Tongcheng Travel Holdings Ltd

HKEX:780

Earnings Call Transcript 2023-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the Tongcheng Travel 2023 Second Quarter Results Announcement. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kylie Yeung. Please go ahead.

[Kylie Yeung, executive]

Good morning, and good evening, everyone. Welcome to Tongcheng Travel's 2023 Second Quarter Results Conference Call. I'm Kylie Yeung, Investor Relations Director of the company. Joining us today on the conference call are our Executive Director and CEO, Mr. Hep Ma; our CFO, Mr. Julian Fan; and our VP and Head of Capital Markets, Ms. Joyce Li.

For today's call, our management team will provide a review of the company's performance in the second quarter. Hep will brief us on the company's performance in the second quarter, Joyce will discuss our business and operational highlights. And then Julian will address the details of our financial performance accordingly. We'll take your questions during the Q&A section that follows.

As always, our presentation contains forward-looking statements. Such statements are based on management's current expectations and current market operating conditions and related to events that involves known or unknown risks, uncertainties and other factors, which may cause the company's actual results performance or achievement to differ from those in the forward-looking statements.

This presentation also contains some unaudited non-IFRS financial measures. They should be considered in addition to, but not necessity for measures of the company's financial performance prepared in accordance with IFRS. For a detailed discussion of non-IFRS measures, please refer to our disclosure documents in the IR section of our website.

Now let me introduce our CEO, Hep. Hep, please go ahead.

[Heping Ma, executive]

Thank you, Kylie. Good evening, everyone. Welcome to our earnings call for the second quarter of 2023. 2023 is poised to be an exceptional year for China's travel industry. As the country quickly recovers from the pandemic and the people demonstrated strong enthusiasm to travel. For the previous quarter, we experienced another phenomenal unleash of travel demand in China.

The past Labor Day holiday and Dragon Boat Festival, but several waves of travel boom throughout the country and brought more vitalities to the market. With sustained our robust growth and recovery momentum in all of our business segments.

As we leverage it on our dominant market position and the influence to meet the surging travel demand. Over the quarter, both our APUs and MPUs once again achieved historic highs with revenue and business volumes increasing substantially year-over-year. And back in May, I shared my [indiscernible] need for 2023. Today, 3 months later, I would say that I'm really thrilled with the progress we have attained so far and encouraged by the increasing growth momentum.

As we embark on the third quarter, which is traditionally a peak season for the tourism sector. The travel industry is observing a remarkable uprun as people are pacing for their summer travel remains on the date and exhibits no signs of fading away. As travel demand in China is evolving and becoming more diversified and dynamic. I'd like to reaffirm our profound faith in China's travel industry as well as our company's capabilities to cultivate more substantial business opportunities.

For the year ahead we will successfully pursue our goals of strengthening our core businesses with a higher internal efficiency and maintaining industry-leading growth, which are actively exploring additional growth drivers to ensure long-term sustainable development. Moreover, we will dive deeper into the industry and starting cooperating with our partners to further solidify our market position. Last but not least, we endeavor to further refine and enrich our product and service offering to satisfy our user's diversified needs and provide them with more convenient and joyful journeys.

With that, I will hand over the call to Joyce for more details of our operational highlights in the second quarter. Joyce, please go ahead.

[Joyce Li, executive]

Thank you, Hep. The past quarter was quite fulfilling and rewarding as we continue to see record highs in our business for the second quarter in a row with emerging travel enthusiasm had strengthen the travel demand. Throughout the COVID quarter, we acted steadily and precisely to capture users' needs and further build out our market presence in travel industry. As usual, we took the lead in industry growth, and delivered the superior performance for the second quarter.

As for our accommodation business, we remain focused on low-tier cities and a continuous set of investment to reinforce our position in the market. Over the last quarter, the businesses played a great prominence and continue to set new highs both into revenues and volumes with domestic room nights sold registering more than 130% growth compared with the same period in 2019.

Emerging travel enthusiasm demand for accommodation for [indiscernible] and then, where we act decisively to leverage our user's storing needs. Efforts we increased to explore various occasions for hotel stays such as [indiscernible] music festivals in a [ concert ] which have been trending up since the start of this year. At the same time, we consistently pushed ahead with our cross-sell strategy.

