It Was an Expected Shock... Domestic Hotel Big 3 Stumble in Q1

All Three Locations Report First Quarter Losses Due to COVID-19
Hotel Lotte Hotel Division - 63.8 Billion KRW
Emart Shinsegae Chosun Hotel - 14.8 Billion KRW
Hotel Shilla Hotel & Leisure Division - 17.8 Billion KRW

[Asia Economy Reporter Cha Min-young] The three major domestic hotel companies all saw their performance collapse due to the novel coronavirus disease (COVID-19) crisis. Amid years of continuous losses caused by excessive competition, unexpected adverse events overlapped, resulting in operating losses exceeding 10 billion KRW in the first quarter alone.

According to the industry on the 15th, Hotel Lotte's hotel business division posted sales of 154.4 billion KRW in the first quarter of this year, down 12.7% from 176.9 billion KRW in the same period last year. Operating losses during this period reached 63.8 billion KRW. Although the loss margin had been reduced from 34.9 billion KRW in the first quarter of 2018 to 27.5 billion KRW in the first quarter of last year, the deficit widened again this year. As the largest hotel chain in the country, the aftershocks of COVID-19 were significant.

Hotel Shilla, which announced its results first, also saw both its duty-free (TR) and hotel & leisure divisions' performance plummet. Hotel Shilla's hotel & leisure division recorded an operating loss of 3.4 billion KRW in the first quarter of 2018 during the height of the Terminal High Altitude Area Defense (THAAD) crisis, but it quickly recovered to a loss of 0.5 billion KRW in the first quarter of 2019. However, due to the COVID-19 crisis, the first quarter losses increased again, resulting in an operating loss of 17.8 billion KRW.

Shinsegae Chosun Hotel, affiliated with E-Mart, recorded an operating loss of 14.8 billion KRW in the first quarter of this year, expanding its deficit from 5.6 billion KRW in the same period last year. During the same period, sales amounted to 33.8 billion KRW, down 11.5 billion KRW (25.4%) from the previous year. The hotel explained that the impact of COVID-19 was the main factor. It is observed that MICE (Meetings, Incentives, Conferences, and Exhibitions) demand, including business customers who are major clients, decreased due to global travel restrictions.

The hotel industry's downturn was anticipated since January this year when COVID-19 broke out and spread. The Korea Hotel Association estimated that the nationwide average hotel occupancy rate (OCC) in March plummeted to 21.3%, with damages approaching 580 billion KRW. The OCC, which was 61.7% in January before the outbreak, dropped to 44.4% in February, 21.3% in March, and 25.3% in April, falling below the normal operating range (60-70%). Luxury hotels, which bear heavy fixed costs such as property taxes and labor expenses, suffered greater damage. In March alone, OCC was 18.5% for 5-star, 19.2% for 4-star, 19.7% for 3-star, 25.3% for 2-star, and 35.6% for 1-star hotels. This means that tourist hotels rated 3 stars and above recorded occupancy rates in the 10% range.

In particular, the impact of the COVID-19 crisis on the hotel industry is expected to be greater than during the Middle East Respiratory Syndrome (MERS) or Severe Acute Respiratory Syndrome (SARS) outbreaks in the past. This is because global population movement has been severely restricted. For example, the number of Chinese visitors, who account for 34% of domestic travelers, dropped below 10,000 to 9,506 as of January 31. Recently, the daily average number of Chinese entrants has decreased to the 1,000 range, about one-tenth of previous levels.

Ryu Seok-jae, a research fellow at KB Financial Group Management Research Institute, stated in a report, "Considering the long incubation period, strong infectivity, and regional infection cases of COVID-19, the fear of its spread will continue for a considerable period." He added, "Unlike SARS or MERS, which were limited to the outbreak country and neighboring regions, COVID-19 is spreading globally, making a greater shock inevitable."

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