Tongcheng Travel Holdings Limited Q1 FY2026 earnings call

### Industry Context - China's travel industry sustained strong growth in 2026, driven by structural shifts in consumer demand and new favorable national holiday policies that add spring and autumn breaks, reducing peak/off-peak season segmentation and stimulating travel consumption. - Personalized experiential travel has become a mainstream trend, with younger consumers increasingly viewing travel as an essential lifestyle need rather than discretionary spending, reshaping industry product design and value chains.

- Core OTA Business Execution - Implemented targeted user segmentation and tiered engagement to boost purchase frequency and user loyalty; prioritized curated unique travel experiences to strengthen market leadership among key demographics. - Expanded international accommodation supplier partnerships, leveraged domestic cross-selling and targeted marketing to drive robust growth in international room nights sold. Solidified international air ticketing brand recognition through competitive pricing and high-quality services, achieving resilient volume and revenue growth. - Enhanced user experience via the algorithm-driven Huixing end-to-end travel solution for peak periods; launched youth-focused features like the weekly travel fortune to boost brand mind share among younger users. - Grew stand-alone app DAUs by over 20% YoY, and expanded social media influencer and content marketing to reach younger travelers. Upgraded the loyalty program to a personalized dynamic platinum membership system, boosting high-value user engagement, stickiness, and repurchase rates. - As of 12 months ended March 2026, annual paying users hit a record 254 million, with annual ARPU climbing to ~RMB 79, up 9.2% YoY, and average 8 purchases per user annually. MPUs for Q1 reached 46 million.

- Hotel Management Business (Second Growth Driver) - Expanded the hotel network rapidly: as of end-Q1, over 3,200 hotels are in operation with more than 1,900 in the pipeline. Elong Hotel Technology focuses on established hotel brands and exports AI-driven full-lifecycle digital operational solutions to boost efficiency. - Wanda Hotels and Resorts accelerated nationwide expansion, with its luxury properties hosting multiple heads of state and winning a 2025 IIDA Best of Asia Pacific Design Award for innovative cultural-modern design integration.

- AI Innovation - Proactively leverages AI as a growth opportunity rather than a threat. Proprietary AI agent DeepTrip has expanded capabilities: it interprets ambiguous user queries to recommend relevant travel options, accelerates conversion, and has been integrated with bus ticketing and air ticketing services to deliver end-to-end AI solutions. - DeepTrip has been deployed on third-party AI platforms (Skillhub, ClawHub) to capture new distribution opportunities. AI is embedded end-to-end in customer service, automating general inquiries and adding real-time simultaneous interpretation to eliminate language barriers for global users.

- ESG and Social Responsibility - Activated an emergency response team after the outbreak of Middle East conflicts to safeguard traveling users. Received S&P Global's 'Industry Mover' award for the second consecutive year, and was included in the S&P Global Sustainability Yearbook China for the fourth consecutive year.

Total company revenue in Q1 2026 was RMB 5 billion, a 14.4% year-over-year increase. Adjusted net profit was RMB 941 million, up 19.4% YoY. Core OTA business revenue was RMB 4.4 billion (88% of total revenue), growing 17.3% YoY: - Accommodation reservation: Revenue of RMB 1.4 billion (28% of total revenue), up 14.7% YoY, driven by growth in room nights sold and ADR, with a stable net take rate YoY. The share of high-quality hotel room nights sold rose 4 percentage points YoY. - Transportation ticketing: Revenue of RMB 2.1 billion (42% of total revenue), up 6.2% YoY. International air ticketing contributed 6.5% of total transportation ticketing revenue, delivering resilient growth despite regional geopolitical headwinds. - Tourism business: Revenue of RMB 556 million, down 5.0% YoY, due to dampened demand for outbound package tours from geopolitical risk. Operating profit margin for the tourism business was 3.4%. - Other business: Revenue of RMB 961 million (19.2% of total revenue), up 59.6% YoY, driven by strong performance of the hotel management business and consolidation of Wanda Hotels and Resorts. Core OTA business operating profit margin was 29.3%. Total gross profit was RMB 3.5 billion, up 16.1% YoY; adjusted EBITDA was RMB 1.4 billion, up 19.8% YoY.

- Management maintains a positive overall outlook for the China travel industry and Tongcheng Travel's full-year 2026 performance, noting that newly implemented spring and autumn breaks have already driven solid demand during the Qingming and Labor Day holidays, and structural demand shifts have made travel a resilient staple even amid macro uncertainty. - For Q2 2026: The transportation segment is expected to face year-over-year growth pressure from higher airfares and reduced flight capacity dampening long-haul demand, but this impact will be partially offset by revenue growth from short-distance transportation services (airport transfer, car rental, ride sharing) via cross-selling and one-stop shop strategy. Accommodation segment growth will be supported by strong short-haul travel demand, with growth driven by both volume expansion and ADR increases. Other revenue will maintain solid growth driven by hotel management expansion and membership program contributions. Adjusted net margin is expected to improve year-over-year, reflecting operational flexibility and disciplined cost control. - For full-year 2026: Management expects to deliver full-year margin improvement, driven by ongoing operating efficiency optimization, expanded AI adoption, and disciplined marketing investment allocation. Outbound business and stand-alone app revenue growth momentum, which outperformed expectations in Q1 and Q2, is expected to continue for the rest of 2026, with outbound contributing nearly 6% of accommodation and transportation segment revenue, and stand-alone apps contributing nearly 9% of total revenue by Q2. - ADR growth for Tongcheng's accommodation segment is expected to remain a positive tailwind for revenue growth in coming quarters, supported by ongoing ongoing mix improvement toward higher-quality hotels, with net take rate expected to remain stable and healthy.