Without deepening to users' underlying preference and the needs and then carry out more precise operations and marketing activities. As such, our 15-day cross-selling rate will increase to more than 10% in the past quarter. Moreover, our international hotels business, accelerated recovery and improved quarter-by-quarter in terms of volume. Besides, we continue to develop and offer value-adequate asset base for hotel booking enough space, which also contributed to the growth of business for the past quarter.

[indiscernible] loan in travel industry, our transportation business, which remains the backbone of our revenue and profit for new highs, both in volume and the revenue for the second quarter in a row, thanks to enhanced market shares in the past years. As for the air ticketing business, consistent efforts were made to build a more diversified user profile to further penetrate the market. Delightfully, our user mix has turned out younger and more diverse.

Meanwhile, our international business has improved month-by-month in the first half of the year as increased efforts will made to bring more suppliers and user interactions. For the second quarter, our domestic air ticketing volume increased by 40% from 2019 levels. As for train ticketing business, its revenue grew substantially from same period of 2019.

During the festival quarter, we remained focused on enhancing user value and user travel experience. By consistently optimizing our intelligent operating system, we provide users with convenience and comfort along their journey. In addition, our bus ticketing business has made a concrete progress in enhancing its monetization capability as well as improving the operational efficiency.

Over the last 3 years, we have expanded our footprint on the travel industry and have further enhanced our influence. To have more thing in an industry, we have built a comprehensive portfolio of hotel brands ranging from low-to-high value. As of the end of June, we have more than 1,000 franchise hotels in operation across the country. Meanwhile, we have also entered a packaged tour market through the acquisition of travel agency companies, which we believe will further expand our territory in the travel industry.

Amid the soaring travel enthusiasm, we seized on the sentiment and further increased engagement with the users at multiple fronts. Not only to diversify our traffic sources, but also to expand our user base. During the quarter we continuously deepened cooperation with the Tencent and furthermore traffic ran into Ecosystem in a more effective way. At the same time, we joined hands with WeChat Pay Hong Kong during the quarter and co-launched a marketing campaign in Hong Kong to reach out to users there.

More excitingly, we have reached attractive partnership with Huawei. It help with asset services embedded in the ecosystem through which Huawei users can have easy access to our hotel bookings as well as trends and [indiscernible] service. We believe this corporation, but have wider reach to users and bring additional growth for us. Besides, our offline acquisition initiative continue to play a crucial role in growing our user base, especially the public transit project, which tapped into the more cities in the past quarter.

The contribution of offline initiatives to MPUs for the second quarter remaining equal. With such efforts, our user base grew in the larger in the second quarter with most MPUs and APUs hitting another highs. Our MPU for the quarter anticipate accelerated growth of [ RMB 0.625 ] year-over-year, and accounting to RMB 42.2 million, setting a new high for the second consecutive quarter, while our MAUs also further increased to RMB 278.9 million for the second quarter, with accelerated growth of 41.1% year-over-year. And our operating ratio was also back to historical high at around 15%.

Our 12-month [ rolling end ] users as of the end of June rose to RMB 218 million from RMB 201 million in the first quarter, breaking the historical record in 2022. Over the past 3 years, we've been endeavoring to build a unique brand image among younger generations through innovative brand campaigns. We were the first OTA to integrate eSports and games into our user engagement plan.

We were also the first to bring music into travel industry to enrich travel content. In early July, we cooperated with the Tencent Music and sponsored 2 grand music festival in Macau to have our brand highly exposed among younger generations. We also joined hands with the tourist destination in Jiangsu Province and co-host a 2-day music festival there in later July.

For music, we thought to further explore the ultimate boundary of travel experience with the younger users and build a fan and entertainment brand personalities. This year, in Tongcheng user value has been a key for our first quarter. And the Black Whale membership program plays an important role in this. [indiscernible] travel occasion such as [indiscernible] tours.

We joined hands with the junk of Provision Tourism Bureau and a co-launch a digital version that incorporates free access to all tourist attraction and partial entertainment facilities within the province.

