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Ctrip.com International, Ltd.  (NASDAQ:CTRP)
Q3 2018 Earnings Conference Call
Nov. 07, 2018, 7:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, welcome to the Third Quarter 2018 Ctrip.com International Limited Earnings Conference Call. My name is Edward and I will be the moderator for today.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes.

Now, I'll hand the call to Chief Communications Officer, Mr. Victor Tseng. Please begin. Thank you.

Victor Tseng -- Chief Communications Officer

Thank you. Good morning, and welcome to Ctrip's third quarter 2018 earnings conference call. Joining me today on the call are Mr. James Liang, Executive Chairman of the Board; Ms. Jane Sun, Chief Executive Officer; and Ms. Cindy Wang, Chief Financial Officer.

During this call, we will discuss our future outlook and performance, which are forward-looking statements made under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risk and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in Ctrip's public filings with the Securities and Exchange Commission. Ctrip does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

James, Jane and Cindy will share our strategy and business updates, operating highlights and financial performance for the third quarter of 2018, as well as the outlook for the fourth quarter of 2018. After their prepared remarks, we will have a Q&A session.

With that, I will turn the call over to James. James, please.

James Jianzhang Liang -- Co-founder, Executive Chairman of the Board

Thank you, Victor and thanks to everyone for joining us on the call today. Ctrip continued making solid progress on every front of our business in the third quarter of 2018. Despite the softer growth of overall market during the quarter, we increased a multiple by which we are operating the industry's average growth. We remain confident in and enthusiastic about the future long-term opportunity presented by both China's and the global travel industry and are working hard to further extend our market position.

To start, I would like to share some of our thoughts on China's macro economy. We believe China will continue to be one of the fastest growing economies in the world going to the next decade, driven by technology advances, continued urbanization and the evolution to a consumption and service lead growth model. This will sustain the growth of China's middle-class over the long term.

Travel industry will naturally benefit from China's sustained economic growth. There are couple of drivers that I am particularly excited about going forward for the China's travel industry. One, China has the largest network of high speed rail, expanding over 25,000 kilo meters twice that of the European system. By 2020, the high speed rail will connect more than 80% of the Chinese cities with a population over a million. This is helping make domestic travel very accessible and economical. In fact, when recently launched first high speed rail to our channel on Ctrip app, within the first month, daily orders reached as high as 100,000.

Two, China's commitment developing economic strategy will continue to drive the growth of international travel. China's airborne travel base is already the world's largest, spanning over USD200 billion overseas last year, but currently accounts for less than 10% of total Chinese population. In past years, China's new passport insurance maintained annual growth of approximately 20%. Moreover, the Chinese passport can now allow Chinese to travel to 74 countries and territories around the world, with no VISA over VISA arrival requirements.

Inspite of the short-term fluctuation in airborne travel growth, Ctrip is dedicated to extend our core competencies in international destination to meet the long-term demand of Chinese international travelers. Furthermore, leveraging China's advantage as the world's largest tourism source market, we are strengthening our global supply chain capability for non-Chinese users booking through Ctrip.com and Skyscanner.

Third, foreigners traveling to China account for fewer than 30 million over night ships, once you take out visitors from Hong Kong, Taiwan and Macau, according to the Ministry of Culture and Tourism. There is a vast potential to increase this volume when compared to United States which has over 75 million inbound tour visitors every year. And according to global research firm Euromonitor the recent report, China is said to become the world's number one tourist destination by 2030. Our global brands Ctrip.com and Skyscanner representing over 90 million monthly active global users in the prime position to capitalize on opportunity to bring more foreigners to China.

As such, we are excited about the opportunities into China Travel Industry that lie ahead. And as historically we have out paced China growth -- GDP growth by over 4 times, Ctrip is set to continue strengthening our market leadership position. Next month, we will celebrate -- we will celebrate the 15th Anniversary of our IPO on NASDAQ. We have established a strong track record and are committed to continuing, riding the travel growth wave.

During the high tides, we can boost our scale in profitability, during low tides, we can extend our competitive advantage in an accelerated market share gain. We'll continue to work hard to extend the advantage of the scale, while seizing the opportunities presented by the globalization to drive Ctrip's long-term success.

With that, I'll turn the call over to Jane.

