Tuniu Corp (TOUR) 2016 Q2 法說會逐字稿

Hello and thank you for standing by for Tuniu's 2016 second-quarter earnings conference call. (Operator Instructions). Today's conference is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the meeting over to your host for today's conference call, General Manager of Investor Relations and Strategic Investment, Maria.

Thank you and welcome to our 2016 second-quarter earnings conference call. Joining me on the call today are Donald Yu, Co-Founder, Chairman and Chief Executive Officer; Alex Yan, Co-Founder and Chief Operating Officer; and Conor Yang, Chief Financial Officer.

For today's agenda, management will discuss business updates, operational highlights and the financial performance for the second quarter of 2016. Before we continue, I refer you to our Safe Harbor statement in the earnings press release which applies to this call as we will make forward-looking statements.

Also this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures.

Finally, please note that, unless otherwise stated, all the figures mentioned during the conference call are in RMB.

I would now like to turn the call over to our Co-Founder and CEO, Donald Yu.

Thanks, Maria. Good day, everyone. Welcome to our 2016 second-quarter earnings conference call. We had a solid second-quarter performance, with Tuniu travel GMV and net revenue growing 94.3% and 55.6% year over year, respectively.

During this quarter we continued to strengthen our number-one position in China's online leisure travel market, while quickly expanding our travel-related product offerings. Our total travel GMV maintained its fast growth momentum during the second quarter, driven by the 500% year-over-year GMV growth of our travel-related products.

Starting this quarter, we disclose our total travel GMV, which consists of our gross booking for packaged tour products, as well as the GMV of our travel-related products, such as transportation ticketing and accommodation reservations. These metrics will more holistically reflect our growth rate going forward as transportation ticketing and accommodation reservation contributions increase.

Over the years, Tuniu has developed a widely recognized travel brand in China. In addition to the fast growth of our total travel GMV, our dedication to providing superior customer service has resulted in repeat customers contributing 45.3% of our total travel GMV during the quarter.

With these core assets at hand, we believe we are well positioned to efficiently expand our product offering. With recent combination of two OTAs in China, a unique market opportunity has formed as both suppliers and customers seek more options to distribute or purchase travel products.

Over the years we have rapidly grown our business to become China's number-one online leisure travel company through consumers' strong demand for our products and services. As such, we believe the current industry dynamic is the ideal opportunity for Tuniu to leverage our developed brand and customer base to fully expand into standardized travel products, such as transportation ticketing and accommodation reservation. Our fully fledged expansion into these products will allow us to further monetize our existing customer base and unlock new growth catalysts for our business.

Now I would like to give an update on our individual product offerings in greater detail.

Our transportation ticketing business has rapidly grown across the board, with airline ticketing, rail ticketing and bus ticketing all posting tremendous growth. Notably Tuniu has made a remarkable progress, expanding its coverage of our book business and the leader travel airline routes that are less covered in the industry.

As (inaudible), in outline our airline ticketing products cover more than 4,000 cities and airports across 234 countries around the world. As a result of this increased coverage and customer awareness of Tuniu's airline offerings, GMV from transportation ticketing increased to approximately 11 times its quantity during the same period last year.

As mentioned earlier, airline companies are actively looking for online partners, with high customer service capabilities in order to diversify their sales channels. In order to facilitate their demand, Tuniu is collaborating with a large number of leading airline companies to launch their fact sheet stored on Tuniu's platform, for both domestic and international routes. As such, we expect to continue expanding our coverage of air routes going forward.

We continue to closely work with our largest shareholder, HNA Group, to extract synergies between our companies. Both Hainan Airlines and Capital Airlines product are now fully accessible on our platform and have been fully integrated into our packaged tour products. Additionally, we have been able to access HNA Group's large portfolio of resources to procure competitively priced products from its airline companies.

With years of experience servicing customers for sophisticated packaged tour products, Tuniu's expertise in customer service is industry-leading. We believe this is our core advantage in the transportation ticketing and the market.

Going forward, we will leverage our developed brand and existing customer service expertise to actively expand our transportation ticketing business.

Let's move on to our accommodation reservation business. Tuniu's accommodation reservation business delivered equally impressive results during the second quarter as it utilized our established leisure travel resources to quickly expand its coverage.