As of the end of June, the cumulative number of Black Whale members surpassed 13 million. As always, we aspire to empowering the travel industry with our profound Internet expertise and advanced technology, aiming to build a highly efficient travel ecosystem. Partnership with airport has been our key strategy, and consistent efforts have been made to push ahead with this strategy.

Over the last quarter, we won cooperation with Chengdu Shuangliu International Airport through which we were helping airport develop a transit system to attract transit passengers. Meaningfully, we signed attractive agreement with the Hunan Province Airport Group, which owns the hub Airport of Chengdu International Airport in Central China.

We will help Airport Group they have to combine the transport solutions, integrating membership program as well as the utilization platform. Besides, we have also built a comprehensive hotel payment's [ brand metrics ] to help hotels and alternative accommodation grow more efficiently and then generate an additional revenue.

In our corporate value, customer always come first, and we are fully committed to providing users with a secured travel experience. Our smart Huixing system continued to play a vital role in satisfying user travel needs. During the quarter, we visualized travel solutions of a Huixing systems with clear [indiscernible] a display to provide a more convenience to our users. Besides, more efforts were made to increase automation in our customer service by handing over centralized [ property ] to AI-driven robots, which further enhance our customer service efficiency.

On top of that, together with third parties, we have been proactively exploring the application of AIGC in our business, which we believe will further increase our operational efficiency. As leading player in the travel industry, we're determined to contribute to sustainable development of the travel industry as well as society. After the backdrop of fully recovery, we launched a training program for touring professionals of [indiscernible] province.

Regarding ticket operation and marketing ticket in rural tourism, start to facilitate the revitalization of rural economy. The training was part of our Tongcheng Thousand Villages Program. Which aims to promote sustainable tourism models in rural China. In June, we also joined hands with more than 200 hotels across the country to provide college entrance aminities and their parents with 3 stational suppliers, water and the shade of a [ rock ].

On top of that, we were the, for the first time, included in the sustainability yearbook China the estimate by S&P Global in recognition of the strengthening our corporation sustainability. Looking ahead, we will remain devoted to activities that contribute to sustainability of the travel industry as well as of the society.

I'll stop here and give the call to our CFO, Julian. He will share with you our detailed financial results for second quarter. Julian, please go ahead.

[Lei Fan, executive]

Thank you, Joyce. Good evening, everyone. Over the past quarter, China's travel industry has undergone a brisk recovery with pause on travel demand being released. People are eager to take part in various forms of travels. We continue to outshine the industry mainly attributable to our confidence to accommodate different user holders and seize opportunities and a diverse consumption scenarios from leisure travel to business travel.

We also endeavored to explore various alternatives to create new growth engines for the company. As a result, we achieved admirable growth with our core business in [indiscernible] has that new vitality infused for our future enhancements. In the second quarter of 2023, we once again achieved unprecedented levels for both quarterly top line and bottom line. We reported net revenue of RMB 2.9 billion, representing a 117% year-over-year increase from the same period of 2022 or an 80% year-over-year increase from the same period of 2019. We proactively invested in marketing campaigns and advertisement for the Dragon Boat festival of 2023 and readied ourselves for the summer traveling season. In order to capture market opportunities to meet the post-COVID surge in tourism.

Thanks to our effective marketing strategies and efficient operations, we achieved a significant improvement in our margin. Our adjusted net margin -- net profit amounted to RMB 592 million, with a 20.7% net margin compared with 19.5% net margin in quarter 1, 2023 and 8.5% net margin in quarter 2 last year. Our accommodation reservation business registered [ 12% ] growth and achieved RMB 1.1 billion for the second quarter of 2023, representing a 94% increase from the same period in 2022 or a 91% increase from the same period of 2019.

Our domestic room nights registered more than 130% growth versus 2019. This was largely credit to our effective execution of plans to access the untapped markets as these opportunities in our advanced growth markets in the midst of the industry revival. The strong growth in hotel room nights also -- was also partially attributable to our persistent efforts in executing effective cross-sell strategy to divert more traffic from our transportation business to our accommodation business.

In the second quarter of 2023, hotel ADR improved compared with last year, mainly driven by the rising demand for accommodation reservation. The blended take rate decreased compared with 2022, mainly because we increased [indiscernible] level to seize marketing opportunities. Transportation ticketing revenue for the second quarter was RMB 1.5 billion, representing a 141% increase compared with the same period of last year, or a 60% increase compared with the same period of 2019.

