Korea's hospitality and duty-free industries to show sluggish recovery this year International travel demand expected to be key, but credit rating downgrade unlikely
Translated by Kim So-in 공개 2022-03-03 08:13:47
이 기사는 2022년 03월 03일 08:03 thebell 에 표출된 기사입니다.
South Korea’s hospitality and duty-free industries are expected to see a mild recovery this year amid ongoing travel restrictions under the prolonged Covid-19 pandemic.The country’s three credit rating agencies expect the hospitality and duty-free industries to show some signs of recovery this year. Korea Ratings gave the industries an Improve outlook this year while Korea Investors Service and NICE Investors Service granted Neutral and Maintain outlooks.
The country’s hotels and duty-free shops have been hit hard by travel limitations under the pandemic. The number of arrivals and departures plunged 85% and 97% in the first nine months of 2020 and 2021 respectively compared to the same period 2019.
Major firms including Hotel Shilla and Lotte Hotels & Resorts are showing some signs of improvement thanks to support measures from the government and their desperate cost-cutting efforts.
The nation’s hospitality business is expected to remain unchanged this year compared to the previous year. Expectations for recovery are heightening thanks to eased international travel restrictions, but uncertainties remain amid the spread of the mutated virus.
It is going to take a while until Korean firms’ financial performance recovers to the pre-pandemic levels.
Amid sluggish improvement in business environment, earnings are expected to gradually recover as the government’s support measures like lower airport usage fees continue.
Yet, profitability is unlikely to improve immediately after the resumption of business sites as the companies have set fixed costs, such as labor costs, at the lowest level since the outbreak of pandemic.
An increase in the proportion of Chinese resellers compared to the pre-pandemic levels would also limit the recovery of duty-free shops’ profitability. Chinese shoppers accounted for 98% of Korean duty-free shops’ revenue in the first nine months of 2021. Chinese resellers, however, are not helpful in boosting duty-free stores’ profitability as the Korean firms pay resellers high commissions.
Companies are expected to show a different pace of recovery depending on business portfolio, customer base and current situation of their business sites. Duty-free stores in downtown Seoul are showing the quickest recovery thanks to growing demands for hotel rooms and banquets.
Airport duty-free shops’ performance will improve if the demand for international travel increases in earnest. Regional airports and duty-free stores, except for Jeju, are expected to show the slowest recovery.
Credit rating downgrade unlikely
Despite slow recovery, hotels and duty-free shops are unlikely to face a downgrade in credit ratings this year. Korea Ratings gave a Neutral outlook while Korea Investors Service and NICE Investors Service gave Stable outlooks on the industries.
Hotel Shilla and Lotte Hotels & Resorts already saw their credit ratings fall from AA with a Negative outlook to AA- with a Stable outlook and from AA with a Negative outlook to AA- with a Stable outlook respectively at the end of 2020.
There is a possibility that each firm may witness a credit rating downgrade depending on their performance amid deteriorated business environment. (Reporting by Ji-won Kim)
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