Tongcheng Travel Holdings Ltd

HKEX:780

Earnings Call Analysis

Company Optimistic Despite Industry Challenges

In the past quarter, the company expanded successfully in the public transport sector, with monthly active users (MPUs) growing over 54% year-over-year to 37.5 million and 12-month paying users reaching 235 million, marking a 25% increase from the previous year. Despite industry headwinds, resilient demand across various travel experiences led to net revenue of RMB 3.1 billion, a 110% increase from the same period in 2022, and adjusted net profit of RMB 483 million, showcasing a 15.3% net adjusted margin. The company's robust growth momentum is underscored by a 73% increase in accommodation reservation revenue and a 95% surge in transportation ticketing revenue compared to 2022. Other business sectors witnessed a 236% year-over-year revenue increase, driven by advertising and membership programs. Investments in products and technology are key strategies for global expansion and maintaining industry leadership, with a particular focus on younger consumers' shifting travel preferences and improving environmental, social, and governance (ESG) performance.

Resilient Demand and Strong Q4 Performance

The company ended the fourth quarter of 2023 on a high, withstanding the traditionally slow travel season and surpassing industry growth. They capitalized on diverse travel needs, from short to long-haul and leisure to business. This resulted in a year-over-year (YoY) net revenue increase of 110% from Q4 2022, reaching RMB 3.1 billion, and even outperforming pre-pandemic Q4 2019 by 61%. Such revenue expansion and operational leverage propelled net profit growth and a substantial adjusted net margin of 15.3%. Strategic cost control measures were in place, even as the company geared up for the 2024 Chinese New Year with effective marketing and advertising campaigns.

Impressive Full-Year Results and Positive Outlook

For the full year 2023, the company delivered robust financials, with net revenue marking an 81% YoY growth or a 61% increase from 2019 levels. Accommodation reservation revenue and transportation ticketing saw significant jumps of 62% and 79% YoY respectively, while other business revenue skyrocketed by 149% from 2022. The profitability also shone brightly, with the gross margin inching to 73.5% and adjusted EBITDA margin climbing to 26.3% in 2023, up from 21.8% in 2022. This strong performance underpins the company's investments in product and technology, particularly aimed at global expansion and market share growth while maintaining a healthy profit margin.

Solid Fundamentals and Future Growth Drivers

The company prides itself on a solid financial footing, with cash and investments totaling RMB 9.3 billion. This financial stability supports a final cash dividend declaration of HKD 0.15 per share. Looking forward, the acquisition of Beijing Tongcheng Tourism is expected to bolster the burgeoning packaged tour business and drive long-term growth, complementing the already resilient accommodation reservation and transportation ticketing segments.

Investment in Outbound and International Markets

While maintaining impressive net margins, the company plans to channel additional savings obtained from scalability into investment for the outbound and international markets. They foresee these segments to be more profitable in the long run than their domestic business due to higher supplier take rates and consumer spending power. Consequently, they are aiming for a stable or slightly improved net margin in 2024 for core OTA (Online Travel Agency) business. The synergy with established online business and the leadership in offline tourism may enable the tourism business acquired last year to outrun industry peers in margins and revenue, thus contributing healthily to the company's profit.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, and thank you for standing by. Welcome to Tongcheng Travel 2023 Fourth Quarter and Annual Results Announcement. [Operator Instructions] Please be advised that today's conference is being recorded.I would now like to turn the call over to the first speaker today, Ms. Kylie Yeung, Investor Relations Director. Thank you. Please go ahead.

[Kylie Yeung, executive]

Thank you. Good morning, and good evening, everyone. Welcome to Tongcheng Travel's 2023 Fourth Quarter and Annual 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 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 fourth quarter. Hep will brief us on the company's performance. Joyce will discuss our business and operational highlights, and then Julian will address the details of our financial performance accordingly. We will take your questions during the Q&A session 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 achievements 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]

