Economic Research Institutes Issue Consecutive Warnings... "Domestic Hotels More Vulnerable to COVID-19"

KB Financial Group Management Research Institute Report Published
"Impact of COVID-19 Larger Than MERS and SARS"
Possibility of Asset Price Decline if Crisis Prolongs
Hana Financial Management Research Institute Expresses Similar Views

On the 14th, a hotel employee is disinfecting the inside of a guest room and the corridor at the Summit Hotel in Jung-gu, Seoul. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Cha Min-young] There is a growing consensus that the impact of the novel coronavirus infection (COVID-19) on the hotel industry will be greater than during past outbreaks of Middle East Respiratory Syndrome (MERS) or Severe Acute Respiratory Syndrome (SARS).

According to industry sources on the 21st, Ryu Seok-jae, a research fellow at KB Financial Group Management Research Institute, recently stated in a report titled "Analysis of the Hotel Market Impact Due to the Spread of COVID-19" that "Considering COVID-19's long incubation period, strong infectivity, and regional infection cases, the fear of COVID-19 spread will persist for a considerable period."

Research fellow Ryu pointed out, "In the past, the spread of SARS and MERS was limited mainly to the affected countries and neighboring regions, so their impact was limited. However, COVID-19 is continuing to spread globally, making a greater shock inevitable."

A key reason is that global population movement is being actively restricted more than during the 2015 MERS or 2003 SARS outbreaks. In fact, as of January 31, the number of Chinese visitors, who account for 34% of domestic travelers, dropped below 10,000 to 9,506. Since then, the number of arrivals has continued to decline. Additionally, as of the 10th of this month, a total of 109 countries have imposed entry bans on Korean nationals.

Research fellow Ryu also stated, "COVID-19's infectivity and global spread speed surpass those of SARS and MERS, so the decline in room occupancy rates is expected to continue for the time being," adding, "Due to the short-term decrease in tourists, the operating performance of the hotel industry is also expected to deteriorate."

According to the analysis, during the SARS outbreak, room occupancy rates dropped by 8.6 percentage points compared to the previous year, and revenue per available room decreased by 21.4%. During the MERS outbreak, room occupancy rates fell by 4.8 percentage points, and revenue per available room declined by 8.9%. Considering the transmission speed and impact of COVID-19, a greater ripple effect is anticipated. As of the 10th of this month, the number of COVID-19 cases worldwide reached 113,702, with 7,513 cases in Korea, surpassing MERS (2,494 cases worldwide, 186 in Korea) and SARS (8,096 cases worldwide, 4 in Korea).

Among these, lower-tier hotels rated 1 to 3, which generally have weaker capital strength, are seen as more likely to face insolvency. This is because lower-rated hotels rely more heavily on room revenue. However, even luxury hotels rated 5 stars or higher are expected to face shocks if the situation prolongs.

If the COVID-19 situation continues long-term, hotel asset prices may be adjusted downward due to declining profitability and reduced transactions. When private consumption slows, profitability decline directly affects asset prices. The continuous supply of lodging facilities since 2012 also raises concerns. As of 2018, the size of domestic tourist lodging facilities increased by 5.2% compared to the previous year, reaching 18 million square meters, continuing the upward trend since 2012.

Hana Financial Management Research Institute also recently published a report with similar claims. Hwang Gyu-wan, a research fellow at Hana Financial Management Research Institute, analyzed in the report titled "Hotel Industry Status Check Due to the Spread of COVID-19" that the ongoing spread of COVID-19 is significantly increasing the likelihood of a decline in foreign tourists' arrivals.

Research fellow Hwang stated, “Due to the Chinese government's control of group tours, partial restrictions on Chinese entrants to Korea, and travel restrictions imposed by other countries on Korea, global population movement is being actively restricted more than in past similar cases, so the shock to the hotel industry will be greater than before.”