We are once again attained significant growth with our revenue achieving an all-time high. This was mainly driven by the resurgence of travel enthusiasm across the country and [ spitting ] volume spike during the second quarter. [indiscernible] persisted in optimizing our [indiscernible] offerings to enhance monetization. For our air ticket business, we started to penetrate the untapped market has achieved 40% growth in terms of the domestic volume versus 2019 levels.

We achieved a remarkable increase from 2019 level in terms of our train ticketing revenue as we realigned our strategy from volume growth to monetization enhancement in train area. Moreover, we made consistent progress in improving the monetization of our bus ticketing business. In light of the soaring demand for local and short-haul travel post-COVID, we widened the scenario coverage of our car-hailing services and achieved its portion of growth as well.

Other business continues to deliver solid results. The revenue achieved RMB 316 million in the second quarter, representing a growth of 103% year-over-year or a 215% increase from 2019 levels. The search was attributable to the impressive growth of our Black Whale membership program as well as the outstanding results in advertisement, corporate travel and [ TMS ] visitors. Moreover, through development and previous acquisitions, our hotel management's business grew rapidly and contributed meaningfully to the revenue of other businesses. We are now confident that these businesses will maintain their upward trajectory and further boosted the company's growth in the future.

In terms of the profitability, our gross margin was 75.5% for the second quarter of 2023, increase from 70.9% for the same period of 2022 and 75.0% for the previous quarter. Our efficient operations, intelligence customer service capability and revenue mix shifts have resulted in a sustained augmentation of our gross margin in the previous quarter.

In the second quarter of 2023, our adjusted EBITDA achieved RMB 806 million with 28.1% margin improved from 22.2% year-over-year and similar with that of previous quarter. Adjusted net profit achieved RMB 592 million, with margin improved to 20.7% from 8.5% in quarter 2, 2022 and 19.5% in quarter 1 this year. The increase in our adjusted net margin was mainly driven by the effective marketing strategies and further leverage in our operations.

Service development and administrative expenses in the second quarter of 2023 increased by 38% from the same period of 2022. Excluding share-based compensation targets, service development and administrative expenses in total accounted for 19.8% of revenue in the second quarter compared with 28.4% of revenue in the same period of last year and 20.3% of revenue in the previous quarter.

Selling and marketing expenses in the second quarter of 2023 increased by 93% from the same period of last year. Excluding share-based compensation charges, selling and marketing expenses accounted for 38.4% of revenue in the second quarter compared with 42.7% of revenue in the same period of 2022 and 37.0% of revenue in the previous quarter.

As of June 30, 2023, the balance of cash, cash equivalents, restricted cash and short-term investment was RMB 8.3 billion. China's travel market has witnessed a promising rebound and growth for the first half of the year. The pass the Dragon Boat festival due to a blended conclusion for the second quarter and laid foundation for the continuous flourishing of the travel market in the rest of the year.

During the festival, our domestic hotel room nights registered more than 130% growth compared with 2019's level. And our domestic air ticketing volume grew more than 40% over 2019 levels. Entering July, we perceive no indication of a recovery acceleration in the travel industry, which demonstrates great resilience and potential. The demand is robust for early summer holidays with various cores such as students, businesses and family pursuing local and short-haul travel as well as long-haul tourists, which substantially benefit our businesses. Recently, the Chinese government published [indiscernible] policies to boost the growth of the travel industry as well as domestic tourism consumption. The strong market rebound is certainly not a flash in the past, and it will continue into the second half of the year and beyond.

Looking ahead, given the strength we have built in our business, we reiterate our confidence in sustaining industry-leading growth and solid profitability, and we are confident as ever in the long-term growth of the travel industry and our company. We're also dedicated to providing greater value for the society and our stakeholders, including our users, suppliers, employees and shareholders. With that, operator, we are ready to take questions now. Thank you.

[Operator]

[Operator Instructions] We will take our first question, and the question comes from the line of Brian Gong from Citi.