Jane Jie Sun -- Ctrip.com International Ltd

Thanks, James. Hello, everyone. Ctrip reported solid result in the third quarter of 2018. In particular, accommodation revenue grew 21% year-over-year, mainly driven by volume growth. In a mid to high end hotel segment, we have extended our leadership over our peers with the growth that doubled the hotel industry rate. In the lower end hotel segment, Ctrip brand volume growth further accelerated to around 50% year-over-year.

Transportation volume growth 6% year-over-year. We continued to see strong volume growth across transportation product category, while revenue growth was still impacted by the domestic air ticketing booking adjustments, that we initiated in the second half of the fourth quarter last year. For the trailing 12 months ending September 30th 2018, GMV excluding Skyscanner increased by approximately 30% year-over-year, reaching RMB690 billion. Non-GAAP operating margin reached 20%, continuing its consistent improvement from previous quarter.

Today, I would like to share update on four points, Ctrip's customer base, user engagement, supplier network and international development. First, on customer base, Ctrip has a large growing and a loyal customer base, which include 110 million monthly active users in China and more than 90 million outside of China, across our portfolio of trusted brand. Ctrip, Qunar, Trip.com and Skyscanner in total this brings us over 200 million users, making Ctrip one of the largest travel (inaudible) company in the world.

Ctrip and Qunar brand alone generate 130 million annual transacting customers in China that spent more than RMB5,000 per year on our platform. Despite the large scale in China, there is still huge potential for us to expand our customer base. According to a recent study, China's middle-class population will grow from 430 million in 2017 to 780 million in the next 5 years to 10 years.

We have seen that when customer have a real travel demand, they prefer to use Ctrip to provide them with not only comprehensive travel product, but also the most reliable services. 70% of our customers are in that age of 35. Over the next -- past five years within this number, young generation users under the age of 29 continues to grow from 30% to almost 50%, which represent the fastest growing age group in our portfolio.

In addition, our customer has demonstrated strong loyalty and opinion on our platform. This is primarily due to our one stop shopping solution and superior service capability. Once our customer experience the Ctrip services, our annual repurchase ratio is 40% to 50%, while, our annual repurchase ratio increased to 70% to 80%. Just as importantly, according to our core data, we have been able to also increase their average travel spending each year by multiple fold, resulting in our repeating customer accounted for around 80% of total transaction. Second, our user engagement, the Ctrip app has become the go-to-platform for Chinese travelers. We make it a super app for travel users.

Our users are engaging with us more-and-more throughout their travel research, reservation process and in destination front. Our app covers also 60 travel related products and services, meaning, we're also one of the most comprehensive selection and are capable of covering all demand of a typical customer travel itinerary. We have around 6 million point of interest that include travel destination information, attaching ticket, restaurant et cetera. And those point of interest are supported by a vast number of user reviews to assist our users in finding, selecting and booking in-destination product. As a result, 30% to 40% of our air traffic during peak travel season is generated from our users, while they are in destination.

Ctrip's domestic in destination activity transaction grew 60% year-over-year and international in-destination transaction grow 120% year-over-year for in-destination activity during the third quarter. Third, expanding our mobile network and a strengthening partnership. As we continue expand our hotel on the network, the number of the hotels with guaranteed allotment increased by 160% year-over-year within China. We have launched a flagship store for and are ready seeing -- and already seeing thousands of incremental daily room night for the true brand being booked through our flagship store. We are currently further expanding it's initiative with more flagship stores currently under development.

By leveraging our unique insight into our travel market, Ctrip is helping our partners to better utilize our platform to understand our customers. To date, 70,000 hotel managers are taking training courses at Ctrip Hotel University and witnessed a good boost in booking volume post the training. For airline partners, Ctrip is also committed to helping airlines to improve operating efficiency and to developing innovative membership service system. For example, last month Ctrip and KLM signed a strategic partner agreement to deepen the mutually beneficial cooperation.

Fourth our international development, Skyscanner is already one of the largest travel platform in the world. And in the third quarter its growth increased by 26% year-over-year. Direct booking grew approximately 250% year-over-year, contributing around 10% of Skyscanner's total worldwide bookings.

In late September, we officially launched a real app for international trains or trainpou(ph), this is also our first product, aimed at international audience to come out of our baby type of program, which is an internal program that has fostered many internal travel innovation and businesses for Ctrip throughout the year. Trainpou utilizes technologies to sort through all the available route and provide cheapest fair for our users. To date, Trainpou users have on average saved nearly 40% on train tickets, when using Trainpou. The long-term vision for the app is a one-stop shop for global real booking, allowing our users in any geography to book rail system anywhere in the world.