In the second quarter, accommodation reservation GMV to approximately 8 times its amount during the same period last year. Notably GMV of our high-end hotels increased 22 times year over year during the first half of 2016 and continued to sell as a [driving] factor for growth.

Our accommodation reservation products continue to focus on leisure travelers. During the first half of 2016, over 70% of accommodations were booked for leisure purpose at popular domestic and international travel destinations. At these destinations, customers booking accommodation for leisure purpose tend to have higher budgets and mostly book for four- or five-star hotels with high ASP.

Similar to the airline ticketing industry, hotel suppliers are looking for additional online channels to diversify their distribution. As such, we believe this is an ideal time for us to expand our accommodation reservation business. By leveraging our leisure travel resources and packaged tour expertise, we will be able to rapidly expand our accommodation reservation business.

Now I would like to touch on self-guided tours, which continues to be a growth driver for Tuniu. Total number of trips from self-guided tours increased 85.8% year over-year in the second quarter. In China self-guided tours continues to gain momentum, with younger travelers and seasoned travelers seeking flexibility to explore destinations. Transportation ticketing and accommodation reservations are fundamental building blocks for our self-guided tours because they are the two components that travelers generally book before they depart on their trips.

Destination-based products and local products, such as day tours, attraction tickets and car services are increasingly being booked during the trip. The fragmented and lookalike products that Tuniu has accumulated over the years is our core competitive advantage in self-guided tours as we are able to provide a higher degree of customization for our users when compared to offline or other industry peers.

Additionally, we have made strong progress in developing our transportation plus Hotel + X model. Our systems can now leverage our existing customer preference base to make smart recommendations for both routes and products to our customers. This smart recommendation system, which is driven by our big data technology, has monetized our existing customers by pushing the right products at the right time. The transportation plus Hotel + X model will increase user stickiness to our platform and reinforces our brand as the go-to platform for online leisure travel.

Overall, despite negative impact from Europe, we are confident about the long-term outlook for leisure travel in China. Drivers, such as the favorable visa policies for Chinese travelers in countries like the United States and Britain unlock new growth opportunities for the market.

As the current market leader in online leisure travel in China, we are well positioned to take advantage of any market opportunities. As the scale of our business continues to expand, we (technical difficulty) to benefit from the operating leverage achieved in our packaged tour business and as the increasing margin contribution from our travel-related products.

Starting from the second quarter of this year, we will implement cost control measures in order to unlock our profitability potential and Tuniu's brand value. We are pleased with our increasing customer base and the developing reputation as a one-stop online travel agency. We believe we can rapidly grow our transportation ticketing and our accommodation reservation business without significant investment due to our already established brand.

Additionally, our core expertise in customer service will differentiate us from other industry peers for transportation ticketing and accommodation reservations. By leveraging these core assets, we expect to continue expanding our market share in China's online travel market.

I will now hand the call to Conor Yang, our CFO, for the financial highlights.

Thank you, Donald, and hello, everyone. I will now walk you through our second-quarter 2016 financial results in greater detail. Please note that all the monetary amounts are in RMB unless otherwise stated. You can find the US dollar equivalents of the numbers in our earnings release.

Total leisure travel GMV for the second quarter increased by 94.3% to RMB4.5 billion. Packaged tour gross bookings for the second quarter increased by 54.8% year over year to RMB3.3 billion, including 65% from outbound tours. For the second quarter, net revenues were RMB2.4 billion, representing 55.6% year-over-year growth.

Revenue from organized tours, substantially all of which are recognized on a gross basis, were up 50.9% year over year to RMB2.2 billion and accounted for 93.7% of our total net revenues for the quarter. The increase was primarily due to the rapid growth in demand for travel to certain international destinations, such as the Middle East, Africa, Southeast Asia, Australia, New Zealand and North America.

The number of trips for organized tours, excluding local tours, increased by 98.1% year over year to over 610,000 and the number of trips of local tours increased by 33.3% year over year to over 634,000.

Revenue from self-guided tours, which is recognized on a net basis, was up 93.9% year over year to RMB67.1 million and accounted for 2.8% of our total net revenues. The increase was primarily due to the growth in travel to domestic destinations, Southeast Asia, North America, Middle East and Africa. The number of trips for self-guided tours increased by 85.8% year over year to over 420,000 in the second quarter of 2016.

Other revenues were up 247.3% year over year to RMB85.7 million, primarily due to rising service fees received from insurance companies, revenue generated from financial services and commission fees received from other travel-related products.