[Brian Gong, analyst]

Congratulations on very solid results. My first question is can management share a little bit more about our performance, the performance on our platform in the third quarter, and what's the management's expectation for the upcoming Golden Week in October? I understand that there could be some seasonality for the first quarter, but do you think our strong growth momentum versus 2019 level, this growth momentum kind of sustained into the fourth quarter and next year? My second question is about margin. Our margin was pretty good in the second quarter with continuously improving industry trends. How should we look at our margin outlook in the second half this year?

[Lei Fan, executive]

Thanks for the questions, Brian. Actually, like what we mentioned in the prepared remarks, the Chinese travel industry continues to experience a very strong growth during the summer holiday. For example, for air tickets, the [ TAND ] record domestic passenger volume up RMB 59 million, representing a wild year-over-year increase of like 74% or an increase of 12% when compared with July 2019. That is the ticketing volume of the whole industry.

For the railway, the total number of passenger volume nationwide reached like 406 million in July, with an average 30 million daily orders for the railway, representing a year-over-year increase of 81% or an increase of 15% when compared with July 2019. So you can see that the industry recovery is so strong in July and also in the early August.

Actually, this shows a significant increase compared with the same period in '19. For air, the -- that I would mention that the domestic supply has been fully recovered to the '19 level. And also, maybe you have already observed that the average airfare during the summer holiday remained very high, signifying the strong demand continuity. As stated in our previous remarks, our business performance has once again surpassed the industry recovery rate in the summer occasion. Our room nights sold in July increased by over 110% and air ticket volume also increased by over 30% when compared with July 2019. The growing trend continued to be strong -- to be very strong in August.

After the summer holiday, like what you had mentioned, there will be another long holiday for Mid-Autumn's festival and the National Day in late September and early October. We believe there will be another wave of strong travel demand there. In fact, after over 3 years of travel restrictions caused by COVID, we don't think the travel demand can be satisfied only within a few quarters. If we take other overseas markets, which lifted up travel restrictions earlier as an example, travel demand has continued to be quite strong in the following years.

As previously mentioned, we have a strong confidence in the growth of Chinese travel industry for the mid- to long term. On the supply side, we anticipate that the ongoing infrastructure improvements, including the development of it's new airport add expansion of the high-speed train network will not only enhance travel convenience but also stimulate domestic travel demand.

On demand side, we believe that there are some changes in people's consumption behavior after COVID leading to a surge in diversified needs. We have already recognized that, that people especially the young generations and elderly people are more willing to [ stand on ] experience instead of the physical [ fuse ] which represents a shift or reallocation of the consumption travelers in China right now. With the accelerated growth in experience consumption, we believe the total market -- total travel market size will continue to grow nicely in the following year.

So we will leverage on our competitive advantages to capture market opportunities brought by these channels. Meanwhile, for our company, we will also enjoy the benefit of increasing the online penetration of travel services, especially in low-tier cities. So there's still have some space for the online penetration in low-tier cities. On our company's level, we will expand our revenue stream and strive for user value improvement, which will allow us to continue to pass the industry growth.

For the second half year, the performance and also the margin actually for quarter 3, we expect that our performance in all product lines will significantly surpass our 2019 quarter 3's level. Thanks to the surge in demand -- the travel demand and our efficient marketing strategies to capture the market opportunities like what I mentioned. But for the full year, we expect that the strong growth with experience in the first half of 2023 will be continued throughout the rest of the year.

Although it is difficult for us to give concrete guidance because of the booking window of our users are very short, we are highly confident that in the best potential time of travel industry and our ability to excel and distinguish ourselves in the market. For example, we will continue to develop our mature business, including the accommodation air tickets and train ticket, leveraging our solid market position.

And regarding our other business, we expect our advertising business and Black Whale membership to continue their hyper growth during our huge traffic and user base. For the new business, we will further develop our hotel management. This is to accelerate the domestic hotel chain rate and enhanced digital addition and service capability in the industry.

Of course, we will explore opportunities in the package tour business and also the outbound travel market as well. For the margin side, we have already optimized our cost structure in the past few years. So that is why the adjusted net margin in quarter 2 is better than expected because we achieved a better ROI and for sales and marketing.

