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Despite soaring projected earnings, travel agencies expected to log annual losses again this year
By Anna J. Park
As the Korean government has decided to lift the mandatory seven-day quarantine for fully vaccinated tourists, market watchers expect the country's leisure, aviation and casino sectors to post significant annual growth in their revenues from this year.
The land and transportation ministry's announcement that the government will gradually increase the number of international flights in domestic airports from the current 420 per week to 520 per week in May has added fuel to expectations that these industries, which had been hit the hardest by the pandemic, might finally be able to log a turnaround this year. The government said that the number of international flights per week is slated to reach over 2,400 by November, which is about 50 percent of their pre-COVID-19 levels.
Actually, following the government's announcements, the number of tourism reservations made at major travel agencies has more than doubled ― even quadrupled ― in the past week.
Reflecting the demand for tourism and leisure activities that has been suppressed for the past two years, the top four companies that are forecast by market analysts to log the highest growth rate of earnings for this year are all reopening stocks, such as travel and aviation businesses.
According to the financial information portal, FnGuide on Sunday, Mode Tour ― a representative travel agency in Korea― topped the list for the highest projected annual growth rate in its earnings for this year. The consensus for the company's revenue forecast for this year is 107.1 billion won ($82 million), which is a 678.3-percent year-on-year increase. "It is the highest growth rate forecast out of the 241 companies listed on Korea's stock market that secured earnings forecasts at more than three brokerage companies.
Hana Tour secured the second-highest spot on the list with a projected year-on-year earnings growth rate of 465.7 percent, followed by Grand Korea Leisure (GKL) at 196 percent, and Jeju Air at 168.7 percent.
Despite the impressive projected earnings growth rates, businesses in the local reopening sectors still have to catch up on their losses.
Mode Tour's earnings forecast of 107.1 billion does not even constitute half of the firm's revenue in 2019 when the travel agency posted annual revenue of 293.2 billion won. The company's annual earnings in 2020 and 2021 then shrank to 54.2 billion won and 13.8 billion won, respectively. Following the travel company's operational profit loss for the past two consecutive years ― 20.6 billion won in 2020 and 23.3 billion won in 2021 ― Mode Tour is forecast to log another operational profit loss of 3.6 billion won this year, in spite of the projected growth rate.
Yuanta Securities Korea set its target price for Mode Tour at 34,000 won, which is 35 percent higher than Friday's closing price of 25,250 won.
Hana Tour's earnings for this year are forecast at 227.8 billion won, which is still around one-third of its revenue of 614.6 billion won, posted in 2019. The travel company is also expected to log another operational profit loss for this year, worth about 38.4 billion won, although the volume of the annual loss is likely to be less than last year's 127.3 billion won.
GKL, the operator of a foreigner-only casino business in Korea, is expected to post annual earnings of 251.9 billion won, a year-on-year 196-percent increase. Yet, the firm is also forecast to log an operational profit loss of 39.9 billion won, although the size of the annual loss is expected to be less than the previous year's 145.8 billion won.
Jeju Air is also expected to continue its annual loss of 146.6 billion won this year, despite a projected year-on-year growth rate of 168.7 percent in its earnings this year. Korean Air, meanwhile, is forecast to log an increased operating profit of 1.48 trillion won this year with annual revenue projected to jump by 27.3 percent this year.
Market analysts estimate that the travel and leisure sectors should be able to recover around 30 percent of the 2019 level of demand from the third quarter of this year.
"The industries could be able to log a turnaround soon, as their cost structure has been lowered throughout two years of restructuring," Lee Ki-hoon, an analyst at Hana Financial Investment, said.
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