In summary, we are seeing our large growing and the loyal base continue to increase their engagement on Ctrip platform. We are selling more travel products across our customers travel itinerary and we have become increasingly diversified with revenue coming from our international businesses. We have historically outpaced China's GDP growth by a factor of four, with our strong foundation in travel industry, despite the ongoing macro uncertainty we are confident that we are the best travel company to capture more travel opportunity ensure the growth going forward.

With that, I will turn the call to Cindy, she will walk you through the details of our financial results.

Cindy Xiaofan Wang -- Chief Financial Officer

Thanks, Jane. Thanks, everyone. For the third quarter of 2018, Ctrip reported net revenue of RMB9.4 billion, representing 15% increase from the same period in 2017. Accommodation reservation revenue for the third quarter of 2018 was RMB3.6 billion, up 21% year-on-year, primarily driven by increase in accommodation reservation volume. We further expanded our total global hotel coverage by over 20% year-on-year, reaching 1.4 million property. International hotels continued to outperform the industry more than doubling the industry growth rate.

Transportation ticketing revenue for the third quarter of 2018 was RMB3.6 billion, representing a 6% increase from the same period in 2017. Air ticketing maintained strong volume growth, particularly our international air ticketing growth almost tripled outbound industry growth. Similar to the first half of the year, revenue growth was offset by the decrease of per air ticket segment revenue, which is related to the operating adjustment we discussed in previous quarters. We expect the situation will improve in the following quarters with comparatively easier comp.

Trip.com continue to perform exceptionally well in the third quarter and achieved double-digit growth in air ticketing volume for the eight consecutive quarter. Long transportation including train ticketing, bus ticketing, ferry ticketing and car services continued its strong performance. In September, we launched the trainpou a rail ticketing app for the international market to help local user find the cheapest railway ticket.

Packaged tour revenue for the third quarter of 2018 was RMB1.4 billion, up 28% year-on-year, primarily driven by increase in volume growth of both organized tour and self-guided tour. By the end of the third quarter, we have over 7,000 offline stores covering more than 200 cities in China, gross transaction value through offline stores increased over 80% year-on-year.

Going forward, we'll open more stores to increase our penetration in targeted lower end cities. Customized tours also delivered exceptional performance with both booking increased by 65% year-on-year. In the third quarter, the first class of graduates from our customized tour training camp went into the business. We had showed that the conversion rate by inquiry to booking were increased four time for these tour planners.

Corporate travel revenue for the third quarter of 2018 was RMB267 million, up 31% year-on-year. The growth in corporate travel business was primarily driven by the expansion of our travel product coverage. Over 70% of our corporate travel users are making bookings, approving orders and changing itineraries by Ctrip based mobile app.

Other business including advertisement, financial services and others increased by 6% year-on-year in the third quarter of 2018 reaching RMB503 million. The deceleration of growth compared to previous quarter mainly related to the high advertisement revenue base in the third quarter of 2017. Gross margin was 79% for the third quarter of 2018, compared to 84% in the same period in 2017 and 80% in the previous quarter. The year-over-year decrease in gross margin was mainly due to the decrease of per air ticket revenue due to operating adjustment.

The sequential decrease in gross margin was mainly related to higher service cost, as we upgraded service quality to be more customer-centric, an effort in expanding our international service team and increase the revenue mix from certain lower gross margin business that we consolidated in previous years. Excluding shared-based compensation charges, total non-GAAP operating expenses grew 13% year-on-year and 18% quarter-over-quarter in the third quarter of 2018. Product and development expenses and G&A expenses delivered continued operating leverage as we achieved higher scale economy, with a steady headcount. Sales and marketing efficiency continued to improve through product innovation for targeting customers and an improved cross selling ratio.

On average, the acquisition cost per user is only a very small fraction of their average annual revenue contribution to Ctrip either as many of these new customers are coming from lower tier cities. Non-GAAP operating profit in the quarter was RMB1.9 billion, compared to RMB2 billion in the same period in 2017 and RMB1.2 billion in the previous quarter. Non-GAAP operating margin for the third quarter was 20% increasing from 16% in the previous quarter, mainly related to the operating efficiency improvement.

The company adopted a new financial instrument accounting standard from January 1st 2018 and measured it's available for sale equity securities at fair value with gain and losses recorded through the income statements. The impact of applying this new standard for the third quarter of 2018 resulted in a loss of approximately RMB2.5 billion in net income, net of tax.

