Korean Air's Bottomless Barrel Hotel Business... Four Consecutive Years of Losses

$80.3 Billion Loss at Wilshire Grand Center in LA
Kal Hotel Network Sales Halved Compared to Last Year

[Asia Economy Reporter Dongwoo Lee] Korean Air's hotel business division has recorded operating losses of several hundred billion won for four consecutive years. Due to the prolonged slump in the hotel business caused by the impact of COVID-19, it is expected that the operating deficit trend will be unavoidable this year as well.

According to the industry on the 23rd, Korean Air's subsidiary Hanjin International (HIC), which operates the Wilshire Grand Center in Los Angeles, USA, recorded an operating loss of 80.3 billion won last year, an increase of 42.8% compared to the previous year. The scale of operating losses has shown an increasing trend over four years, with 50.1 billion won in 2017, 56.6 billion won in 2018, and 56.2 billion won in 2019.

HIC acquired the Wilshire Grand Hotel located in downtown Los Angeles in 1989, ended hotel operations at the end of 2011, and reopened the Wilshire Grand Center, a 335-meter tall, 73-story hotel and office complex building, through redevelopment in 2017. At that time, more than 1 trillion won was invested solely in the hotel remodeling project, making it a landmark of LA.

HIC's financial structure rapidly deteriorated last year as the spread of COVID-19 directly hit office demand decline and hotel operations. Last year, Korean Air urgently injected 950 million dollars to repay HIC's maturing borrowings.

HIC's asset value also drastically shrank. Last year, HIC's book value was 21.9 billion won, a 97.1% decrease compared to the previous year (756.1 billion won). This means that the asset value practically evaporated by more than 700 billion won in just one year.

The situation is similar for Hanjin KAL, Korean Air's parent company. Kal Hotel Network, which is in charge of Hanjin KAL's hotel business, recorded sales of 54.4 billion won last year, a 50.9% decrease compared to the previous year (111 billion won). During the same period, operating losses increased from 3.3 billion won to 23.8 billion won.

Kal Hotel Network owns a total of about 560,000 rooms, including Grand Hyatt Incheon, Jeju Kal, and Seogwipo Kal hotels, but last year's occupancy rate was less than half at 48.5%, down 21.3 percentage points from 69.8% the previous year.

Hanjin KAL is undertaking sales of sites such as Jeju Paradise and Songhyeon-dong hotel sites in Jongno-gu to improve structure due to the prolonged COVID-19 situation, but the industry consensus is that it may take considerable time for the overall hotel business division's financial structure to recover.

Korean Air has completed repayment of 344 million dollars out of the amount injected to repay borrowings of the Wilshire Grand Center and is expecting performance improvement from the second half of the year when COVID-19 vaccines are distributed.

A Korean Air official said, "As inquiries to purchase the Wilshire Grand Center are continuing mainly from local investors recently, a quick recovery of asset value is expected."