Gross margin for the second quarter of 2016 was 5.1% compared to 4.7% in the same period in 2015. The increase in gross margin was primarily due to the increased contribution from other revenue as a result of category expansion and the optimization of product cost structure.

Operating expenses for the second quarter of 2016 were RMB900.6 million, up 147.5% year over year, excluding share-based compensation and amortization of acquired intangible assets. Non-GAAP operating expenses were RMB842.3 million, representing a year-over-year increase of 139.6%.

Research and product development expenses for the second quarter of 2016 were RMB141.3 million, up 129.6% year over year. The increase was primarily due to investments for the implementation of additional product categories, such as transportation ticketing, accommodation reservations and financial services, increase in direct procurement-related personnel, improvement of online technology and the rise in technology and product development personnel-related expenses.

Sales and marketing expenses for the second quarter of 2016 were RMB623.3 million, up 169% year over year. The increase was primarily due to branding campaigns, such as advertisements on certain TV programs during the quarter that were signed last year and offline advertisement campaigns. In the second half of this year, this portion of expenses will be significantly reduced.

The increase of certain marketing expenses was also due to the expansion of our VIP customer service team and amortization of acquired intangible assets from the previously announced transaction with JD.com.

General and administrative expenses were RMB141.5 million in the second quarter of 2016, up 93.9% year over year. The increase was primarily due to an increase in the headcount of our administrative personnel as a result of our business expansion, such as regional service center expansion and product category expansion.

Net loss attributable to ordinary shareholders was RMB764.8 million in the second quarter of 2016. Non-GAAP net loss attributable to ordinary shareholders, which excluded share-based compensation expenses and amortization of acquired intangible assets, was RMB706.3 million in the second quarter of 2016.

As of June 30, 2016, the Company has cash and cash equivalents, restricted cash and short-term investments of RMB5.9 billion.

Cash flow generated from operations for the second quarter of 2016 was RMB141.4 million. In the second quarter, excluding the impact of the prepayment to HNA Tourism, the cash conversion cycle was negative 29 days compared to negative 37 days in the corresponding period last year. Capital expenditures for the second quarter of this year were RMB34.8 million.

Now let me provide the top-line guidance for third quarter of 2016. Tuniu currently expects to generate net revenue in the range of RMB3.9 billion to RMB4 billion, which represents 30% to 35% growth year over year. Please note that this forecast reflects Tuniu's current and preliminary view on the industry and its operations, which is subject to change.

Thank you for listening. We are now ready for questions. Operator?

(Operator Instructions). Our first question comes from Eric Wen of Blue Lotus. Please go ahead.

(Spoken in Chinese). Thanks very much for taking our questions, [Yu, Yan], Conor and Maria. Good evening. I want to know more about the composition of our third-quarter guidance and the growth rate of each of our business and also the factors that influence the third-quarter guidance.

And my second question is I want to get more color on the take rate of our new business in airline ticketing and hotel booking. Thanks.

Well, yes, the -- our guidance for the third quarter was 30% to 35% year over year, but this is on the US GAAP revenue. In terms of the different segment of growth, our current trend is like we have experienced a higher growth rate for our self-guided tours versus organized tours. So when you translate to US GAAP revenue, mostly it's organized tours. So you can expect that the rate we are announcing for the forecast is very -- is pretty much in the organized tours growth rate.

And self-guided tours growth rate, which recognized on net basis will be higher than that -- definitely higher than that. And also the other revenue, especially the travel-related products, such as air ticketing, hotel reservations definitely will be growing at like triple-digit growth rate.

And you might be wondering why the guidance is not as high as in the past. Firstly, as I mentioned that organized tours, this is reflecting mostly organized tours growth rate, but we also have experienced a very strong growth rate from self-guided tours, especially also the -- our air ticketing, transportation and accommodation growth rates. That's in total our -- all customers. That's why, starting from this quarter, we have also let the street know that our total travel-related GMV growth rate.

And the take rate for airline and hotel, airline, including the insurance, is roughly between like slightly above 2% to 3% -- between 2% to 3% in total. In the hotel sector we currently have about 6% to about 7%, more or less. Going forward, we -- the hotel, as we continue to expand, the take rate might increase.

Thank you, Eric.