[Interpreted] Okay. Good evening, everyone. Welcome to our fourth quarter earnings call. 2023 was a thrilling and extraordinary year for the Chinese travel industry and our company. Throughout the year, we witnessed a remarkable growth of domestic travel demand and the sensational growth of our business. This year, we achieved significant breakthroughs and established numerous milestones.Our annual GMV revenue and adjusted net profit all reached record high with our revenue for the year exceeding RMB 10 billion for the first time, thanks to our highly devoted team with strong execution capabilities. In addition, our annual paying users also reached 240 million this year, which is a strong testament to the continued expansion of our service and brand influence.In the past year, we seized on the surging travel demand and accelerated our business expansion strategy. We not only solidified our domestic market position, but also continue to explore the international markets. While seeking high growth in our core business, we also embarked on exploring new business opportunities, thus building the company's second growth driver. This strategy not only fortified our foothold in the travel industry, but also laid a solid foundation for the company's long-term sustainable development.Although we have encountered various difficulties in the past 3 years, our pioneering spirit and innovation capability have enabled us to swim against the tide and seize market opportunities, thus sustaining the industry-leading growth. The rapid growth of the travel industry in 2023, coupled with our company's exceptional performance has significantly bolstered my confidence in the future development.Entering 2024, domestic travel sentiment remains high. During the past Chinese New Year holiday, we were thrilled to witness significant growth in our business compared to 2023, with users enthusiasm for travel consistently remaining at elevated levels. We believe that 2024 will be a year of continued iteration and growth for the company, and we are committed to implementing our core strategy. On one side, we will delve into the industry chain and seek more long-term growth opportunities while maintaining robust growth in our mature businesses. On the other side, we will expand into the international market while continuing to tap into the potential of the domestic market.In terms of operations, we will first optimize our traffic operations and explore various ecosystems to diversify our traffic channels. Moreover, we will continue to refine our product strategy and a membership program, aiming to enhance repurchase rate and use value. In 2024, we aim not only for near-term success, but also for long-term ambitions. With our exceptional innovation capability and humble attitude, we are poised to achieve groundbreaking advancements and further solidify our competitive advantages within the travel industry. At the same time, we will spare no effort to leverage our technology and Internet expertise to empower industry partners and support the sustainable development of the industry.Next, I will hand over the call to Joyce. She will share with you our business and operational highlights of the fourth quarter of 2023. Joyce, please go ahead.

[Joyce Li, executive]