Diluted loss per ADS were RMB2.08 or USD0.30 for the third quarter of 2018. Excluding share-based compensation charges as fair value changes of equity securities investment, non-GAAP diluted earning per ADS were RMB2.88 or USD0.42 for the third quarter of 2018. As of September 30 2018, the balance of cash and cash equivalent, restricted cash and short-term investments was RMB63.3 billion or USD9.2 billion.

On October 15th 2018, the company has elected to pay back USD476 million in cash in connection with it's outstanding convertible senior notes due 2018, including interest instead of a potential dilution of more than 1.5 million ordinary share.

Now turning to the outlook. For the fourth quarter of 2018, the company expects the net revenue growth to continue at a year-on-year rate of approximately 15% to 20%, which is calculated on the estimated net revenue of the fourth quarter of 2018, under the new revenue recognition standard and the net revenue of the fourth quarter of 2017 which respectively adjusted. This forecast reflects featured current and preliminary view, which is subject to change.

That concludes our prepared remarks. Operator, now please open the line for questions.

Questions and Answers:

Operator

(Operator Instructions) Binnie Wong from HSBC. Please go ahead.

Binnie Wong -- HSBC -- Analyst

Good morning, James, Jane and Cindy. Thank you for taking my questions. Hi, James. My first question is on the macro headwinds, would you please kindly share with us how the travel industry both domestic and outbound travel have been affected by challenging macro conditions and also Renminbi depreciation, which could negatively affect outbound travels, also being an industry leader with growing above revenue contribution, how do you see we can weather through these macro headwinds. And my second question is just a housekeeping question on the revenue guide 4Q 15% to 20%, any color on the growth by segment. Thank you. Those are my two questions. Thank you.

James Jianzhang Liang -- Co-founder, Executive Chairman of the Board

Hey, first on the macro condition, I think despite the short-term fluctuation due to the sentiment and trade friction, the long-term prospect of China's economy is still very positive. Actually I wrote few articles commenting on that, the argument is that China's per capita GDP is still lag by a wide margin, its potential measured by technology capability, measured by infrastructure or human capital level. So China should have been much richer given all these factors. For example, China should be -- there's no reason China should be poorer than Greece and Argentina, which is almost double China's current per capital level.

The reason China is still much poorer than it should be is because China's low urbanization rate. China's urbanization rate is currently it's only 50%, if you compare to other countries similar level development, it should be 70% to 80%. So within the next 10 or 20 years, China still have potential to further urbanize by 20% to 30%, that's you're talking about 1% to 2% a year, that self it's going to generate 3%, 4% annual growth per year. So the next 10, 20 years so China still going to be one of the fastest-growing major economies in the world and they would certainly benefit all sectors, especially travel.

And particularly for travel, China, Chinese probably will be the most travelled compared to other countries, because as I said the infrastructure in China is actually well ahead of its peers because due to high-speed railways and because of the amount of the money continue going into the infrastructure and because China -- location in China you have more lot more interesting destinations around China and within China compared to the current leader in travelling like United States.

So and I think if you're talking about like the percentage of GDP the world travel, China is probably one of the -- I think on the high end. So that's why I'm still very positive about the overall economic growth and then potential for travel. And Ctrip certainly will leverage the scale of the Chinese travelers, there is the largest source of travelers and to not only to capture the Chinese traveling market, but also international travel market including inbound market and other markets in other countries.

So, Ctrip is basically well-positioned to capitalize on all these factors. Thank you.

Cindy Xiaofan Wang -- Chief Financial Officer

Yeah, I'll walk you through the revenue (technical difficulty) for each. So our total net revenue is expect back to grow at around 15% to 20% year-on-year. For each line items, accommodation reservation is expected to grow at about 20% to 25% and transportation revenues will grow at about 10 to 15% year-over-year. Packaged tour business will continue to have a healthy growth at around 25% to 30% and corporate travel business will continue to grow at around 20% to 25%. Thank you.

Binnie Wong -- HSBC -- Analyst

Thank you, management. Very clear. Thank you.

Operator

Thank you. Ronald Keung from Goldman Sachs. Please go ahead.

