[Hotel on the Edge] Reality of Poor Quality Below 4-Star "Oversupply and Direct Hit from COVID-19"

Chinese Tourists Decreased by 4.9% During SARS
Non-Chinese Tourists Plummeted by 11.8%
During MERS, Decreases Were 2.3% and 10.2% Respectively
Concerns Over Decline in Guests at 4-Star and Below Hotels
5-Star Hotels and Facility Usage Inevitably Impacted

Due to the impact of the novel coronavirus disease (COVID-19), a temporary closure notice is posted at a restaurant in Jung-gu, Seoul on the 4th. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Kim Min-young] The hotel industry is expected to suffer a greater downturn due to the novel coronavirus disease (COVID-19) crisis than during the 2003 Severe Acute Respiratory Syndrome (SARS) and the 2015 Middle East Respiratory Syndrome (MERS) outbreaks.

Hwang Gyu-wan, a research fellow at Hana Financial Management Research Institute, analyzed in a report titled "Hotel Industry Status Check Amid the Spread of COVID-19," released on the 4th, that the recent continued spread of COVID-19 is significantly increasing the likelihood of a decline in foreign tourists entering the country.

Researcher Hwang stated, "With the Chinese government's control over group tours, partial restrictions on Chinese entrants to our country, and travel restrictions imposed by other countries on Korea, global population movement is being actively limited more than in past similar cases, so the impact on the hotel industry will be greater than before."

This analysis is painful considering that the number of foreign tourists had shown signs of recovery in recent years. Foreign tourists increased by an average of 7.3% annually over the past five years, reaching 17.5 million last year, returning to the level before the Hanhanryeong (Korean travel ban) in 2016.

Looking at the changes in foreign tourist numbers during the SARS and MERS periods, Chinese tourists decreased by 4.9% compared to the previous year in 2003, and non-Chinese tourists decreased by 11.8%. During the 2015 MERS outbreak, Chinese tourists decreased by 2.3%, and non-Chinese tourists by 10.2%.

Due to the impact of COVID-19, Jonggak Youth Street was quiet on the weekend of the 23rd. Photo by Moon Honam munonam@

Researcher Hwang said, "Considering that hotel guests, especially foreigners, also sharply decreased during the same periods, a decrease in foreign guests is expected this time as well. When factoring in a decline in domestic guests, represented by the 'Hokangs' (hotel + vacation) group, there are concerns about an overall deterioration in the lodging industry's performance."

This time, the issue of oversupply is also intertwined. Since the enactment of the "Special Act on the Expansion of Tourism Accommodation Facilities" in 2012, the domestic hotel room occupancy rate (OCC) has fallen by about 5 percentage points to the low 60% range compared to before the law was implemented.

According to the report, OCC decreased by 13.5 percentage points during SARS compared to the previous year, and by 3.7 percentage points during MERS. In particular, hotels rated 4 stars and below, which have a high proportion of room revenue, are expected to suffer direct damage due to the decline in guests.

In 2018, the proportion of room revenue from foreign guests was 43.3% for 5-star hotels, 51.3% for 4-star hotels, and 53.7% for 3-star hotels. The total revenue proportion from foreign guests was also high for 3- and 4-star hotels, at 19.9% for 5-star, 36.3% for 4-star, and 40.6% for 3-star hotels, indicating a high dependence on foreigners.

Furthermore, if COVID-19 spreads nationwide, domestic room revenue is also expected to decline. In this case, 1-star hotels, which rely on domestic guests for 74% of their total revenue, and 2-star hotels, which depend on them for 70%, are expected to be hit hard.

5-star hotels will inevitably suffer from a decrease in the use of ancillary facilities. Since 5-star hotels earn 53.9% of their revenue through ancillary facilities, cancellations of large-scale events such as seminars are expected to significantly reduce facility usage.

This content was produced with the assistance of AI translation services.