Thank you. 2023 has been a miraculous year for us with travel sentiment and demand staying high throughout the whole year. We further push ahead with our strategic priorities and managed to grow our business even larger and broader. As Hep has mentioned, both our user base and business scale reached new highs during the year. Entering the last quarter of 2023, which is normally a low season for the travel industry. We, however, maintain strong growth and, as always, outperform the industry as a whole.Our accommodation business, which has the profound influence in target markets, especially in low-tier cities continue to activate robust growth even on the [ exam ] season. With domestic room nights sold, posting an impressive growth of 17% when comparing with the fourth quarter of 2019. For the past years, we've been proactive in exploring hotel stay scenarios and addressing the underlying needs of our users. With these consistent efforts, we've tapped into variety of scenarios, such as day surrounding exams, e-Sports, music festivals, conference and family tours, contributing to the growth of our business.For the past quarter, we put more efforts in exam rated scenarios during peak exam periods and launched more precised marketing campaigns to reach out our target users. Meanwhile, cross-sell continued to play a crucial role in growing the business and the 15-day cross-selling rate increased quarter-by-quarter during past year.Moreover, continuous efforts were made to build our international business with a focus on bringing more international suppliers and highlighting our user interaction. Besides, value-added product services continuously contribute meaningfully to the business as constant attempts were made to better satisfy users' needs before and during their stays at hotels.Our transportation business, which has further solidified its market presence in the past year, maintained satisfying growth for the last quarter despite the fact that the first quarter is usually the lowest season for the transportation industry.With regard to the air ticketing business, we continued to see reinforced market position in advantageous regions as well as increased market share in some underpenetrated areas of higher tier cities. It also showed increasing preparation of college students and business travelers as a result of persistent efforts to diversifying our user base. At the same time, our international business has made a further progress in the fourth quarter as we launch aggressively marketing campaigns, which have attracted a great amount of users. For the fourth quarter, our total air ticketing volume increased by more than 16% from 2019 level, far better than industry overall recovery.As for the train ticketing business, we remain focused on reinfying operations as well as optimizing product and service to provide users with seamless traffic experience. Our smart Huixing system not only play a crucial role in satisfying users' underlying needs especially when their supply shortages, but also contributes significantly to the revenue of the business.For the past years, we have expanded our footprint into bus ticketing and car hauling business upon the rising demand for local and shorter travel, so to better serve users' needs. During the past year, we continued to enhance operational efficiency and monetization capabilities of the two business. Empowering the industry and supply chain as well as pushing for international business has been two of the strategic priorities for us, which we believe will open up new growth drivers for the company in the coming future.Our hotel management business, a key part of the strategies, has made momentum's advantage over the past year with around 1,400 hotel stores in operation and more than 700 in pipeline by the end of 2023, almost double the size towards as of the end of 2022. For the coming year, we will remain focused on expanding the coverage of the business with a portfolio of 10 major brands ranging from medium to high stars.As for the package tour business, rebuilding supply chain, restructuring business systems as well as building online and offline channels has been the main thing for the year. In the fourth quarter, we also completed the acquisition of Beijing Tongcheng Tourism. A combination of several leading regional travel agency companies, which we believe will further reinforce our influence around supply chain. On top of that, we set our efforts in expanding our international business, not only in urban travel, but also in overseas markets, such as Southeast Asia countries and Japan.Over the past years, our user base has grown dramatically and reached all-time highs in 2023, thanks to our effective investments in prior channels, both online and offline. Throughout the quarter, Tencent ecosystem, in particular, the Mini Program, remains the more stable and productive channel for us, as consistent efforts we made to refine operations and enhance efficiency at multiple fronts within the ecosystem.In the meantime, more efforts were emphasized on diversifying our traffic sources. Our standalone app grew significantly for the fourth quarter, mainly