[Click eStock] Depressed Travel and Leisure Industry... "Hard to Survive Even One Month Without Government Support"

Hana and Modetour... Reservation Rates Near -99.9% Until Next Month
"Summer Peak Season Effect May Be Completely Absent"

The departure hall of Terminal 1 at Incheon International Airport was quiet on the 1st due to the impact of COVID-19. Photo by Moon Honam munonam@

[Asia Economy Reporter Minwoo Lee] Concerns are growing in the leisure industry, which has been directly hit by the novel coronavirus infection (COVID-19). This month’s reservation rate has dropped to minus (-) 99.9%, indicating that it is difficult to survive even one month without government support.

On the 2nd, Hana Financial Investment forecasted that Hana Tour would record sales of 77.3 billion KRW and an operating loss of 26.5 billion KRW in the first quarter of this year. Sales decreased by 65% compared to the same period last year, turning to a loss. The expected number of departures is projected to decrease by 54%, and the number of package tour customers is expected to drop by 75%. The reservation rates for this month and next month are also pessimistic, at -99.6% and -97.6%, respectively. The previous forecast of -81% now seems optimistic. In the second quarter, sales are estimated at 22.4 billion KRW with an operating loss of 27 billion KRW. This figure assumes a somewhat hopeful scenario of a -93% decrease in package tour customers and takes into account government wage support as Hana Tour has been designated as a special employment support industry.

Modetour also presents a gloomy outlook. It is estimated to record sales of 38 billion KRW and an operating loss of 10.6 billion KRW in the first quarter of this year. Sales decreased by 59% compared to the same period last year, turning to a loss. In January, the number of package tour customers only decreased by 9%, showing some resilience, but for the first quarter, it decreased by 63%. The reservation rates for this month and next month are -99.2% and -99.9%, respectively. In the second quarter, sales are expected to be 10 billion KRW with an operating loss of 14 billion KRW. Like Hana Tour, Modetour has been designated as a special employment support industry and is expected to minimize fixed costs through unpaid leave and wage support.

Researcher Kihoon Lee of Hana Financial Investment said, "With the expansion of entry bans by country, there is nowhere people want to go or can go," adding, "Demand is expected to contract at least until the third quarter, and with longer unpaid and paid leave periods and delayed school openings, the summer peak season effect will be completely absent."

However, assuming that deferred demand will inevitably occur, he predicted a steep demand recovery of at least 50% next year. Lee said, "Without government assistance, the situation of not being able to survive even one month is prolonged, which is likely to accelerate restructuring within the industry, potentially leading to an increase in market share for large travel agencies when demand recovers," adding, "In the short term, it is better to watch rather than buy, but since it cannot worsen beyond -99.9%, from a mid- to long-term perspective, the stock price is at the bottom."

Accordingly, Hana Financial Investment gave a 'Buy' investment rating for both Hana Tour and Modetour. The target stock prices are 50,000 KRW for Hana Tour and 13,000 KRW for Modetour. The closing prices on the previous day were 37,100 KRW and 9,810 KRW, respectively.