Ronald Keung -- Goldman Sachs -- Analyst

Thank you, James, Jane, Cindy, and Victor and congratulations on a very solid set of results. My question after revenue will be on margins. Can you share with us sort of your margin outlook for the fourth quarter and just really if you could share a bit of a color for 2019 given your mid-term margin of 20% to 30% on GAAP target in one to two years, just want to hear your latest thoughts on the margin outlook. Thank you.

Cindy Xiaofan Wang -- Chief Financial Officer

Thank you. In the fourth quarter, we expect our non-GAAP operating profit will be in the range of RMB0 million to RMB100 million, implying a non-GAAP operating margin at about 0% to 1%. The steep margin jump quarter-over-quarter was mainly due to a couple of reasons, first a worsened seasonality resulted from the new revenue accounting standard, because the October holiday revenue previously recognized in the fourth quarter, but now largely in the third quarter already. And the second reason is also because of the macro slow down which impacted our revenue growth year-over-year.

And also non-GAAP operating expenses will be relatively stable similar to the year 2015 and 2016 as opposed to the 2017 -- as opposed to the fourth quarter of 2017 which we had unfortunate PR incident, so that's why we actually intentionally cut down our sales marketing spending about 15% quarter-over-quarter last year. So we will slightly increase our sales and marketing expenses in the fourth quarter to capture more market share.

And in terms of our guidance for the 2019 maybe because with Ctrip app customers booking trip is now becoming very easier. The booking window for our customer is now becoming very short and plus there also will be some short-term uncertainty on the macro next year. So it's very, very difficult for us to provide a clear picture as to the absolute growth rate for next year at this moment.

However, as James said our strategy is very clear. We have confidence in the long-term growth of China's economy. Therefore, we will continuously make investments in our service and technologies, as well as cost efficient sales marketing channel to further extend our competitive advantages and accelerate market share gaining especially during the low time. Thank you.

Ronald Keung -- Goldman Sachs -- Analyst

Thank you.

Operator

Thank you. Mr. Gregory Zhao, go ahead, sir.

Gregory Zhao -- Barclays -- Analyst

Hi, James, Jane, Cindy and Victor, thanks for taking my question. So first one is last night Priceline earnings -- sorry bookings Earnings Conference call, the CEO mentioned he left China and described how important China is for their growth and he also mentioned their stake in Ctrip, (inaudible) and the recent investment in TD, so have you seen any changes of your partnership with bookings or some changes or opportunities to the competitive landscape. And my second question is, can you give us some updates of the hotel take rate, so especially the higher-tier cities and the low-end hotels respectively, and what's the industry trend of the take rate. Thank you.

Cindy Xiaofan Wang -- Chief Financial Officer

Thanks for your questions. Forth Priceline investment in future and our partnership with them, we always highly respect our partner. I think in the past working with the best in the industry in the hotel business really help our team to learn from the past and our partnership with them always are very engaging and we have very high respect for them. And going forward, I think our team will also use our strength, which is one stop shopping platform and also the excellent customer services to further penetrate into the market we have. Regarding take rate I think it's holding very steady.

Gregory Zhao -- Barclays -- Analyst

Thank you very much.

Operator

Thank you. Ms. Alicia Yap from Citigroup. Please go ahead.

Alicia Yap -- Citigroup -- Analyst

Hi, thank you. Good morning James, Jane, Cindy, Victor, thanks for taking my questions. I have some follow-up questions on the margins. So, Cindy, if you can clarify that 79% gross margin, is that a new norm? And should we actually expect a little bit lower into the fourth quarter given your step up, kind of like customer service, quality. And how should we think about these line on gross margin, should we actually expect that to gradually rebound? And then I think Jane, on your prepared remarks, on the margin, when you talk about the trailing 12 months GMV, you also talk about the non-GAAP OP margins up 20%. Just wanted to clarify, are you referring to trailing 12-months figure that you achieved that 20% margins. And can we also expect that in 2019, we could also achieve that. Thank you.

Cindy Xiaofan Wang -- Chief Financial Officer

Thank you, Alicia. Yeah let me first clarify about the margin. So we are actually -- Jane actually talking about the trailing 12 months GMV which grow -- the growth rate is around 30% to the level of RMB690 billion level. And to the margin, non-GAAP operating margin of 20% is only for the third quarter of 2018. In terms of the gross margin, so the decrease of growth margin is mainly due to a couple of reasons. The first is our service cost in relation with our customer-centric initiatives to further enhance our service quality. And the second is because we opened a few new international call center this year to serve the increasing customer demand from our international market for Trip.com and Skyscanner.