thanks to our signature marketing campaigns that caters to the preference of younger users by incorporating trending issues. Moreover, our Mini Program on Alipay also showed a drastic growth quarter-over-quarter with efforts being stepped up to explore the potential of the ecosystem.As for the offline user acquisition channels, the public transit initiatives continued to expand its footprint across the country and subsequently added to the growth of our user base. During the last quarter, we successfully tapped into the major system of Shanghai and Wuxi, followed by Suzhou in late January. A growing recognition of our operational capabilities and product development in the public transportation system.With efforts above our MPUs for the fourth quarter attribute impressive growth of more than 54% year-over-year to 37.5 million. While our 12-month paying users zoomed larger to a record high of 235 million, an increase of 25% from last year. We almost stand a power brand with an aspiration to create a fun and entertain image among target users, especially the younger generations.During the past year, we launched a variety of innovative making campaigns, such as eSports games, open-door marketplace and music festivals, such further strengthen connection with the younger users. This winter, we see the momentum of ski fever among young people and roll a series of ski challenge in [ Xinjiang and Jilin ], which attract thousands of ski participants and stirred widespread discussion among the enthusiasts. With this innovate, we aim to continuously create products and services in a way that appeals to young people.Moreover, our BlackWhale members program continue to play a key role in improving our user royalty. During the quarter, we further refined our operations and introduced more benefits to BlackWhale members, such as price correction, fee cancellation and exclusive travel consultancy and customer service. As of the end of December, the cumulative amount of BlackWhale members exceeded 47 million, with up to more than 2.5x that of the general members.As a leading OTA in China, we're entirely committed to empowering industry partners with our technology and Internet expertise, such to build a highly resilient and efficient ecosystem. By utilizing our digitalization capability and profound user insights, we will help nearly 100 airports in digital transformation and transit product development.During the quarter, we continue to expand cooperation with airports. In November, we signed a strategic agreement with the Chengdu Shuangliu Airport, aiming to collaborate in establishing the airport as a transit hub in the region. Meanwhile, we've developed a comprehensive portfolio of PMS brands that facilitate daily operations of individual hotels, chain hotels and alternative accommodation.In addition to airports and hotels, we also endeavor to enhance digitalization capability of tourist destinations and attractions. Over the last quarter, we joined hands with Changbai Mountain and build an intelligent tourist service platform that integrates local food, accommodation, transportation and entertainment. On the other side, we prioritize our user and spend no effort in delivering secure travel experience.Our intelligent Huixing system remains the cornerstone in satisfying user needs. It provides users with a tailor-made and well suited travel solutions based on their preference. For our customer service, we persistently introduced AI technology into bright scenarios in an effort to improve efficiency and quality of customer service.In 2023, we were selected by the Ministry of Industry and Information Technology as Excellent Case in terms of timely responses to user demand. Facing the ever-changing external environment, we deeply understand the importance of sustainability. As such, we are determined to contribute to a sustainable development of the tourism industry in China.In early 2023, we launched a program called Tongcheng Thousand Villages and the drive to help villages across China build sustainable tourism models and promote green economy. As a key part of the program, we also rolled our training program for the tourism professionals in terms of digital operations and marketing of rural tourism, start to foster more talent for the industry. Moreover, our Lindu Warm Village project, which was once a remote village in Suzhou, now a popular country side resort, attract more than 1 million visitors in 2023, and was listed as an exemplary case of rural revitalization.On top of that, we also put more emphasis on our ESG performance and increased effort to catch up with the world's best practice. For the past year, our MSCI ESG rating was given AA grade for a second consecutive year and was also made into S&P Global Sustainability Yearbook China 2023. All this demonstrates our excellence in ESG performance. Looking into the future, we will remain committed to promoting the sustainable growth of the industry as well as the society as a whole.I'll stop here and turn over the call to our CFO, Julian. He will share with us detailed financial results for the fourth quarter and the whole year. Julian, please go ahead.