Okay. Yes. (Spoken in Chinese). Now I just want to clarify that the third-quarter guidance from the GMV perspective, how the growth rate looked like. Thanks.

Yes, as I said (multiple speakers).

(Multiple speakers).

Right. Right. Organized tour is about in the range of -- in line with our guidance. And self-guided tour GMV will be higher than that. And the travel-related product GMV will be growing at, again, at least triple-digit growth rate. Thank you.

Okay. Thanks. (Spoken in Chinese).

Our next question comes from Alvin Jiang of Deutsche Bank. Please go ahead.

Hi, management. Thank you for taking my question. I have quick questions on the margins. Can you give us some more color on the margin outlook for the coming quarter and also for the next year, especially considering you're investing and expanding into the new business, like air tickets and hotels?

(Spoken in Chinese).

(Spoken in Chinese).

(Spoken in Chinese).

On the package tour take rate that -- in the past we have been maintaining a very competitive pricing strategy. And in turn we also have a very high growth rate. Going forward that we believe that the take rate of our package tour will gradually increase. And as we have achieved a number on market share, then we think that for this business we will maintain a stable growth. In the meantime, continue to increase the take rate gross margin.

In terms of the air ticketing, hotels that we have an open platform strategy that [happened] to many suppliers' inventory for this business. And in the hotel sector that we are especially focusing on the four-star, five-star range of the hotel in the leisure travel that's mentioned. And that will particularly have a higher margin than average hotel booking. So overall I think these two sectors will continually improve.

In terms of when you translate into the US GAAP gross margin, you can see for the last two quarters we have improved -- continually improved our gross margins. And especially the composition of the other revenue has been increasing very quickly, that current -- the second quarter we have increased over 240% year over year on the other revenues. That will be an important contributor going forward for the US GAAP gross margin improvement.

So we also expect that, going forward, that on the reported gross margin we'll continue to improve. Thank you.

Okay. Thank you. So how about if we included all the expense, OpEx, how about the margin trend for operating margin?

(Spoken in Chinese).

Yes. As we also stated in our earning release and also the script earlier that the second quarter, we have encountered a pretty large loss. And we have invested in our branding for the last two-plus years. And we believe it's time that we should leverage this investment, so we have also taken, starting from the second half of this year, cost-control measures.

We'll be focusing on improving gross margin as well as decreasing the operating expenses as a percentage of our revenue. So we're expecting, going forward, the loss as percentage of revenue will definitely improve. Thank you.

Thank you.

Our next question comes from Natalie Wu of CICC. Please go ahead.

Hi, management. Thanks for taking my question. A quick question on the GMV contribution. So if I calculate the GMV contribution from organized tours and self-guided tours, actually the mix has been shifting towards self-guided tours since the last third quarter. However, the contribution from self-guided tours dropped this quarter from 39% to 35%. So just wondering what's the reason behind and how should we expect the contribution from self-guided tours in the next quarter and also in the longer term? Is there any specific target behind your next quarter's guidance, say 40% GMV contribution from self-guided tours or something?

And I also have a quick follow-up on the prior question, on the prior answer, on the hotel take rate. You mentioned that the current take rate for the hotel business is 7%, so just wondering if it's gross take rate or net take rate.

Yes, that will be the gross take rate. And Natalie, to answer your question, yes, compared to organized tour and self-guided tour, you are right that we have seen that higher growth rate coming out from self-guided tours overall. The percentage of contribution to GMV from self-guided tour is slightly below previous quarters. That is due to seasonality.

Typically, in the first quarter, the self-guided tour percentage is higher, but overall that the growth rate right now is -- self-guided tour growth rate is higher than organized tours. And going forward we believe that will continue to be the trend. And that's why we are very focusing right now on the air ticketing, hotel, transportation ticketing, hotel reservations, to cope with this self-guided tour trend, as well as we have strengthened lots of product offerings in the destinations.

So, for example, lots of destination-based tours, lots of visitors -- our customers right now, they might purchase their own air ticket, but they fly to a destination. Then they purchase our product for like a three-day tour or four-day tour, for example, in Kunming, in Yunnan, so this kind of tour becomes very popular. We have lots of product offers for that, as well as the destination-based products. So we're expecting this trend will continue to grow faster. Thank you.

Thanks, Conor. So just a quick follow-up. What should we expect the GMV contribution from self-guided tours for the next quarter? Say, 40% are expected?