As we shared in the previous quarter, we are allocating more marketing resources on existing users to drive more repeated purchase and increase the ARPU. In the coming quarters, as mentioned, we will adhere to our strategic priorities and keep investing on selling and marketing to aggressively capture short-term and long-term growth potentials.

Sales and marketing investment will be more aggressive than the first half, especially on APP store marketing and [ Huawei ] portal, like Joyce mentioned in our remarks. Meanwhile, we will initiate the [ installed ] program with some kind of handset vendors, for example, the Huawei, Oppo, Vivo, et cetera. It is one of our strategies to diversify our channels, but the return from this program may take like 1 to 2 quarters to be reflected. Last, for the margin side, we believe that our net margin will be relatively stable in quarter 3 compared with the first half of 2023, although we will increase our self marketing dollar investment. But actually, our operational leverage will enhance -- further enhance in quarter 3 because of the revenue scale going up. And net margin in quarter 4 will slightly drop quarter-to-quarter due to seasonality because we need to invest more to prepare for the coming spring festival. But definitely, the margin in quarter will improve from the same period in both '19 and 2022. Thank you. That is what I will share. Thank you for the question.

[Operator]

We will take our next question. Your next question comes from the line of Mengjie Yang from Bank of America.

[Mengjie Yang, analyst]

Congratulations Ma, Julian and Joyce on the impressive results. I have 2 questions related to user behavior. First, could you please share a little bit about it recently, there are some user behavior trends or patterns that worth highlighting. For example, it can be about customer retention, repurchase, preferences, general purpose in travel destination, booking window or the average order value, et cetera? And secondly, there has been quite some news around the consumption downgrade and frugal style of traveling. Just wonder how do you think about the implications of such consumption environment on our business and strategy going forward?

[Joyce Li, executive]

Thank you [indiscernible] for your questions. I think I first answer the second question so that Julian will provide more color on the user behavior change. And we can all know that since reopening, the Chinese travel industry has experienced a remarkable rebound. You can see both hotel room rate and adding price has been significant surges. Despite this, people [indiscernible] will travel remains exceptionally strong, and this trend has been continued throughout the first half of the year and up to now. As Julian mentioned, we still see the strong momentum continues into the third quarter. .

We think that this blooming demand has proven the resilience and the vitality of the Chinese travel industry. So we can see the consumer continue to prioritize the spending on travel and experience. So we also believe that there are more diversified travel needs that create additional opportunity to industry. For example, as I mentioned, it is now very popular for the younger generation to make travel of hotel space related to the musical festivals and concerts, e-sports events et cetera.

In the past, I think spending of hotel only consists a very small part of the total retail sales in China. That's why a small shift of the consumer spending from physical groups to travel will bringing growth momentum to the travel industry. And additionally, I think the Chinese government has displayed a strong dedication to support the travel industry. Recently, more efforts were made to promote domestic tourism so to drive the overall economic development. And the travel sector will definitely benefit from this. So we remain very confident in the long-term upward trajectory of China's travel industry. So we'll continue to [indiscernible] core competitive advantages, focusing on enhancing our execution capability, product and service offerings and brand influence to ensure our sustainable growth.

[Lei Fan, executive]

In terms of the behavior and the frequency, for this year, we observed that the demand is mixed. There's a lot of mixed demand among the long haul and short-haul kind of vacation. Long-haul happened in the number of occasions and the Labor Day. And there's a lot of short-haul travel surrounding their cities in the weekend and also in the [indiscernible] and also the Dragon Boat Festival. And also, there's a lot of expectations in some kind of -- for example, the Valentine Day. The Chinese Valentine's Day in the last week. We have reached another historical high for our room nights in the last weekend because of the Chinese Valentine's Day.

So now that the demand actually is really mixed. So the frequency of users has increased a lot in the past 12 months. In the past 12 months, the frequency per users have already reached 6.6 times for each user. It has already increased like 50% compared with 2019 and 2021. We do mention 2020 and 2022 because of the impact of the COVID. So actually that is our strategic priorities this year. So we don't mention too much about the user volume growth, but we mentioned a lot of times about the frequency and user value growth. That is our strategic priority to enhance our user value rather than solely pursuing user work, as we have already got a substantial base of [indiscernible] users.