[Lei Fan, executive]

Thank you, Joyce. Good evening, everyone. Despite the fourth quarter being a traditional last season for the travel, we have witnessed a resilient demand for various travel experiences as we swiftly navigated this dynamic and promising landscape. Our sustained success in outstripping the industry is largely owed to our effective exploration in various travel scenarios and our dedication to fulfilling the diverse needs of our users from short-haul to long-haul travel from leisure to business travel.Our core business has delivered outstanding results, and we have made remarkable progress in our new businesses that are going to fill our future extension. In the fourth quarter of 2023, we obtained excellent outcomes for both top line and bottom line. We reported net revenue of RMB 3.1 billion, representing a 110% year-over-year increase from the same period of 2022 or a 61% year-over-year increase from the same period of 2019.We maintained stringent cost control while proactively preparing for the Chinese New Year of 2024 through effective marketing campaigns and advertisement. We sustained robust net profit growth with a solid net margin, largely attributable to our revenue expansion and elevated operational leverage. Our adjusted net profit amounted to RMB 483 million with a 15.3% net adjusted margin. The consolidation of Beijing Tongcheng Tourism in December had certain impact on the net margin for the fourth quarter.Our accommodation reservation business experienced a remarkable growth and achieved RMB 882 million for the fourth quarter of 2023, representing a 73% increase from the same period in 2022, or a 42% increase from the same period of 2019. Our domestic room nights registered over 70% growth for the quarter versus the same period in 2019, mainly attributable to our consistent and effective market penetration strategies.We also focused on cross-selling strategies, leveraging the significant traffic from our transportation business to enhance our accommodation business. This approach boosted not only our room night sold, but also user loyalty and value. In the fourth quarter of 2023, hotel ADR improved year-over-year, primarily fueled by demand rebound. The blended take rate decreased year-over-year, largely due to our strategic decision to further capture market opportunities.Transportation ticketing revenue for the fourth quarter stood at RMB 1.5 billion, representing a 95% increase compared with the same period of 2022, or a 25% increase compared with the same period of 2019. The recovery in demand across various travel scenarios uplifted our transportation ticketing volume in the fourth quarter with further enhanced the monetization of VAS offerings.Our total air ticketing volume increased by over 16% compared with the same period of 2019, thanks to our relentless efforts to gain market share. Our train ticketing revenue also witnessed a remarkable growth compared with the 2019 levels, driven by effective execution in optimizing monetization and operational efficiency in this segment.Other business achieved admirable results again with revenue reaching RMB 789 million in the fourth quarter, representing a 236% increase year-over-year, or a 472% increase from the same period in 2019. The robust growth was mainly attributable to the excellent performance of our advertisement business, BlackWhale membership, corporate travel, hotel management and packaged tour business.Through our strategic acquisitions and effective expansion, we have obtained phenomenal progress in our hotel management business. We have also completed the acquisition of Beijing Tongcheng Tourism, which we believe will add to the growth of our packaged tour business since December. We hold a strong belief that these businesses will enhance our company's growth prospect in the forthcoming period.In terms of the profitability, our gross margin was 69.2% for the fourth quarter of 2023, slightly dropped from the same period in 2022, mainly due to the consolidation of Beijing Tongcheng Tourism in December. Our adjusted EBITDA achieved RMB 716 million with a 22.8% margin, which represented an increase from 16.3% when compared with quarter 4 last year. Adjusted net profit achieved RMB 483 million with a 15.3% margin, a tremendous increase from 2.5% in quarter 4, 2022. The increase in our adjusted net margin was mainly fueled by the effective marketing strategies and enhanced operational leverage.Service development and administrative expenses in the fourth quarter of 2023 increased by 12% from the same period of 2022. Excluding share-based compensation charges, service development and administrative expenses in total accounted for 16.9% of revenue in the fourth quarter compared with 31% of revenue in the same period in 2022.Selling and marketing expenses in the fourth quarter of 2023 increased by 73% from the same period of 2022. Excluding share-based compensation charges, selling and marketing expenses accounted for 35.4% of revenue in the fourth quarter compared with 42.8% of revenue in the same period in 2022.As of December 31, 2023, the balance of cash, cash equivalents, restricted cash and short-term investments was RMB 9.3 billion. We are appreciating our shareholders' support in the past. Our Board of Directors have approved the proposed payment of final cash dividend of HKD 0.15 per share, reflecting our determination to enhance shareholders' capital return.Now let's move to our results for fiscal year 2023. China's travel industry experienced an encouraging revival in the past year. We successfully seized opportunities and obtain significant growth throughout the whole year. Our net revenue in 2023 achieved RMB 11.9 billion, representing an 81% increase year-over-year or a 61% increase compared with the 2019 levels.Our accommodation reservation revenue achieved RMB 3.9 billion in 2023, representing a 62% increase from 2022 or a 65% increase compared with 2019. Transportation ticketing revenue for 2023 was RMB 6.0 billion, representing a 79% increase compared with 2022, or a 34% increase compared with 2019. Other business revenue for 2023 achieved RMB 2.0 billion, representing a 149% increase compared with 2022 and 280% increase compared with 2019.In terms of the profitability, our gross margin in 2023 increased to 73.5% compared with 72.6% in 2022, mainly driven by revenue scaling up. For the full year of 2023, adjusted EBITDA achieved RMB 3.1 billion compared to RMB 1.4 billion in 2024. Adjusted EBITDA margin was 26.3% in 2023, increased from 21.8% in 2022. Adjusted net profit achieved RMB 2.2 billion in 2023 compared to RMB 646 million in 2022. The net margin was 18.5% in 2023, increased from 9.8% in 2022.Going forward, we will continue to invest in products and technology, especially in preparation for our global expansion. Meanwhile, we will also increase investments in direct buying our traffic channels to further enhance our market share, while maintaining a healthy profit margin. Over the past year, we observed some fundamental changes in users travel behavior as well as the overall travel industry. The younger generation come to travel more spontaneously and visit trending niche destinations that could spark discussions on social media platforms.Moreover, local travel bureau have become more open minded and embrace the changes to better serve tourists needs through improving travel services, which further heightens travel enthusiasm. The travel fever in [indiscernible] are the examples of those changes. Entering 2024, we continue to see flourishing demand for travel across the country, especially during the Chinese New Year, in which we saw total room nights and air ticketing volume growing respectively around 35% and 45% year-over-year with international room nights and international air ticketing volume jumping more than 350% and 600%, respectively.We are far more optimistic that travel industry will continue to see robust and dynamic growth this year as Chinese people, especially younger ones, have become more inclined towards experiential consumption and have made travel an essential spending of their daily lives. We are fortunate to be in the golden age of travel industry. We are dedicated to constantly growing our core OTA business, which is the backbone of our company. At the same time, we will continue to pursue new growth drivers through innovation. We aim to establish a strong foothold in the international travel market while further expanding our hotel management and packaged tour business.Moreover, we will continuously enhance our traffic operation efficiency and seek more diversified traffic sources and monetization scenarios. By adhering to our strategic vision, we have confidence in maintaining industry-leading growth and decent profitability. We will also focus more on our ESG performance and create a more positive impact for our stakeholders, including our users, suppliers, employees and shareholders.With that, operator, we are ready to take questions now. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Brian Gong from Citi.