This quarter is about 33%, 34%, right?

Yes.

So third quarter, it really depends. Overall, as I say, this is the trend. But on the organized tour, one of our largest destinations, which is Europe, that continues to have a negative impact from this terrorist event. For example, during the second quarter also terrorist attack in Belgium, that's an important contribution of our organized tours.

If everything is peaceful over there, that portion of business might gradually recover and will contribute a higher percentage. So, yes, so kind of two sides. Overall that self-guided tour might grow -- should grow faster. But self-guided tours, once Europe is recovered, the situation will be better than the current status. Thank you.

So is our current guidance?

Right now it's not -- we are not considering the recovery from Europe, so that's the guidance of -- we have given today, 30% to 35% of the net revenues.

Great. Got it. Thanks, Conor.

Okay. Thank you.

Our next question comes from Amanda Chen of Morgan Stanley. Please go ahead.

(Spoken in Chinese). I will translate myself. So we can see that this quarter the air ticketing and the hotel revenue is growing quite fast. So I'm just wondering how much of the revenue is contributed by consumers who bought the package tour products before? That's my first question. Thank you.

(Spoken in Chinese).

In the second quarter of our business at 45.3% GMV was contributed by our old customers, and this is overall as a Company. But in terms of the air ticketing and hotel GMV, we will be pretty similar to this number but slightly higher.

We did not really put a lot of advertising for air ticketing and hotel reservations. And so I think that's why the most of this business is coming out from existing customers and pretty much in line with the whole Company. Thank you.

Got it. Thank you. And my second question is regarding your organized tours. If we look at the revenue -- sorry, the gross booking value for organized tours, it just seems that the ARPU is declining a little bit over past quarters. So may we know the reasons behind? Because of the price war or because the demand is weak so you have to cut price to clean your inventory? Thank you.

Yes, we -- firstly that we did not cut price for organized tours. The reason overall as the customer number is growing a lot faster than our GMV, that means the ASP is declining. There's a few -- several factors. Firstly that the European business still has an impact and Europe has the highest ASP among the organized tour products. The customers, instead of going to Europe, they go to other places with a lower ASP.

And secondly that there are certain trends right now that customers that travel, maybe they book their ticket by themselves. Then, for example, within China they fly to Yunnan and then they purchase our destination-based tours. For example, they purchase our four-day tours, organized tour in Yunnan. So for that kind of product, package actually is without transportation, so just a local tour ASP is lower than the package with air ticket.

That is -- we see a pretty increasing trend on these, so we're also happy to see the total customer numbers increasing a lot faster. So that's a reason overall the organized tour ASP is not as high as before.

Got it. Very clear. Thank you. And the final question is regarding the hotel. A quick follow-up is on your take rate. You said the 7% is gross take rate. So how about the net take rate? That's first.

And the second, can you share with us more metrics? For example, how much GMV is from four- or five-star hotels? How much is from international hotel and also what's the ASP for now? Thank you.

Sorry, Amanda, was your first question regarding to take rates?

Yes, the net -- you just said that gross take rate is 7% right? 7%. So how about the net take rate after you deduct the coupon paid to consumers?

Well actually we did not using coupon as promotion strategy, so it's pretty much that's the take rate. We did not -- right, right. There's no couponing activity for hotels.

And in terms of the -- the majority of our gross hotel booked reservation is for higher stars of hotels, so ASP we believe is highest among the peers. We have --

(Spoken in Chinese).

Right. ASP is between RMB400 to RMB500 per night. If you compare to our peers at all [tiers], which is higher.

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(Spoken in Chinese).

Right. So about 40% to 50% of our customers for hotel reservation is they're booking for four- to five-star hotels.

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Currently the international hotel reservation is about 10% of our hotel reservations.

(Spoken in Chinese). Thank you.

Okay. Thanks, Amanda.

Our next question comes from Evan Zhou of Credit Suisse. Please go ahead.

Hello. Hi, Donald, Alex, Conor, Maria. Thanks for taking my questions. I have a quick follow-up on our profitability. I think you've been making some comments on our effort on cost control, our improving gross margin. So I was wondering, do we have a ballpark for P&L and cash flow profitability outlook into maybe probably second half next year? I think that that was the original cash flow breakeven target that we used to have. So I was wondering if that target still holds.

