Turnaround with Increasing Tourists... Will Travel Stocks Soar?

Since the Beginning of the Year, Hanatour Stock Up 7%, Modetour Up 29%
Profit Turnaround Expected Due to Normalization of Flight Routes and Increased Travel Demand

[Asia Economy Reporter Kwon Jaehee] Travel stocks, which were hit hard by the prolonged COVID-19 pandemic, are preparing to soar again. This is due to the surge in demand for travel to Japan following Japan's visa-free entry policy, combined with growing expectations for China's reopening (resumption of economic activities). The securities industry is identifying travel stocks as mid- to long-term investment targets. The travel sector, which had been running deficits, is expected to begin a full-fledged turnaround starting this year.

According to the Korea Exchange on the 16th, Hana Tour has risen about 7% this year, and Modetour about 29% as of the previous day. The sharp rise in travel stocks is attributed to the explosive overseas travel demand suppressed by COVID-19 over the past three years. According to the Korea Tourism Organization, the annual number of outbound overseas travelers peaked at 28.71 million in 2019, just before the outbreak of COVID-19, but dropped sharply to 1.22 million in 2021, when the pandemic was at its height.

Since Japan allowed visa-free entry starting in October last year, 1.33 million people departed in January alone. On a monthly basis, this is about 11% higher than January 2020, before COVID-19. Currently, compared to the pre-COVID-19 period in 2019, Japan routes have normalized to over 70%, and Southeast Asia routes to over 80%. The favorable business environment created for travel agencies has also contributed to the increase in overseas travel demand. The re-ignition of competition on airline routes, the drop in airfares due to falling oil prices, and a favorable exchange rate environment are also positive factors.

Buoyed by this, expectations for travel agencies to return to profitability are growing. Hana Tour and Modetour continued to run deficits until the fourth quarter of last year, but both companies significantly reduced their losses. From this year, both companies are expected to achieve a full-scale earnings turnaround. The increase in Japanese travelers, high-intensity restructuring due to COVID-19, and the disposal of loss-making subsidiaries have reduced cost burdens by more than 50%. Additionally, factors such as increased travel to the Americas and Europe and China's reopening remain catalysts for earnings upgrades. Notably, both companies saw a surge in reservation rates in January this year. Lee Kihoon, a researcher at Hana Securities, predicted, "The number of package travelers for Hana Tour and Modetour in January was about 75,000 and 55,000 respectively, and this growth trend is expected to continue into February."

Overseas travel demand is expected to show a steady recovery this year and return to pre-COVID-19 levels starting next year. According to the research center at Buguk Securities, the number of outbound overseas travelers is expected to reach 20.1 million this year, 24.41 million in 2024, and exceed 30 million in 2025, surpassing pre-COVID-19 levels. Lee Junggyu, a researcher at Buguk Securities, analyzed, "The overseas travel demand that has continued since the end of last year is expected to reach 80% of the 2019 pre-COVID-19 demand this year, 100% in 2024, and exceed the 2019 level in 2025."

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