[Brian Gong, analyst]

Congratulations on results. I have 2 questions. First is, how do we see travel industry performance post the Chinese New Year? And how does management see the industry outlook and our performance for 2024?And the second question is that I noticed we consolidate that [ 1P ] package tour business in the fourth quarter. Can management share a bit more on the scale of its revenue and profit? And what's the business growth outlook and what synergies we see for these assets with other business?

[Lei Fan, executive]

Thanks, Brian. I think Joyce will give you some color on the Chinese New Year performance and after Chinese New Year performance. And then I will address the question about the total outlook of this year. And for the second question, also, we will talk about later.

[Joyce Li, executive]

Thank you, Brian. First, I will share with you what we have observed for the latest market situation and business performance. I know that the travel industry during the Chinese New Year holiday was very strong. So according to the industry data, the railway passenger volume had increased by 38%, while air passenger volumes saw a 50% increase when compared to last year. And for the entire first quarter of 2024, we still observed robust growth in domestic transportation and accommodation business.Both leisure travel and business travel showed promising trends after Chinese New Year this year. And additionally, what is worth to mention that international air ticketing team and accommodation business emerged as significant growth drivers for us with more than 200% growth year-over-year. And for the second quarter, we believe that the flashing demand in the first quarter will continue given the religion and the vitality of the Chinese travel industry.It is evident that the consumers consistently prioritize depending on travel experience. We have also noticed more diverse travel preference, creating additional opportunities for the industry. For example, it has been becoming increasingly popular for younger generation to combine trouble or hotel stays with eSports events, music festivals and concerts, et cetera, as we mentioned before.We will continue to explore the potential of exam rooms, which contributed quite significantly to room night sold in quarter 2. And we're also leveraging our competitive advantage to see marketing opportunities presented by this trends. Additionally, we will also focus on enhancing user value and expand our business scope, including the international business and packaged tour business to better capture business opportunities. I think these strategies will enable us to consistently outpace industry growth.

[Lei Fan, executive]

Yes. Just like Joyce just mentioned, in terms of the overall outlook in 2024 and the following, actually, we hold a very strong belief in the fundamental growth potential of China's travel industry as the strong performance during the Chinese New Year has once again proven the robust demand and also the resilience of the industry.On the demand side, we have observed a significant shift in consumer behavior leading to a surge in diverse travel needs. Particularly noteworthy is the increasing preference among individuals, spanning both younger and older generation for experiential consumption over physical goods. With the rapid acceleration of this trend towards experiential consumption, we anticipate a sustained and robust expansion in the overall capacity of the domestic travel market in the coming years in coming following quarters -- in the following quarters.In fact, the overall hotel room rent and air ticket price of the industry have remained quite high due to the surging travel enthuse assets since last year. We haven't observed any impact of the consumption downgrade on the travel industry. On the supply end, as we all noticed that recently, local travel bureaus and attractions have adopted a more open minded and innovative approach to cater to tourists needs by improving their travel services. This proactive stance further amplifies travel enthusiasms. Besides, we anticipate that ongoing improvements in infrastructure, including the development of the new airport and expansion of the high-speed train network will not only enhance the travel convenience, but also stimulate domestic travel demand.Additionally, we will continue to enjoy the benefits of increasing online penetration of travel services, especially in lower tier cities. Moreover, the Chinese government has demonstrated a strong commitment to bolstering the travel industry, as it can be a crucial catalyst for job creation, livelihood protection, and as consumption enhancements. The Chinese government also mentioned that it would be promote the development of the travel industry by cultivating smart tourism and digital transformation of tourism services.On the other hand, outbound travel and overseas local markets will also provide immense growth potential for our company. We expect that the supply of outbound travel products and services will greatly recover this year. We are ramping up our efforts to expand outbound business by enriching our product and services offerings, improving our service quality and bolstering market initiatives to better engage with our users. For overseas local markets, we also accelerate our extension plan through partnering with -- or investing in overseas TSPs as well as establishing offices in key overseas markets like Singapore, Japan and the United States.So we remain optimistic about the future growth prospects of China's travel industry. We will continue fortifying our core competitiveness advantages, focusing on improving our execution capabilities, optimizing our range of products and services and strengthening our brand influence to achieve sustainable development.And in terms of the tourism business, I think Joyce will give you more explanation.