And the third reason is mainly because of the seasonality reason, given it's peak season, especially for our packaged tour business which has a comparatively lower gross margin and increasing revenue mix from certain packaged tour business that we consolidated in the previous year, also draft down some of our gross margins in the third quarter.

In the future, we will continuously invest in service related technology and gradually improve our operational efficiency in the service center for both our domestic market, as well as Trip.com. Especially after Trip.com can achieve certain level of scalability in the newly established call center. However, it takes some time. So in the next couple of quarters, we forecast our gross margin will be in the range of 75% to 80%. Thank you.

Alicia Yap -- Citigroup -- Analyst

Thank you.

Operator

Thank you. Billy Leung from Haitong International. Please go ahead.

Billy Leung -- Haitong International -- Analyst

Hi, management. Thanks for taking my question. Just -- I just wanted go into detail of our operating leverage. I mean, we've done well in the quarter three, but could we just go into detail of what we are doing to actually improve this operating margin, I mean what kind of initiatives we're doing that would be great. Thanks.

Cindy Xiaofan Wang -- Chief Financial Officer

We actually closely monitor our operational efficiency across all our expenses line items, for example, in the sales marketing channels, we have a very, very consistent strategy that we will look at investment ROI for each of the channel. So that's what makes Ctrip where we we apply new users, our mobile customer acquisition cost actually is only a very small fraction of our customers revenue contribution to Ctrip, even though in the last couple of quarters a large portion of our newly acquired customer actually are coming from the lower tier cities. And we were -- our team work continue to work very hard to streamline our operation efficiency going forward. Thank you.

Billy Leung -- Haitong International -- Analyst

Thanks.

Operator

Thank you very much. Ms. Natalie Wu Wu from CICC. Go ahead please. Hello, Ms. Natalie Wu Wu from CICC, please go ahead with your question.

Natalie Wu Wu -- CICC -- Analyst

Yes. Can you hear me?

Cindy Xiaofan Wang -- Chief Financial Officer

Yes, we can hear you, Natalie.

Natalie Wu Wu -- CICC -- Analyst

Great, thank you. Thanks for taking my question. Cindy, you just mentioned for the fourth quarter you expect 10% to 15% growth for the transportation business, but I thought about your transportation 15% to 20% comes from ground ticketing, 20% from Skyscanner and about 20% from international flight excluding Skyscanner of the above growing at about like 30% year-on-year. So does that mean you expect no growth for your domestic flight business in the fourth quarter? As I recall the change for the boundary rule for your domestic flight business actually took place in the third quarter. So there should be no like a comparison issue for the year-on-year growth for that in the fourth quarter, right? So just wondering what's happening here and how should we see the business going forward. And also my second question is about the recent hotel cancellation rule, just I saw you announce the cancellation rule last week. Wondering is there any impact on your P&L order complete impact could be shifted to the hotel operators. Thank you.

Cindy Xiaofan Wang -- Chief Financial Officer

Thank you, Natalie. For the domestic air ticket, yeah, we still have -- although, we have some negative impact on the revenues per ticket because of the change of our operation, we actually do see a quite healthy volume growth in the last couple quarters. And we are ready for the domestic air ticket, our goal is to further strengthen our partnership with all the airlines. And at the same time we see domestic air ticketing now becoming more traffic source as opposed to our revenue contributor.

For the second question regarding the cancellation rule, yes, although, there may be some macro uncertainty, but what we observed is that Ctrip actually compare with the industry, Ctrip business is much more resilient than the industry average for a couple of reasons. First, as I said, we have a very consistent and efficient customer acquisition strategy. And the second is the better(ph)service platform we built, Ctrip existing customer base actually is more toward mid to high-end. And what we observed is our high-end or higher tier city user hold up spending much better than lower-tier cities, especially during macro slowdown.

Therefore, Ctrip will continuously make investment in our service and related technology to further strengthening our leadership and very strong branding to be the best service provider, that's the background that we promote the cancellation rule. It definitely will have and already have some negative impact on our gross margin as you see, our gross margin actually decreased a bit compared with last year, but we think this initiative actually helping us build a more solid foundation for our future growth. Thank you.

Natalie Wu Wu -- CICC -- Analyst

Great, thank you.

Operator

Thank you. Ms. Wendy Huang from Macquarie. Please go ahead.

