Service Industry "Difficult to Maintain Employment Due to COVID-19, Requesting Prompt Support"

[Asia Economy Reporter Changhwan Lee] The service industry is struggling to maintain employment due to the impact of the novel coronavirus infection (COVID-19) and has called for swift government support.

The Korea Chamber of Commerce and Industry and seven industry organizations including aviation, hotels, department stores, duty-free shops, travel, and construction announced on the morning of the 27th that they held a COVID-19 industry countermeasure meeting.

At the meeting, participants stated that the service sector, which has more than twice the employment inducement effect compared to manufacturing, is facing difficulties due to the sharp decline in demand caused by COVID-19, and requested prompt and bold support not only from the central government but also from the National Assembly and local governments.

Bang Minjin, an analyst at Eugene Investment & Securities who presented on the aviation sector, diagnosed, “In March, there was a 92% decrease in international flights and a 57% decrease in domestic flights sales, and from April, the sales impact is expected to intensify further. It is difficult to estimate how long this will continue.”

Analyst Bang said, “The aviation industry structurally has high fixed costs, and Korea has many airlines relative to its population, making it more vulnerable to crises. Most domestic airlines experience cash outflows exceeding sales when sales drop by more than 35%, and since the sales impact has already exceeded that level, liquidity is severely lacking, making it difficult to endure without government support.”

He added, “The reason major countries like the United States are implementing large-scale liquidity support measures to protect their domestic aviation industries is to safeguard national key industries and protect employment. Korea has a high proportion of overseas trade and exports advanced products through air transport, so the government’s definite support to overcome the current liquidity crisis is necessary, along with mid- to long-term tasks to improve the structural health of the aviation industry.”

In fact, the aviation industry, including the eight major airlines and related industries, contributes about 60 trillion won to the domestic gross domestic product (GDP), accounting for 3.1% of Korea’s GDP, and creates employment for approximately 840,000 people including direct and related industries, showing a significant impact on related sectors.

Park Heejin, an analyst at Shinhan Financial Investment who presented on the distribution sector, forecasted, “The distribution industry is already experiencing negative growth centered on offline stores such as department stores and marts, and if employment shrinks in the manufacturing sector, distribution performance will worsen further from mid-second quarter.”

Analyst Park said, “Existing offline stores are making self-help efforts such as entering online markets and closing some stores, but these efforts may not be easy due to various regulations.” He added, “Large marts have faced limits in self-help efforts due to continuous growth stagnation and business regulations, and store closures are linked to employment issues, making them difficult.”

◆ "The service industry is a community-based industry; local governments should improve regulations and ease local tax burdens" = Industry participants at the meeting urged that since the service industry is community-based, local governments should actively cooperate and implement related ordinance revisions and other measures with speed, as much as the central government.

Kim Kwangok, General Director of the Korea Aviation Association, said, “We hope that the follow-up legal amendments to the key industry support measures announced at the 5th Emergency Economic Meeting on the 22nd will be made quickly so that timely support can be provided.” He also requested, “It is undesirable to discriminate based on company size as all companies are struggling due to COVID-19, and we ask for a temporary 100% exemption of aircraft property tax for all domestic airlines.”

Jung Oseop, Secretary General of the Korea Hotel Association, pointed out, “The hotel industry requires huge fixed costs and facility maintenance costs due to its industrial characteristics and has a relatively vulnerable profit structure compared to other industries. Although the government announced support measures such as property tax reductions and traffic inducement charge reductions for tourist hotels as part of tourism support measures, local governments have not amended ordinances or taken measures, so government policies are not reaching the field.”

Shin Chimmin, Executive Director of the Korea Department Store Association, requested the rationalization of the traffic inducement charge calculation standards imposed on large distribution facilities. Shin said, “The traffic inducement coefficients applied by local governments to large sales facilities are set excessively high compared to venues such as performance halls and auditoriums that cause similar levels of traffic congestion. Also, due to changes in consumption patterns, visitors to large stores like department stores and marts have significantly decreased, so applying past standards as they are is inappropriate,” requesting improvements.

A Korea Chamber of Commerce and Industry official stated, “As seen in a recent local government case, an attempt to temporarily ease mandatory closures of large marts to prevent shortages of daily necessities due to COVID-19 was abandoned due to opposition from surrounding small businesses and traditional markets. The role of local governments is very important to foster the ecosystem of the service industry, which is a community-based industry.”

Byun Dongwook, Director of the Korea Duty-Free Shop Association, requested bold support policies for airport duty-free operators facing a severe liquidity crisis. Byun said, “Although the government has already announced measures to reduce airport duty-free shop rents, it is far from sufficient for duty-free operators facing a demand cliff to bear the high rents,” and requested, “Allow duty-free shops to close until the end of the COVID-19 crisis and exempt rent during that period.”

◆ Construction industry: Direct impact of COVID-19 is small but risks are latent... Calls for improvement of preliminary feasibility studies and early ordering of construction projects = At the countermeasure meeting, the construction sector expressed concerns that construction stoppages and order reductions due to COVID-19 will have a significant impact in the future and requested responses to future uncertainties.

Park Hyungryeol, an analyst at Meritz Securities who presented on construction, diagnosed, “Although the construction industry has improved profitability since 2014 despite sales contraction thanks to low interest rates and rising sale prices, this year it faces challenges such as delays in new sales plans due to expanded application of the price ceiling system, delays in overseas order cancellations due to plummeting oil prices, and cancellations of new project financing due to expanded credit risk.”

Jung Byungyun, Executive Vice President of the Korea Construction Association, said, “The construction industry has high expectations for the Korean New Deal for job creation announced by the government on the 22nd,” and urged, “The New Deal policy should include regional economic revitalization projects, the swift promotion of the 104 trillion won SOC projects announced last year, and raising the exemption threshold for preliminary feasibility studies (from total project cost under 50 billion won to under 100 billion won).”

Yoon Wangro, Executive Vice President of the Korea Specialty Contractors Association, proposed, “The construction industry greatly affects economic growth and employment, so policies such as early ordering of construction projects and support measures for damages caused by disruptions in overseas construction material procurement and rising import costs due to COVID-19 should be prepared.”

Baek Seungpil, Executive Vice President of the Korea Travel Association, said, “Travel industry sales in March this year were almost nonexistent,” and called for “raising the employment retention subsidy support level to 100% and relaxing employment retention conditions.”

Woo Taehee, Executive Vice President of the Korea Chamber of Commerce and Industry, said, “The reason why there was no panic buying in Korea despite the COVID-19 crisis is that the well-established distribution industry played a role as a ‘social platform,’” and added, “The service industry, which plays a role as a job safety net, should be recognized as a kind of key industry and receive bold government support.”

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