[At the Edge of the Cliff Hotel] Hotel Industry Hit Hard by COVID-19 'Sleepless Nights'

Worse Business Conditions Expected Than During SARS and MERS
Foreign Arrivals on March 1 at One-Quarter of Last Month's Level
Greater Impact Due to Oversupply

[Asia Economy Reporter Cha Min-young] The hotel industry's business downturn caused by the novel coronavirus infection (COVID-19) is expected to be greater than during the 2003 Severe Acute Respiratory Syndrome (SARS) and the 2015 Middle East Respiratory Syndrome (MERS) outbreaks. On the 4th, Hwang Gyu-wan, a research fellow at Hana Financial Management Research Institute, analyzed in the report titled 'Hotel Industry Business Status Check Due to the Spread of COVID-19,' released on the 4th, that the recent continued spread of COVID-19 is significantly increasing the likelihood of a decline in foreign tourists' arrivals.

Researcher Hwang said, "Due to the Chinese government's control of group tours, partial restrictions on Chinese entrants to our country, and travel restrictions imposed by other countries on Korea, global population movement is being actively restricted more than in past similar cases, so the impact on the hotel industry will be greater than before."

Looking at the changes in foreign tourists, during the SARS outbreak in 2003, Chinese tourists decreased by 4.9% compared to the previous year, and tourists from outside China decreased by 11.8%. During the MERS outbreak in 2015, Chinese tourists decreased by 2.3%, and non-Chinese tourists decreased by 10.2%. In January this year, the daily average maximum number of Chinese entrants reached 18,743, but on the 27th of last month, it plummeted by 94% to 1,093. According to the Ministry of Justice, the total number of foreign entrants as of March 1 was 6,920, down to a quarter compared to February 1 (38,059), one month before COVID-19.

There is also an oversupply problem. Since the enactment of the 'Special Act on Expansion of Tourism Accommodation Facilities' in 2012, the domestic hotel room occupancy rate (OCC) has fallen by about 5 percentage points to the low 60% range compared to before the law was enacted. According to the report, OCC decreased by 13.5 percentage points during SARS and by 3.7 percentage points during MERS compared to the previous year. Especially, hotels rated 4 stars or below have a high proportion of room revenue, so a decrease in guests is expected to cause direct damage. The overcrowding of hotels in Seoul is considered a factor that has intensified the industry's shock. The number of rooms was increased by more than 10,000 targeting Chinese tourists, but with a sharp decline not only in Chinese but also in foreign visitors, the difficulties have deepened. In 2018, the proportion of room revenue from foreign guests was 43.3% for 5-star, 51.3% for 4-star, and 53.7% for 3-star hotels. The total revenue proportion from foreign guests was also 19.9% for 5-star, 36.3% for 4-star, and 40.6% for 3-star hotels, indicating a high dependence on foreigners in 3- to 4-star hotels.

A representative of a 3-star business hotel in Gangnam-gu, Seoul, said, "Since the outbreak of COVID-19, the reservation rate has dropped by 70% compared to the average year, and after checking passports, we politely refuse entry to customers of Chinese nationality or those who have visited China," explaining, "Once a confirmed case visits, it affects us, so this is an unavoidable measure." The Riverside Hotel in Seocho-gu closed from the 2nd to the 5th of this month after a confirmed COVID-19 case visited and is scheduled to reopen on the 6th. It is currently banning all entry and stays by foreigners and Koreans who have visited China within the past two weeks. Shilla Stay Haeundae also temporarily closed for three days from the 28th of last month and reopened on the 2nd.

Lotte Hotel Executive is reported to have discussed closing for the entire month of March. Due to ongoing poor business caused by COVID-19, they considered drastic measures. The recent room occupancy rate at Executive is about 10%, far below the average occupancy rate of 50-60%. The hotel industry is facing a double hardship of decreased customers and business suspension due to confirmed case visits. The President Hotel in Jung-gu, Seoul, closed its lodging and food and beverage operations for 10 days last month after a confirmed COVID-19 case visited, suffering losses exceeding 1 billion KRW. Shilla Stay Haeundae also temporarily closed for three days, reportedly incurring significant sales damage.

The hotel industry's difficulties are expected to continue for some time. According to the Ministry of Foreign Affairs, as of 9 a.m. on this day, a total of 87 countries have banned or restricted entry of visitors from Korea. Asian countries with frequent exchanges with Korea, such as Malaysia, Mongolia, Vietnam, Singapore, Japan, the Philippines, and Hong Kong, have also imposed entry bans on Koreans.