Record High Performance Expected to Last at Least 2 Years After Resumption of Overseas Travel
Competition with Platforms Like Yanolja and MyRealTrip Poses Challenges
On November 5th last year, passengers on Jeju Air bound for Chiang Mai were checking in their luggage at Incheon Airport. [Image source=Yonhap News]
[Asia Economy Reporter Minwoo Lee] As overseas travel remains restricted due to COVID-19, the travel industry continues to struggle. Although record-high performance is expected to continue once travel resumes, analysts suggest that unlike in the past, competition from well-capitalized platform companies such as Yanolja and MyRealTrip is inevitable.
On the 16th, Hana Financial Investment diagnosed the travel industry accordingly. There were no significant operational issues until the fourth quarter of last year, but the difficult business environment has persisted for three full years since the second half of 2019. Hana Tour and Modetour both restructured their workforce by about 50% compared to 2018. Most major loss-making businesses such as duty-free shops, hotels, and independent travel have been sold or liquidated.
Hana Tour's expected results for the fourth quarter of last year forecast sales of 10.5 billion KRW and an operating loss of 29.6 billion KRW. The operating loss is expected to be about 5.5 billion KRW larger than the market consensus. Since October last year, costs related to normalizing work and brand replacement in preparation for 'with COVID' among employees have been slightly reflected. Researcher Kihoon Lee of Hana Financial Investment said, "Costs and deficit reductions due to workforce and business restructuring amount to about 60 billion KRW, and productivity per person is expected to improve significantly through system enhancements," adding, "Once operations normalize, annual operating profit is expected to reach about 100 billion KRW."
Modetour is expected to report sales of 3.9 billion KRW and an operating loss of 5.1 billion KRW for the fourth quarter of last year. Sales decreased by 18% compared to the same period last year, and losses are expected to continue. The operating loss estimate roughly aligns with the consensus loss of 5.9 billion KRW. Lee explained, "One-time labor costs from voluntary retirement in the third quarter of last year have normalized, and unlike Hana Tour, limited labor costs are expected to be reflected until the first half of this year," adding, "Through workforce and subsidiary restructuring such as the sale of Jayu Tour, annual operating profit upon normalization is expected to reach around 40 billion KRW."
There is no choice but to place hope on the resumption of overseas travel. Recently, although hotel room occupancy rates (OCC) were restricted due to strengthened social distancing measures, average selling prices (ASP) have sharply increased, restoring performance to pre-COVID-19 levels. Similarly, the travel industry, which has strong pricing power, is expected to achieve high performance growth once travel resumes.
Lee said, "Since record-high performance is expected to continue for at least two years from 2023, buying during corrections is effective," but expressed concern that "unlike in the past, competition with well-capitalized platform companies such as Yanolja and MyRealTrip is inevitable." Accordingly, the recovery speed of Modetour was downgraded, and the target stock price was lowered by 11% to 31,000 KRW. The previous trading day's closing price was 21,800 KRW. The target stock price for Hana Tour was maintained at 103,000 KRW. The previous trading day's closing price was 76,300 KRW.
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