- Geopolitical tensions in the Middle East have pushed up global oil prices, leading to higher fuel surcharges and airfares that have dampened air travel demand, particularly for price-sensitive consumers, and created near-term growth pressure for the transportation ticketing segment starting in May 2026. - Geopolitical risk has reduced demand for outbound package tours, leading to a 5% year-over-year revenue decline in the tourism segment in Q1 2026, and continues to create headwinds for some outbound travel segments. - 12306 (China's national train ticketing platform) has strengthened regulation of OTA train ticketing services, restricting express ticketing offerings, though the revenue impact has already been largely offset by growth in other transportation solutions. - Competition from emerging AI agent distribution channels is a potential industry shift, though management notes that current AI traffic contribution remains immaterial, and AI has inherent limitations handling complex high-value travel transactions that benefit established OTA capabilities. - The hotel management business is still in an early expansion stage, with blended margins currently below leading industry peers; profitability is expected to improve gradually as scale grows, but near-term margins remain depressed due to ongoing investment.

Q: What were recent market trends through the Labor Day holiday, what is the 2H 2026 outlook, and what are Q2 segment performance and take rate expectations? / A: During Labor Day, national rail passenger volume grew 4% YoY, but daily air passenger volume fell 5-6% YoY due to higher airfares from Middle East tensions, dampening long-haul travel while short-haul and staycation demand remained strong. Tongcheng's accommodation business grew healthily, with revenue growth outpacing room night growth, high-quality hotels outperforming low-tier properties, and ADR growing at a single-digit rate; outbound accommodation room nights grew nearly 50% YoY. Management expects transportation segment growth pressure in Q2 2026, but short-distance transportation revenue will partially offset this, while accommodation will deliver solid growth from strong short-haul demand. Outbound business and standalone apps have outperformed expectations and will continue growing through 2026.

Q: What is the impact of 12306's new regulations on OTA train ticketing, and what is the impact of higher airfares on demand and Tongcheng's business? / A: Train ticketing's contribution to OTA revenue has fallen from ~35% in 2018 to under 20% in recent quarters, with express ticketing accounting for only a low single-digit percentage of transportation revenue, so the impact is already offset by growth in other transportation solutions. Tongcheng will continue optimizing the Huixing system to provide multi-modal alternative travel options, and streamline transportation costs to protect profitability. Higher airfares have created short-term pressure, but this is mostly a substitution effect rather than a total demand decline, with most travelers shifting to rail or driving; Tongcine has responded by improving pricing recommendation tools to help users navigate volatility, and tightened transportation costs to protect near-term and long-term margins.

Q: Why did selling and marketing expense as a percentage of revenue rise in Q1, what is the full-year cost and margin outlook, and what is the current margin of the hotel management business and when will it converge to industry levels? / A: Marketing spend was increased selectively in Q1 to capture strong pre-holiday booking demand for the extended Spring Festival, while overall operating efficiency improved as service development and G&A costs as a share of revenue fell ~1 percentage point YoY, driving adjusted net margin expansion. In Q2, marketing spend was reallocated from transportation to accommodation to capture short-haul demand, and adjusted net margin is still expected to grow YoY; full-year 2026 margin improvement is still expected via AI-driven efficiency and better investment allocation. For hotel management, the early-stage Elong Hotel Technology platform has lower margins than peers as it prioritizes expansion, while mature Wanda Hotels and Resorts has margins comparable to leading global hotel groups. Wanda's consolidation already improved overall segment margins, and profitability will gradually improve as scale grows and direct sales membership capabilities strengthen.

Q: How will AI agents impact OTA traffic acquisition and user behavior, and what is Tongcheng's AI ecosystem positioning? What is the outlook for accommodation ADR growth after the slight industry ADR decline in Labor Day? / A: Management views AI agents as a new interaction interface rather than a replacement for existing OTA channels, as complex high-value travel still relies on OTAs' inventory management and service fulfillment capabilities. At this stage, AI traffic contribution is still small with no material impact. Tongcheng is positioning as a trusted travel service partner in AI ecosystems, embedding DeepTrip in external AI platforms while retaining direct user relationships and transaction data within its own ecosystem, and leveraging its long-standing Tencent partnership to capture AI-driven traffic growth within the Tencent ecosystem. While industry same-store ADR dipped slightly in Labor Day, Tongcheng's blended ADR continues to grow, driven by ongoing mix upgrades to higher-quality hotels (which still have significant room to grow share on the platform), so ADR growth will remain a tailwind for accommodation revenue for the foreseeable future, with take rate remaining stable.