Fee Competition Curbed... Hotel Shilla's 1Q Operating Profit Up 128% (Comprehensive)

Hotel Shilla recorded an operating profit in the first quarter of this year that exceeded market expectations. This was largely due to improved profitability as the duty-free industry restrained commission competition among Chinese daigou (baggage traders) since the beginning of the year. However, this impact led to a decrease in sales. In the hotel sector, operating profit improved thanks to better occupancy rates at Seoul Shilla Hotel, Shilla Stay, and others as the endemic (periodic outbreak of infectious diseases) atmosphere matured.

Hotel Shilla announced that its consolidated operating profit for the first quarter of this year was 34.5 billion KRW, a 128.0% increase compared to the same period last year. Sales for the same period were 752.1 billion KRW, down 31.3%. Net profit turned positive at 53.2 billion KRW. According to FnGuide, the consensus estimate for Hotel Shilla’s first-quarter performance was an operating profit of 20.4 billion KRW and sales of 987.5 billion KRW.

Seoul Shilla Hotel exterior view [Photo by Hotel Shilla].

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The duty-free (TR) division recorded an operating profit of 25.2 billion KRW, a 98% increase year-on-year. It is analyzed that profitability improved as efforts continued to normalize daigou commission fees and improve the market environment. Efforts for solid management to secure profitability led to improved operating profit, but overall industry-wide restraint on aggressive daigou sales caused sales to shrink. The TR division’s first-quarter sales were 608.5 billion KRW, down 38% from the same period last year. Airport store sales increased by 235% year-on-year, but downtown store sales, which have a high proportion of daigou sales, decreased by 63%.

The hotel & leisure division saw both sales and operating profit increase compared to last year despite the off-season. First-quarter operating profit was 9.3 billion KRW, a 288% increase year-on-year, and sales rose 24% to 143.6 billion KRW. The endemic phase brought a recovery effect in foreign tourists. During this period, Seoul Shilla Hotel’s sales increased by 32% compared to the same period last year. This was the result of occupancy rates recovering from 44% in the first quarter of last year to 64% in the first quarter of this year. Shilla Stay sales also increased by 35%. Leisure division sales grew by 58%. However, Jeju Shilla Hotel, located in Jeju, where domestic travel demand was concentrated during the COVID-19 period, experienced a base effect, with sales decreasing by 24%.

A Hotel Shilla official said, "In the second quarter as well, we will focus on solid management by quickly responding to changes following the normalization of domestic and international travel and tourism."

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