And also second is regarding our use of cash. You've actually announced roughly $150 million of share repurchase program. So I'm wondering if it's a decent chunk of cash that will be put into use in this program. So I was wondering like any -- that actually ties back to our cash flow situation, so any kind of colors that you can provide on the cash flow trend or outlook into the following quarters, that would be very helpful. Thank you.

Right. This is the first time we have spoken about taking cost-control measures. In the past, when over -- we have been experiencing a very high growth stage, and in the meantime operating expenses has increased a lot. And it's time to leverage our investment on the regional expansion, on the branding campaign, as well as on category expansion.

So we will take a very effective control on the -- all the operating expenses going forward in the next two years. Especially coming out fourth quarter and then next year, we will see the very significant improvement on the loss. And today we announced this $150 million cash share buyback. We actually are very confident about our cash level to cope with our plan for the cost reduction. Yes. That's why we are taking this action.

Thanks, Conor.

Thank you, Evan.

Our next question comes from Juan Lin of 86Research. Please go ahead.

Hi. Good evening, Conor, Donald and Maria. Thanks for taking my questions. I have a follow-up question on Europe. Although Europe, the recovery of tours to Europe has not been factored into your guidance, at this point in time have you seen -- already seen any improvement for Europe tours or whether Europe weakness is going to be a full-year phenomenon rather than just two quarters' impact?

And then, with that, what is your observation on the tour bookings for the October holiday, whether it is still as strong as the previous years? This is my first question.

And second question is margins for accommodation, reservation and transportation ticketing business. What is current margin for these two products? And at what scale do we expect these new products, new businesses to turn profitable? And what is the long-term margin target for accommodation, reservation and transportation ticketing? Thank you.

(Spoken in Chinese).

(Spoken in Chinese).

And for Europe that we have seen so far, there's no sign of recovery back to its normal level. We believe probably more clear sign will be at end of this year or beginning of next year. And for the national holiday, it's just the beginning for bookings so it's hard for us to comment on that.

I think your last question is the --

(Spoken in Chinese).

(Spoken in Chinese). Sorry, (inaudible).

For the hotel right now, we're using open platform, so the take rate is about 7%. Going forward, when we continue to increase our size, we will start to do in certain areas on the direct procurement, especially focusing on the high end, like four- to five-star hotels. And we expect that by doing so, the take rate should improve from the current level.

In terms of air ticketing, the take rate is pretty standardized for us. We're about 2% to 3% including insurance right now. And going forward we will continue to expand into areas such as focusing on business class, first class, which has higher margin, as well as the overseas air ticketing, which also has a higher margin. So by balancing different product mix, hopefully can improve the overall take rate of air ticketing. Okay.

(Spoken in Chinese).

(Spoken in Chinese).

Whether the July 1 new policy from airline companies in China has a certain impact on the take rate and what's our proportion of business in the overseas air ticketing, but overall that currently when we announced that about 2% to 3% take rate, mostly it's under the consideration of the new policy. And this actually is helpful overall for the whole industry going forward.

And in terms of the overseas proportion of the air ticketing, currently we have about between 10% to 20% of the air ticketing that is sold for overseas outbound area.

(Spoken in Chinese).

When -- just one comment on the earlier question that the percentage of the overseas hotel reservations, earlier we said that 10%, that's the -- it does not really including Taiwan, Hong Kong and Macau. It's including all the overseas -- overall hotel booking for us is about 20%.

Thank you very much.

Thank you.

Our next question comes from Wendy Huang of Macquarie. Please go ahead.

Thank you. I think firstly you have already mentioned the domestic and the international breakdown for both hotel and air ticketing. I just wonder if you have this kind of breakdown for your overall GMV and the revenue.

All right. The overall GMV for this second quarter is 65% of our GMV coming up from outbound and 35% for domestic.

How about revenue then?

Because revenue mostly is for organized tours, and actually it's a very similar proportion. Yes.

Okay. Also the -- can I just confirm that in your prepared remarks you mentioned that you have already obtained the license, the direct sales license from all the airlines or just with the Hainan and the Capital Airlines?

Wendy, can you state that --?

(Spoken in Chinese).

(Spoken in Chinese).

Okay. Okay.

Right, right. What we're referring to is really like the flagship stores for different major airlines that we have obtained, like Hainan Airlines, Capital Airlines and many few others. So definitely in this year, all these major airlines in China will have direct flagship stores linked with our air ticketing platform. Thank you.