Wendy Huang -- Macquarie -- Analyst

Hi, management. So, (technical difficulty) you told about your long-term, medium-term GMV growth and also rent growth maybe at 30%, yet (technical difficulty) although, as Jim mentioned earlier the GMV growth remained healthy at 30% range, but the rent growth has been persistently low, probably due to dilution of the take rate. So is it fair to think that actually your long-term revenue growth will be persistently low at 20% despite the 30% GMV growth outlook. And second, how will you kind of balance your spending need the increasing, I would say the macro uncertainty as well as the need for the long-term growth sustainability. Thank you.

Cindy Xiaofan Wang -- Chief Financial Officer

Thank you, Wendy. Yes, in terms of the growth trajectory, our mid to long-term growth, although, we actually had PR incident in fourth quarter last year and domestic -- our domestic air ticket revenue adjustment in the first three quarters this year, but yes our trailing 12 months GMV still grow at about 30% level. So, our top priority from now through the year 2020 will still be more aggressively outpace industry growth and gaining market share, given the huge travel both domestically and internationally. And therefore, if -- the macro will not further deteriorates significantly. Our original 2020 GMV target we target is still we think is still achievable.

And as I said we will continuously to although there might be some macro slowdown uncertainties ahead of us, but our strategy is clear. We see huge potential, we are optimistic on the future growth of our China's economy. So that's why we will continuously to make investment in service technology, as well as in the cost-efficient sales marketing channels to further expand our leadership in the market -- in travel market. Thank you.

Operator

Thank you very much. Mr. James Lee from Mizuho Securities, please go ahead.

James Lee -- Mizuho Securities -- Analyst

Thanks for taking my questions. Jane, I was wondering maybe you can talk about competition Maytwine(ph)a little bit. And maybe you can talk about from their perspective, their subsidy strategy in high-star hotels, where are they now, do you see a need to respond? And just curious why or why not? And can you also talk about your own strategy in those star hotels kind of where are you now versus Maytwine and do you need to step up out the cash here. Thanks.

Jane Jie Sun -- Ctrip.com International Ltd

Sure, I think we focus mainly on what our customer is looking for and develop our strategy really circling around our customer. So what we have seen is our platform. Our customers age right now 70% of our customers are below 35 years old and the loyalty and signets have been increasing every year. And included in these portfolio, the customers that below 29 have been increasing from the original 30% to around 50% right now.

So that is very healthy migration from a pure business customer to a more diversified customer. So our number in the results also reflected our focus, so for Ctrip our high and reliable service attract the business travellers very well, as well as the middle to high-end customers very well. And their contribution to our platform every year is increasing. Right now, we have seen on average 5,000 per year per person our spending and that number has been increasing year-over-year, that's a reflection of our strength.

Secondly, our marketing strategy is also not only focus on the strong hold for Ctrip in the first-tier cities and economic developed cities.

We also look at the other third tier, fourth tier cities. So on Ctrip brand as we disclosed the year-over-year growth for volume is more than 50% up in these low-end hotel. So for us the high-end customers in first-tier cities we really win because of our one-stop shopping platform and a strong customer service capability. For the fourth tier, fifth tier cities we win really because we are very aggressive in penetrating into these new areas, and we have seen very good results from these areas.

And thirdly, I think our product is also very innovative. We sold such a comprehensive offer of different products. So when we launch high speed railway packages, these high speed tickets enable us to reach to the cities which will take in the old days maybe four, five hours to reach, now within one hour, two hours our customer will be able to reach, so that gave us anchor -- for us to use our product as an anchor to effectively convert these customers on to Ctrip's platform and we also have seen great results for that. So in summary, I think again see Ctrip's strength is always technology investment, one stop-shop platform, product innovation and strong customer service reliability. So these items year-in year-out represent Ctrip's strength and will compete by utilizing these strengths. Thank you.

James Lee -- Mizuho Securities -- Analyst

And just a quick -- just quick follow-up question, James, thanks for your answer. So it sounds like you don't need to change your subsidy strategy or discounting strategy very meaningfully for high-star hotels, because you have a strong hold in that market in the low tier -- low star hotels, because you had a strong value proposition there, is that a fair assumption? And also secondly maybe help us understand how your call center asset are actually very important competitive advantage in high-star hotels. Thanks.

