Outbound Traffic to Visibly Increase from September
The authors are analysts of Shinhan Investment Corp. They can be reached at jwsung79@shinhan.com and hanny.lee@shinhan.com, respectively. -- Ed.
Full vaccination rate to reach 10% in August and 30% in December
According to the online publication Our World in Data, 7.3% of the Korean population have received their first dose of a COVID-19 vaccine and 2.5% have been fully vaccinated with two doses as of 19 May 2021. Korean people have mostly received the AstraZeneca vaccine, which is a two-shot regimen with doses administered 11-12 weeks apart. Many variables will likely affect the pace of vaccinations, but we assume that the people fully vaccinated with both doses (AstraZeneca, Pfizer, Moderna, etc.) will reach about 10% of the population by August and around 30% by December this year.
Faster supply of Pfizer and Moderna vaccines, which have a shorter (one month or less) interval between doses, would allow the full vaccination rate in Korea to reach 30% earlier than above-mentioned forecasts. We had previously projected the full vaccination rate to reach the 30% mark in 1Q22, but now expect the process to speed up. Revised projections were used to estimate the number of outbound travelers that are fully vaccinated and exempt from 14-day self-quarantine restrictions.
Visible MoM improvement in outbound traffic to start from September
In the initial phase of vaccination, priority is given to the elderly, outbound business travelers, and workers in healthcare or other critical sectors. As a result, we are unlikely to see a direct increase in travel demand at the start of vaccinations. However, we expect outbound traffic to visibly increase from September, once roughly 10% of the population (or 5.5mn people) receive both doses. The number of outbound travelers should continue on a MoM uptrend (73K in March→80K in April →85K in May →89K in June →92K in July →93K in August →132K in September →187K in October→274K in November →357K in December) going forward.
Certain airlines and travel agencies have started to prepare charter flights for September, with travelers expected to crowd to the limited number of destinations open to tourists in the initial phase of recovery from pandemic impact. Annual outbound traffic is estimated at 1.62mn (-62% YoY) for 2021 and 15.02mn (+827% YoY) for 2022. Inbound traffic is forecast at 0.90mn (-64% YoY) for 2021 and 4.79mn (+431% YoY) for 2022. The number of Chinese inbound travelers should reach 0.27mn (-60.2% YoY) in 2021 and 1.77mn (+548.2% YoY) in 2022. Removal of self-quarantine obligations for fully vaccinated inbound travelers should lead to a sharp increase in inbound traffic forecasts.
Prefer travel (Hana Tour Service) and duty-free (Hotel Shilla) stocks
Outbound traffic is highly likely to continue on a gradual uptrend going forward. Pandemic-sparked restructuring efforts are underway at individual companies and in the travel industry as a whole. Major travel agencies capable of securing flight tickets in bulk such as Hana Tour Service (039130KS) are expected to remain at an advantage in the early stage of recovery in outbound traffic. Outbound recovery is also positive for the online duty-free sales of major duty-free operators. Duty-free operators such as Hotel Shilla (008770KS) are currently enjoying fast-paced MoM growth in sales thanks to small-scale Chinese merchants, but actual earnings improvement should start in earnest with the upturn in high-margin online duty-free sales.