‘Norang Pungseon’ Preparing for a Comeback Through OTA After Struggling with COVID-19

[Asia Economy Reporter Yoo Hyun-seok] Norangpungseon, which suffered significant performance setbacks last year due to COVID-19, is making a comeback this year with the launch of its OTA (Online Travel Agency). Additionally, with the expansion of vaccine inoculation in the second half of the year, the resumption of overseas travel is expected to lead to a faster-than-anticipated improvement in performance.

◆ Sharp decline in performance last year due to COVID-19 = Established in 2001, Norangpungseon is a company that sells self-developed travel products online without going through agencies. Its greatest strength is price competitiveness achieved by reducing agency operating costs compared to other travel agencies. Previously, in September 2017, the company attempted to list on KOSDAQ but was denied approval due to insufficient internal control systems. After reattempting, it successfully entered KOSDAQ in 2019.

Last year was particularly challenging due to COVID-19. First, the number of employees decreased from 517 in 2019 to 348 as of March 26 last year. Performance also deteriorated. The company has recorded losses from 2019 through last year. On a consolidated basis, last year's sales were 20 billion KRW, with an operating loss of 6.3 billion KRW. Sales dropped by 74%, and the operating loss widened.

Specifically, 6.4 billion KRW in sales came from travel brokerage. Additionally, sales were generated from airline ticket sales (4 billion KRW), total airline ticket sales (2.2 billion KRW), and other sources such as rental income, transportation income, and penalty fees (7.3 billion KRW). Compared to 2019, all sectors except others saw a decline in performance. Furthermore, short-term borrowings increased from 15.2 billion KRW in 2019 to 25.3 billion KRW last year, raising the short-term borrowing dependency from 12.7% to 32%. As of the end of last year, Norangpungseon's cash assets amounted to only 5.9 billion KRW.

However, Norangpungseon states that the increase in borrowings is not a major concern. A company representative said, "Of the 25.3 billion KRW in short-term borrowings, 14.3 billion KRW is a secured loan taken out to purchase the company building, and repayment can be delayed through maturity extension." He added, "The rest comes from convertible bonds (CB) and bonds with warrants (BW) worth 20 billion KRW issued earlier this year, which have provided operational funds, allowing us to use cash assets to repay part of the borrowings."

Despite difficulties caused by COVID-19, there were positive factors for Norangpungseon. Its market share (M/S) increased from 5.7% in 2019 to 5.9% last year, a 2 percentage point rise. The company believes this was due to market restructuring centered on large travel agencies amid economies of scale and intensified competition, which weakened the price competitiveness of indirect sales travel agencies.

◆ Launching OTA this year = Norangpungseon is preparing to launch an OTA platform this year. This platform is a personalized travel platform where users can simultaneously search, book, and pay for flights, hotels, tours, activities, and rental cars, in addition to free and package tours. OTA companies operate by mediating reservations online and earning commissions. Expedia, Priceline, and Ctrip are considered global OTA travel agencies.

Norangpungseon plans to launch the OTA in the second quarter of this year after about two years of development. In the future, the company intends to expand the scope beyond travel products to include performances, books, and e-commerce.

A company representative said, "We understand that domestic travel agencies are also investing and conducting related businesses, but as far as we know, no company has yet commercialized and provided such services." He added, "The biggest difference between overseas famous OTA platforms and Norangpungseon is the integrated system that allows booking and payment for everything needed for travel?flights, hotels, rental cars?at once." He continued, "We also plan to provide differentiated services by adding features such as personalized travel product recommendations through big data customer analysis."

Norangpungseon expects a faster recovery in performance if overseas travel restrictions are lifted due to expanded COVID-19 vaccinations. A company representative emphasized, "With industry restructuring, a profitable business structure centered on direct sales is expected to lead to faster performance improvement compared to other companies." He added, "When travel demand recovers, large travel agencies like Norangpungseon and direct sales-focused travel agencies with price competitiveness are expected to benefit the most."