For example, as we mentioned, we would like to invest more promotions on our existing users and drive improvement in frequency and [indiscernible] this year. For example, we will persist in investing, in targeted promotions and improving our ability to provide precise recommendations to our users, thereby enhancing the cross-selling from our transportation business to accommodation business. This should lead to higher revenue per order and a better take rate for our overall accommodation business.

And the second one is we aim to further engage with users who were previously acquired from offline scenarios such as those who were used hotel QR code scan or smart bus ticketing equipment. To achieve this, we plan to optimize our sales and marketing strategies by offering targeted promotions that motivate these users to make direct online purchases. And also, we continue to invest in promoting our VAS products and services that are tailored to our users' travel needs. For example -- for instance, we will continue to encourage the user to use our operating system, which offers intelligent travel solutions to our users while generating revenue for us.

We will also launch new promotions for our innovative products and services in different scenarios to enhance our user value. And further more, we upgraded our membership program and also further delved into the potential value of different users. We also continued to promote our Black Whale membership program to foster greater loyalty among our user base, leading to an increase in our overall ARPU and purchase frequency. Thank you. So that is what we would like to share.

Thank you for the question.

[Operator]

We will take our next question. Your next question comes from the line of Simon Cheung from Goldman Sachs.

[Simon Cheung, analyst]

I got three questions. Just on your revenue momentum between the transportation and the accommodations. I have been tracking and seeing that our accommodation obviously has -- continues to outperform. I think before COVID, there was like half of the transportation revenue from the accommodations to now pretty much almost even 50-50. Obviously, that might be your point about monetization and stuff. Perhaps you can share with us how should we think about the trajectory of these 2 separate business going forward? That's -- and especially on the back of doing, obviously still talking about coming into the -- one of the segments? That's the first question.

And then the second question just on business travel. We've been hearing a lot of positivity from you as well as a lot of travel company talking about how leisure travel has been holding up very well during the summer season. That's well understood. But I think the markets are generally a bit concerned about the slowdown in business travel, PMI numbers and all those. Wondering if you can share with us some of the highlights there. And then lastly, I think you also made an announcement that you have striked another agreements? Do you have like a service provider agreement with some hotel management company or a accommodation supplier on a related transaction basis? Can you elaborate a bit more on that? And whether Mr. Ma would have other business that there may be further cooperative opportunities further down the road?

[Heping Ma, executive]

Okay. Thank you for the questions. First, we would like to -- I would like to provide some color on our business development for the accommodation and also for the transportation. First, for the accommodation, yes, we are very honored to say that we have penetrated a lot of market share in the past 3 years for the hotel market share. And our market share actually in the online and also in the total market has increased a lot compared with 2019. And also, the growth is better than the transportation side because there's 3 reasons for the hotel side. First of all, the online penetration on the hotel side is relatively lower in -- 3 years ago. It's just like 25%. But for the transportation one, the other penetration has been very mature 3 years ago, it's like 75% to 80%.

So in the past 3 years, the main thing that we developed if you push the online penetration for the accommodation side, especially in the low-tier cities, low-tier city and mid- to low-end hotels, just have like 20% or even the 10% of the online penetration. So we catched a lot of market share from these areas. We use a lot of user acquisition methods in front of the hotel front. So we think we are very successful in this area. Nowadays, we believe the hotel online penetration has already increased up to 35% -- from 25% to 35%. In terms of those 10% that increase, we think we catch the majority of them.

And the second one is the online -- online cross-sell strategies that we mentioned a lot of time. Cross-sell from the transportation to optimization. That is because for the traffic wise, our transportation traffic is like 3 to 4x on the -- more than our accommodation traffic. So naturally that -- for the company, we will use -- we will double use the traffic that we acquired from the transportation. So in the past 3 years, we do a lot of things, do a lot of problems on the cross-sell transportation to accommodation. So that is why the accommodation growth is better than our transportation as well.

And also in the past 3 years, we created a lot of VAS products and services on the accommodation side. For example, the insurance and also the hotel consumable goods and also the membership card that we purchased for the accommodation room nights as well. So that is why we enjoy the very hyper growth on the accommodation side in the past 3 years. And also for the transportation -- for our transportation, the air and the train, the revenue growth is far more better than the industry, but slightly lower than the accommodation side. The -- that is also means we acquired the market share in this area. That is a major because there's a lot of airports in the second tier and third tier cities. So we have a lot of market campaigns around these cities and around the airport. For example, the Tonglu Airport and also the Tongcheng Airport.

