quarter. Non-GAAP operating margin for the second quarter was 16%, increased from 14% in the previous quarter, mainly related to operating efficiency improvement.

Diluted earnings per ADS were RMB3.89 or US$0.59. For the second quarter of 2018, excluding share-based compensation charges and fair value changes of equity security investments, non-GAAP diluted earnings per ADS were RMB1.9 or USD 0.29 for the second quarter 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 US$8.7 billion. Now, turning to the outlook.

For the third quarter 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 third quarter of 2018, under the new revenue recognition standard and the net revenue of the third quarter 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 will now begin the question-and-answer session. [Operator Instructions] Our first question, we have Alicia Yap from Citigroup. 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 environment in China. Many investor, I think especially the foreign investor are worrying whether China is slowing down.

And if this is true, how will Ctrip being impacted? And have you seen any of your business being affected by any softer consumer consumption pattern over the past few months.

In the events, if China economy’s 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 is recently a lot of pessimistic whether it’s about the Chinese economies, but I think we should really put things into long-term perspective. In the long run -- I am still very optimistic about the Chinese economy, because, if you look at per capita income, China is still only a fraction of that developed countries.

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 the similar level of income, for example, Thailand and Brazil and China will have a much better prospect of growth than these countries.

So if we believe the per capita level innovation and the industrialization is the key for future growth China will do well. Of course, recently there is some setbacks in terms of for example in export sector and because the consumption patterns were shifting to service and you will see some slowdown in the manufacturing sector.

But the overall wage growth and lower 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. We year, so far the pattern overall travel consumption has not slowed down significantly.

With 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 would likely to continue to invest very heavily in infrastructure like airports and high-speed railways and that's very good for our business.

And in the coming future we will heavily invest into developing these products, especially related to high-end domestic 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 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 Dean Strong [ph] 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 impact the margin? The reason I'm asking is that, if we look at international hotel you should have a bigger ticket size, but yet because we're 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 that impact us as it grow bigger, how does it impact our overall hotel margin? And then domestically [indiscernible] hotel, because I think management also give us some remarks in terms of how the growth in the low-end.

But recall like low-end actually has a lower margin rate in terms of the margin profile if we compared 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 and 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 have been in this market and most importantly we are the only company who have 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 continue to more than doubled the industry growth rate in the outbound hotel market segment. In the second quarter, we achieved over 40% of year-over-year growth.

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 would specifically focused on volume growth and market share gain. And Ctrip lowers staff hotel segment continuously to saw very strong volume growth at around 40% year-over-year as well.

So of course in terms of the profitability, the lower end has comparatively lower profitability, but the high-end market especially, the outbound the most profitable outbound hotel market we also has 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..

Our next question, we have John from Daiwa. 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 has the management think about the long-term, how to convert these lower tier city users to online platform, and hence drive the profitability in the long-term? And second, on Skyscanner if you could give a bit more detail about your direct booking revenue contribution, that’d great? Thank you..

Sure, so for Ctrip proposed domestic market as well as the international market represent great opportunities. First of all on the domestic market, as James said, the GDP per capita for China is rising and Ctrip is very well positioned in the first tier cities and state capitals and coastal cities.

However, as the GDP per capita grows it, we will further penetrate into the area which has strong growth in -- capital growth.

So, our strategies are couple 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 has a couple of functions, one 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 comprehensive product, and Ctrip 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 a 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 home town. 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 still our direct booking services on to their platform.

And so far based on our observation, the customer satisfaction rates 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 the customers’ retention, on the customers -- returning customers rates, 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 Eileen 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 some of the changes that took up with the domestic consumer spent being affected by the currency and to the outbound and how about the strategies for the Trip.com and Skyscanner to offset the risk? And if possible can management give us revenue contribution for the entire 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 target at mid to high-end customer pool. So that portion of the 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 friend.

First of all, the first book normally is international air ticket. 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 engine to calculate the fares, switching times as well as the pricing for our customers.

So that is why we grow very strongly in the international front and has become number one 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 engine we viewed 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 store [ph] for cars, rental cars to receive customers and bring them to the destinations.

And for the customers who booked 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, there also the service providers along the way. So when customers is travelling with Ctrip, we want to make sure they have peace of mind.

And recently, there were a lot of unexpected incidents globally. For example, there’s earthquake somewhere, our team will be able to reach 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 time.

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 zero. Now it becomes 25% to one-third of our total number..

Yes, for example, the accommodation international hotel accounts for about 20% to 25% of the total accommodation revenue and international air ticket now contribute over 40% -- or 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 industry grows in the past few years and we continue this growth trend.

And especially if there is any adjustment or slowdown in the industry it will be the best opportunity for a leader to be more aggressively gaining market share. Thank you..

Thank you..

Our next question, we have Wendy from Macquarie over to you..

Thank you. First, the gross margin further decline to 80% this quarter. So is this broaden of the gross margin and how should we think about in the longer term given the revenue mix change and also some of the initiatives that you are doing. And also you're 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 of the regulation [ph], 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 the margin in the longer term.

And lastly if you can some breakdown the Q3 revenue guidance that will be helpful. Thank you..