Thank you. The follow-up on that, do you have the booking, air ticketing booking volume breakdown from Hainan and Capital Airlines that you have special relationship versus the three other major airlines?

Actually, everyone is very clear about these four airlines' market share in China, and with us that Hainan actually ranked the top among these four in market share. The rest of the airlines is very similar to the overall market share in China. So Hainan is currently slightly higher than the other three.

Okay. And also I think many people already asked about your Q3 revenue guidance. I just want to confirm that you are guiding the revenue growth to decelerate from 56% this quarter to 32% or 35% in Q3. Was that mainly due to the -- some weakness in some regions or mainly due to dilution impact from the new customers?

Yes, there's several factors. Firstly, overall of our business momentum is still quite strong. The GMV is growing well, well above the reported GAAP revenue, because reported GAAP revenue is mostly organized tours, which are recognized on a gross basis. And as we have experienced a higher growth rate coming out from self-guided tours, now it's only booking at the net for our revenue.

So, for example, if you see our second quarter, we have a lot higher growth rate for self-guided tours, as well as the other revenue, which is including the air ticketing and hotel booking. That is also catering for self-guided tours customers.

The other factor is, as I mentioned, that we'll start to take more cost control measures to -- especially offline campaigns for branding will be greatly reduced from the second half of this year. So we hope that in our [sights], once we have reached number-one market share in this online leisure travel, we will maintain a more reasonable growth rate, in the meantime have a better cost control overall to improve the loss percentage as a percentage of revenue and eventually going to breakeven in the future.

Thanks, Conor. When you say implementing the cost control [in half], do you have a dollar amount budget in mind? And also I think in past quarters, the operating loss actually doubled year over year, although [the value] actually only increased by 56% year over year. So with this kind of cost control to be in place, when should we actually expect Tuniu to become self-funded?

Well we have -- internally we have a very clear plan and target the pass-through probability. However, we did not provide the guidance detail on this. And in the second quarter, yes, our operating expenses are growing a lot. But our overall GMV actually is also growing like 90% something.

And one of the reasons the second quarter is especially high on the marketing is we have a pre-committed contract on the popular TV program The Running Man, which cost a lot. We signed for that last year, but it's broadcasting in the second quarter. So that is the reason this advertising expense is very high this quarter.

But going forward, that part of offline campaign will be greatly reduced. I think we'll maintain above industry growth rate on the overall GMV, total GMV. In the meantime, we'll manage on the cost expenses side going forward.

If The Running Man, that particular show is a [moving] factor here, do you mind sharing the dollar amount outstanding on that present campaign so that we can actually model in actually [in-house]?

Right. In the second quarter, overall offline (technical difficulty) is close to 50 -- close to half of what we have spent on the sales and marketing, so on the advertising second quarter.

I see. And lastly --

And of course, the self marketing -- out of this RMB600 million something sales and marketing expenses, there are -- we have, other than advertising, which is about RMB500 million plus, the rest are composing of VIP customer maintenance, VIP customer teams, as well as certain personnel-related expenses.

That's very helpful and clear. Lastly, housekeeping. Do you have the number of the hotels that you have signed in China and overseas respectively?

Currently we are using a smart kind of platform to tap into many suppliers or other OTAs for hotel supply. We have not signed directly in the larger scale. However, in our package tour area and especially lots of destination-based hotels, we have signed quite a number of those and we'll leverage our procurement power on the package tour to also using this for the hotel reservation channel.

And as Alex mentioned earlier, once we reach a certain scale in hotel reservation, then we will go next step to more direct procurement in the hotel sector, especially focusing on four-star, five-star hotels, high-end hotels. Thank you.

Then what's the coverage through the open platform then?

Sorry, Wendy, what's your --?

Sorry, that's my last one. Just what's the hotel coverage through the open platform then? (Spoken in Chinese).

Sorry, I'll just answer that, that the hotel coverage is about 600,000 hotels, domestic as well as international hotels. Wendy, does that answer your question?

Thank you. Thank you very much.

Thank you. Yes, operator?

All right. This concludes our question-and-answer session. I would now like to turn the conference back over to Conor Yang for any closing remarks.

Once again, thank you for joining us today. Please do not hesitate to contact us if you have further questions. Thank you for your continued support and we look forward to speaking with you in the coming months.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a good day.