Is Airbnb a Victim or Beneficiary? The Controversial Profit-Sharing System That Arbitrarily Targets Subjects and Is Hard to Identify

[Asia Economy Reporter Kim Hyewon] Major industry representative organizations have collectively opposed the profit-sharing system, which is actively being discussed for introduction mainly by the ruling party, arguing that depending on the design of the system, it could cause significant side effects. The Korea Industrial Alliance Forum (KIAF), which has 15 industry-specific associations as member companies, held an emergency board meeting at the Automobile Hall on the 21st and adopted and announced a 'Proposal on the Profit-Sharing System.'

Regarding the so-called 'COVID-19 Profit-Sharing System,' justified as a measure to resolve polarization caused by the novel coronavirus infection (COVID-19) crisis, KIAF pointed out side effects such as ▲guarantee of autonomy ▲impossibility of calculating beneficiary and affected companies ▲constitutional controversy due to infringement of property rights ▲possibility of investor-state dispute settlement (ISD) disputes.

Although Lee Nak-yeon, leader of the Democratic Party of Korea, set 'voluntary participation' as a condition in consideration of industrial opposition, KIAF urged that not only should autonomy be guaranteed in deciding whether to introduce the COVID-19 profit-sharing system, but also the autonomy to seek win-win measures among companies must be genuinely guaranteed. It was pointed out that cases like Rolls-Royce or Boeing are premised on contributions through cooperation and that both profit and risk sharing should be considered. If the system is introduced without guaranteeing autonomy and applied to foreign companies operating domestically, there is a high likelihood of disputes such as ISD.

The biggest problem is that it is impossible to clearly distinguish the subjects, targets, and scope, such as beneficiary and affected companies due to COVID-19. Airbnb, the world's largest accommodation sharing service provider, is a representative example.

According to a report by the U.S. Wall Street Journal, Airbnb faced a management crisis along with similar industries as its revenue in the second quarter of last year dropped 72% compared to the same period the previous year due to a sharp decline in travel demand caused by the COVID-19 pandemic. It made self-help efforts such as laying off 1,900 employees, which is 25% of its workforce, and borrowing operating funds at an 11% high interest rate. Meanwhile, Airbnb attempted a pivot by quickly shifting its business model after recognizing a trend change where domestic and short-distance travel demand exploded due to the prolonged COVID-19 pandemic.

When the algorithm was redesigned to recommend accommodations located near travelers' residences, such as luxury beach houses, the number of short-distance travel bookings began to rebound. In 2019, 49% of Airbnb bookings were international travel, but by September last year, 77% of bookings were domestic travel. More than half of the bookings were for trips within 300 to 500 miles. Airbnb dramatically recovered from a $580 million loss in the second quarter of last year to a $1.34 billion profit in the third quarter, just one quarter later.

Jung Manki, chairman of KIAF, said, "Airbnb made huge operating profits by capturing a new trend of increased domestic short-distance tourism amid the disappearance of international tourism demand due to COVID-19 and restructuring its platform," adding, "In this case, it is ambiguous whether Airbnb is a beneficiary or an affected company of COVID-19, and our companies are not much different."

KIAF's view is that even beneficiary companies of COVID-19 cannot generate profits without self-help efforts such as innovation-driven cost reduction, productivity improvement, and marketing, so it is scientifically almost impossible to distinguish only the profit generated by COVID-19. Therefore, if operating profits are shared with affected companies without objective and scientific grounds, under the current legal system where profits from corporate activities are recognized as shareholders' rights, it could result in management sharing profits with unrelated companies or groups, increasing the risk of breach of trust charges and lawsuits. Reference should also be made to the Supreme Court precedent (2016Da260455 ruling) recognizing damages for directors of corporations who decided donations to local governments for public purposes such as balanced development and improvement of residents' lives, provided the amount was not excessive relative to financial status.

Under the current legal system, such profit-sharing could infringe on the property rights of companies and shareholders, raising constitutional controversy. Sharing profits with companies unrelated to profit generation solely based on the environmental factor of COVID-19, rather than sharing outcomes from joint cooperation, could infringe on property rights guaranteed by our constitution.

KIAF stated that the true social responsibility of companies in a market economy system is not to share operating profits with disadvantaged groups but to create a virtuous cycle by generating more operating profits, paying more taxes to the state, and investing in new industries such as the Korean New Deal, thereby developing industries and creating quality jobs. Chairman Jung added, "It is more important for the government to improve the environment so that companies generating large operating profits in the market economy system actively invest in new growth industries or job creation sectors than to introduce a profit-sharing system."

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