James Jianzhang Liang -- Co-founder, Executive Chairman of the Board

Yeah, I think our treaty is very endure, we monitor the market very carefully, but we always compete on our strength, which is we talked about the product offering, one stop-shop penetrate into the low market through our product innovation. I think year-in year-out everything we start our business, there were lots of competitors and using price competition can win market share, but cannot wait in the long-term. So I think the -- again we will win the market and customer loyalty based on our strengths of customer service, technology, investment, product innovation and service.

James Lee -- Mizuho Securities -- Analyst

Great, thanks so much.

James Jianzhang Liang -- Co-founder, Executive Chairman of the Board

Thanks.

Operator

Thank you, Ms. Tian Hou from T.H. Capital. Please go ahead.

Tian Hou -- T.H. Capital -- Analyst

Good morning, James and Jane, Cindy and Victor, my question is related to the accessibility of your services, like James said, China urbanization is still has long way to go. And also we have a lot of population to grow, second baby, third baby. And Ctrip services actually manly are in the major cities. And like what we all know when we go to lower-tier cities, you ask people what is Ctrip, they may say in Chinese is more of the shoe. So I wonder how Ctrip is going to make use services accessible by those lower-tier cities. And Jane you have been doing some efforts in that front, I wonder if you can give us some elaboration or introduction about your past efforts and the results as well as your future step to increase your access -- ability toward existing population and the future growing population. Thank you.

Cindy Xiaofan Wang -- Chief Financial Officer

Thank you, Tian. So in the lower end of the market given all our penetration is still quite low, so at current stage, yes Ctrip (technical difficulty) R&D in this segment was more aggressively gaining market share, even in the short-term it might be at a sense of taking lower take rate. As Jane explained Ctrip actually our one of the competitive advantage for us now is to already build a travel super app in the China market. We have the most comprehensive product offerings not only to cover the mid to high-end of the market, but also we have like a ferry ticket, bus ticket all kind of product that fit perfectly for those targeted lower end of the customer need. And Ctrip app now and according to our core data, we have been able to also increase our average travel spending for each year by multiple fold, resulting in our repeating customer accounts for more than 80% of the total transactions. And this one-stop shopping center model, the super app model also significantly help us in terms of user acquisitions.

So our mobile app -- mobile customer acquisition cost is only a very, very small fraction of our average annual commission we earned per user, even though most of new users actually already coming from the lower tier cities, thanks to the very comprehensive product offerings that fits their demand.

James Jianzhang Liang -- Co-founder, Executive Chairman of the Board

Let me just add one more thing, I think for lower-tier cities, train high speed railway will be the most important transportation tool and the Ctrip is very well positioned to leverage train products and the recently launched high speed rail tour product. As you know Ctrip has the highest market share and fastest still that's where -- high-speed train we launched high speed train to our product.

Tian Hou -- T.H. Capital -- Analyst

Thank you.

Cindy Xiaofan Wang -- Chief Financial Officer

So thank you,

Tian Hou -- T.H. Capital -- Analyst

Okay, go on.

Cindy Xiaofan Wang -- Chief Financial Officer

So in summary, by adding all travel related product and service into our super travel app, we will make sure that once a customer have the real travel demand they will definitely find either Ctrip or (inaudible) will be their first choice. Thank you.

Operator

Thank you very much. I will now hand the session back to Victor Tseng for closing remarks. Please go ahead sir.

Victor Tseng -- Chief Communications Officer

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

Cindy Xiaofan Wang -- Chief Financial Officer

Thank you.

Jane Jie Sun -- Ctrip.com International Ltd

Thank you.

James Jianzhang Liang -- Co-founder, Executive Chairman of the Board

Bye.

Operator

Ladies and gentlemen, this conclude today's conference call. Thank you for participation. You may now disconnect.

Duration: 62 minutes

Call participants:

Victor Tseng -- Chief Communications Officer

James Jianzhang Liang -- Co-founder, Executive Chairman of the Board

Jane Jie Sun -- Ctrip.com International Ltd

Cindy Xiaofan Wang -- Chief Financial Officer

Binnie Wong -- HSBC -- Analyst

Ronald Keung -- Goldman Sachs -- Analyst

Gregory Zhao -- Barclays -- Analyst

Alicia Yap -- Citigroup -- Analyst

Billy Leung -- Haitong International -- Analyst

Natalie Wu Wu -- CICC -- Analyst

Wendy Huang -- Macquarie -- Analyst

James Lee -- Mizuho Securities -- Analyst

Tian Hou -- T.H. Capital -- Analyst

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