[Joyce Li, executive]

Yes. In terms of your second question, I would like to address it, firstly, from the whole business, then I will give you some details in terms of the Tongcheng Tourism Investment Group. First, I would like to say that the packaged tour business is quite fragment and there are more than 40,000 travel agencies, but we believe the market provides tremendous growth potential. It's quite huge market in China.Although online penetration of the travel product services are increasing, a lot of people still prefer joint packaged tour, which can provide them with a trough experience, especially from convenience side. Not to mention that there are more tailored or high end packaged tour products these days, which can fulfill diversified customer demand.We accept that the disabled income of the population in China will continue to grow in the future, the more people will have the design and capital for the international travel. Since the majority of the population in China don't have much outbound travel experience, we believe they would prefer to start the outbound travel journeys by joint packaged tour at the very beginning. Thus, there will be a significant rise in demand for outbound packaged tour in the future.And as an important player in the travel industry, we would also like to participate in the packaged tour market that expand our business scope to provide all around service to our customers and to drive our long-term growth. And we believe the packaged tour business will bring significant synergies and more advantages, which allow us to capture the immerse market opportunities from the extensive potential customers, brand advantages, regional market advantage and product advantage.For the past years, we have accumulated a huge user base in the past. We believe that potentially some of these users will have demand for packaged tour products as well, especially for outbound travel. We could provide traffic support to our packaged tour business. And the range of the products of packaged tour business extensive, including domestic, outbound, inbound, cruise, visa application service, study tours, exhibitions, sports events, et cetera. So our packaged tour business process product design capabilities, particularly excels in outbound tours, study tours, et cetera.The acquisition of Beijing Tongcheng Tourism Investment Group was completed at the end of November, so there were only a little bit impact on our financial in 2023. This acquisition allow us to extend our business to provide more product service to our users and generate additional value to our company in the future.So currently for the business, they will continue to improve this year. The domestic business has recovered to 80% of 2019 level in 2023 in terms of the Beijing Tongcheng Tourism Investment Group. It may recover or even surpass 2019 level in 2024. Though the full recovery of outbound packaged tour business to 2019 level will still be limited by the flight capacity, visa issue and supply chain issue. However, we're quite optimistic that the outbound business will rebound and grow continuously this year with a positive signal of increasing favorable visa-free policies to Chinese travelers and gradual recovery of flight capacity.From the margin side, we can almost stand from the peers in the market that the GP margin and net profit margins of [ packaged tour ] business will be lower than OTA due to difference in business nature and accounting policies. However, it will increase our revenue and profit and will be our future growth drivers. Thank you.

[Operator]

Our next question comes from the line of Ellie Jiang from Macquarie.

[Ellie Jiang, analyst]

I just have 2 follow-ups. The first is on the M&A. It seems like we've been quite active in the entire M&A side. Just can management share some thoughts and strategies behind these progress and for the future, how do we evaluate potential targets? That's the first one.And then the second is really about the earlier comments towards the overseas development. Can management shed some light on the detailed kind of strategy on how do we planning to capture this demand? I guess, right now, we already see some of our peers spending quite some resources and years in the outbound side. Just wondering, how do we really compare ourselves and compare our overall capabilities in supply chain or consumer mindshare? What would capture these overseas demand? Do we think these are coming from the new users or existing cohorts?

[Lei Fan, executive]

Thank you, Ellie. Yes, in the past 2 years, we're pretty active on the merger and acquisition. Until now, we think that historical cases are very successful because one, for those cases help the company for the revenue growth and also for the profit growth. And the second thing, the cases, the M&A cases offers more products and services, different products and services to our existing customers. And also, it helps -- very helpful on our ARPU improvement because we have a few traffic and it could be better for us to do the cross-sell from our existing traffic to the new product service offerings.And in the future, we will continue to see merger and acquisition targets and opportunities, which align with our strategic priorities to drive the future growth of our business. We will continue to deepen our day out of supply chain resources to strengthen the company's foundation in the travel industry and continuously enhance our influence in industry. Meanwhile, we will look into opportunities, which can further enrich our product and services as well as generating synergies with our current business. We actually will also see opportunities which can benefit our growth in domestic and also in international markets. So that is our merger and acquisition strategy in this year and the following.In terms of the outbound opportunities, Joyce, please.