Thank you. There is a couple of reasons why you may be observed slightly decrease of the gross margin. The first reason is the deleverage due to the air ticket revenue adjustment, which do have some impact on the margins.

And the second reason is we opened a couple of overseas center to provide better local services to Skyscanner 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 velocities that James emphasized during the last earnings call.

Our team have been executing diligently to further enhance it in every front of our business. For example, now if a customer’s visa gets rejected, we will provide full refund of related air ticket and free cancellation of the first night hotel booking in any case of any flight delay or cancellation.

There is 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 scene do put continuous efforts to make sure all customers have the best service experience when booked through Ctrip.

These are just some initiatives which -- and sometimes even beyond our own contractual responsibility. And we have some short-term impact on the growth [Technical Difficulty] gross margin.

However we strongly believe that for 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 investments in service related technology.

For example now our AI-assisted chat bot 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, but 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 margin as we promised. Thank you.

Sorry, for the Q3 guidance. Our Q3 net revenue is back to growth at 13% to 18% year-on-year showing continuous improvement from the second quarter. Although we are still going through the tough comp base, because last Q3 was especially high base. But the negative impacts were gradually decreased towards the fourth quarter of this year.

In terms of the 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-on-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 18%. In terms of the -- I think it’s -- probably it’s still too early to give full year guidance, but because of this comparatively lower comp base in the fourth quarter of last year, we think our growth momentum will pick up a little bit in the fourth quarter. Thank you..

Thank you. Our next question, we have Amis [ph] from 86Research. Please go ahead..

Hi, good morning. This is Juan Lin from 86Research, thanks for taking my question. 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 business market share for revenue or volume contribution.

Also looks like domestic air ticketing revenue declined faster than in the first quarter 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 Trip.com? Thank you..

Yes, in terms of the growth trajectory for the domestic air ticket, we are still gaining market share and has a very healthy growth in terms of the volume. Of course the per ticket revenue was negatively impacted this 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 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 our Trip.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..

Thank you, Cindy. So that 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..

Hello, hi good morning management, thanks for taking our question. This is Hu Jong [ph] on behalf of Natalie. We have a quick question on the competition in hotel segment. Probably your major competitor has been trying to upsell its 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 -- low -- mid to high-end hotels, so our volume in this hotels would bring lots of volume through these hotels and we have seen very healthy growth, particularly when the economy has some slowdown as we discussed and also when the currency show some weakness, we have seen a 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 brand in the cities, which normally Ctrip has not touched. So we’re being 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 volumes as well as the revenue growth and we’ll keep up this momentum in both segments. Thank you..

Thank you..

Our next question, we have Gregory from Barclays. Please go ahead..

Hi, morning management. Thanks for taking my questions. So my question is about the currency some headwinds. So as you mentioned in the opening remarks, your outbound business seeing very solid growth. So I just wanted to understand the affect [ph] depreciation generates and the headwinds to your outbound travel demand.

And also as a quick follow-up, so would you please give us a more quantitative update of your mid and long-term revenue growth and margin expansion outlook? Thank you..

Yes, so outbound represents the mid to high-end consumers. And Ctrip always is very strong in this segment. When the 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 services are being enhanced every year.

So we are able to stand out during the time that the market show some weakness to gain market share. Thank you. Yes, in terms of the mid to long-term, we are consistent with the previous long-term guidance. By the year 2020 our total GMV were achieved around RMB1.2 trillion.

And with the continuous improvement in the 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 Jed 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 the industry growth rate? And then can you give us some guidance around your non-GAAP operating margin for third quarter?.

Sure. Given the early very still very, very early stage of our development stage. So at this current stage we will be still very focused on the market share gaining. 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 third quarter, 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 Jerry from UBS. Please go ahead..

Hey, thank you. My question is still on the operating margin, in the second quarter actually operating -- non-GAAP operating profits are little bit better than we thought and 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 in the next year or two as we get the 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 expenses efficiency?.

Yes, in terms of investment in acquiring new customer, we have a very consistent strategies where we'll look at return on investment in each of the sales and marketing channel. Once the channel can generate positive ROI for us, we work continuously to make investment 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 one to two years. Thank you..

Our next question, we have Peter [ph] 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 2 cities in particular with alternative accommodations in Airbnb? And then secondly, following up on a number of questions on the 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 first tier, second tier cities we're always very strong in these cities because our business start from here. Second, regarding alternative accommodation, Ctrip founded the largest alternative accommodation company in China, which is Tujia, and they are growing more than double-digits consecutively very healthy growth.

So I think we are also gaining lot of market share in alternative accommodations as well. Thirdly, regarding currency, we very prudently monetary 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 show some weakness Ctrip’s growth rate compared to the market growth rate will 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 there 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 is 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 the international air tickets serve the Chinese customers very well. And also it can serve the global customers very well.

So Trip.com pace to 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 director booking facilities on Skyscanner.

So wherever Skyscanner has a strong presence Trip.com also have gained lots on 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, et cetera.

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, while using the product on Trip.com. Thank you..

Thank you. That's all the time we have for questions, so I will hand this session back to Victor for closing remarks. Please go ahead, Mr. Victor..

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

Thank you..

Thank you..

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