And also, the customers around those airports is more like -- the behaviors are more like this -- proper for our platform. So in the past 3 years, we catched a lot of users, acquired a lot of users in this area. So that is why we also increased our market share in air and also in train areas in the past 3 years. And also for the business travel that you asked, the business travel actually for the whole China market is still in a very early stage. Actually, there is only, I think, 10% or less than 10% of the company will use the TMP, the business travel system for the -- for example, our company travels are also like trip.com company travels.

So there's a lot of space that we could develop in the future, especially for the SMB companies in Mainland China. So this year, actually, our business travel segment also enjoy very hyper growth because after the COVID -- the past 3 years of COVID, a lot of companies would like to save their budget of the company and also on the expensing management. So they will -- they are more willing to use the tools to help them to build a system and help them to manage the business travels for those companies. So that is what I would like to share on the -- each segment. And the third question is about the hotel...

[Joyce Li, executive]

Before that, I think I can provide more color on the expectation landscape right now, as you mentioned. So currently, we see the market competition is very healthy and stable. Although we do have gradually increased component level in future markets, as Julian has mentioned. Our take rates still quite healthy. We will ensure that our product and service remains competitive in the market by utilizing our flexible cost structure, light operational model and better [indiscernible]. So we believe that the [indiscernible] not be necessary as our market position and the user base are clearly differentiated. So through our strategic approach to expand into the lower-tier cities and the consistent efforts have been made in recent years, we have successfully established a strong foothold and the competitive advantage in this region.

So these lower-tier cities still has their relative low penetration as Julian has mentioned. So we have quite strong confidence for our accommodation business to grow in this market. And in terms of the short video platforms, as you have been mentioning, I think as a leading OTA, we have a wealth of industry resources and strong relationships with our suppliers that take time for new entrant distribute. So for the hotel supply, efficient management systems and effective communication with hotels are very special due to fluctuating price, limited room capacity and other facts. We have the long history of accumulation in industry resources and close bonding with our suppliers, as we always emphasize on [indiscernible].

So this has been one of our great advantage over the new entrant. And secondly, the purchase of travel product and service are typically relative low frequency and have longer and more complicated decision-making process. So conversion of the users from content to paying customers can be challenging. It will require in-depth knowledge of users to efficiently convert them to paying users. So we have been successful achieving this over these years.

Lastly, as an OTA, we focus on providing high-quality service and exceptional user experience, which is also very crucial for travel users. With that our own products and services and continue to innovate new value-added product services based on our understanding of the market and involving the user needs, so our customer service team is also dedicated to serving our user efficiently. That is the -- our view in terms of the competitive landscape.

And the last question is concerning about the related transactions with several hotel groups we acquired during the past few years. We did it through acquisition and investments as well as internal incubation and organic growth. We have established now 8 major hotel brands. As of June 30, 2023, our investing companies are managing and operating nearly 1,000 franchise hotels. They have spent crossing like 30 provinces, and have signed contracts over 500 hotels. So we think about hotel chain management market is huge in China, given the low hotel churn rate when compared with the market in foreign countries.

So we also like to be actively involved in upgrade for this industry since leveraging on the OTA strength to enhance the efficiency of the industry. So with the investment in hotel chain company, we can better utilize our membership program for a higher stickiness and retention. Meanwhile, we could also share the benefits with the hotels and offer superior service to our users. Besides the hotel trends, very important [indiscernible] acquisition channels for the company, as we have been devoted to the off-line acquisition channels for several years. But it's also very useful for us to accelerate the online penetration in low-tier cities. So going forward, we would like to steadily divest this business and plan to run the business mainly by franchise model, pursuing synergies and mutual benefit with the hotels.

[Operator]

I would now like to turn the conference back to Kylie Yeung for closing remarks.

[Kylie Yeung, executive]

Thank you. We are closing the call now. If you wish to check out our presentation and other financial information, please listen to our IR section of our company website. Thank you, and see you next quarter.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.