[Joyce Li, executive]

Yes. Thank you, Ellie. I think I have answered a little bit when I explained our rationale in terms of packaged tour business. So first, I would emphasize that we are confident about international business. We think that our international business will be flourishing this year. First, we think that from the macro situation, the outbound travel will exhibit strong growth due to the easier visa access and the gradual resume recovery of international flight capacity. And we would say that the recovery of our international business outperformed the industry significantly.Our international air ticketing volume in the fourth quarter last year have registered around 16% growth when compared with 2019 level. And for the industry, international flight capacity only recovered to over 17% of 2019 level at the end of February. But for us, we have witnessed a significant fast growth in outbound business, and expect to experience more than twofold increase in volume in the first quarter of 2024, with our outstanding performance in certain key destinations like Thailand, Korea, Japan, Malaysia and Singapore.We have already initiated efforts to expand the growth of our international business. We have intensified our effort to expand product service offerings for international travel by forming partnerships with the leading international OTAs, hotels, international airlines and brand overseas TSPs. We're committed to continuous exploration and innovation in new product services aiming to meet the demand of different users. We have also rolled out more marketing initiative for international travel products and to enhance engagement with our users and capture the recovery opportunities.As we have made a significant growth in user base in the past few years, we believe that these users, given their anticipated future demand for outbound travel will form the foundation for our expansion into the outbound travel market. Our focus will be on further directing outbound air ticketing, hotel booking and packaged tour business.For OTA business, we will continue to enrich our supply chain and invest in research and development to further upgrade our outbound travel products and services. Recently, some of the key popular outbound travel destinations have announced visa free policies for Chinese travelers, further facilitating the travel to these destinations.We'll be more aggressively invest into the market to grab the market opportunities. And for packaged tour business, as I mentioned, we'll further expand our online and offline customer acquisition channels to capture the [ corporate ] opportunity of outbound travel. And we will also improve our product offerings and expand travel route options while enhancing the overall customer experience. So in conclusion, we'll put more emphasis on development of our international business, which will become an important growth driver for the company in the next few years. Thank you.

[Operator]

[Operator Instructions] Our next question comes from the line of Alex Poon from Morgan Stanley.

[Chun Poon, analyst]

Management, congratulations on a very strong quarter. My question is related to our margin outlook. In 2024, given we are doing many new businesses and also we are consolidating new businesses. Can you share with us how should we think about the margin in '24?

[Lei Fan, executive]

Thank you for the question, Alex. Actually, for our core OTA business, I have to mention the margins separately. For our core OTA business, the competition in domestic is actually modest, and the business model is very matured. We anticipate that the COGS, the service development and the G&A percentage as of revenue still have some room to further optimize due to scalability. Meanwhile, as we persisted, the sales and marketing dollar as of revenue would be relatively stable. We will invest any additional savings from scalability into outbound and international business. So in this period, actually, outbound and international business is a kind of investment. But in the long run, we believe the international business is more profitable, is more profitable than our domestic business. Due to the suppliers, we have a high take rate from the suppliers and also the high consumption powers from the consumers.So therefore, we aim for a stable or slightly improved net margin in 2024 for our core OTA business. For the tourism business that we acquired last year, I think Joyce just mentioned, we could anticipate a hyper -- very hyper growth in revenue once the outbound packaged tour resume in 2024 and beyond, along with further synergies with our established online business. Although the GP margin and NP margin of tourism visits might be lower than our online business due to the differences in business models. The leadership position in the offline tourism sector maybe allows it to achieve higher and healthier margins compared with the industry peers and continuously contribute profit to our company. Thank you.

[Operator]

Thank you for the questions. There are no further questions at this time. Allow me to hand the call back to management 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 visit the IR section of our company website. Thank you, and see you next quarter.

[Operator]

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may disconnect now.[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]