LCCs, Paradise and Hana Tour Service Stand to Benefit
The author is an analyst of Shinhan Investment Corp. She can be reached at inhae.ji@shinhan.com. -- Ed.
Japan accounted for a large portion of inbound/outbound travel before the pandemic
Japan plays a key role in Korea’s tourism/leisure industry as the starting point of the global fandom for K-pop and K-drama, as well as the country that accounts for the largest portion of outbound travel and second-largest share of inbound travel after China. Picked as the most preferred travel destination for Koreans all year round, Japan accounted for 22.4% of all outbound flights in 2019.
Due to the pandemic, air travel to Japan was nearly shut down from 2020. The total number of flights to Japan fell from an average of 120,000 per year in 2018-2019 to 20,000 in 2020, and dropped below 10,000 in 2021. Flights to Japan departing from Gimpo International Airport were completely suspended, and non-business travelers to Japan were newly required to obtain a visa to visit the country.
Recommend focusing on key stocks likely to benefit from Japan demand recovery
LCCs, Paradise and Hana Tour Service expected to benefit from Japan demand recovery
Recently, however, expectations have been growing for a resumption of passenger flights to Japan from June this year. Incoming president Yoon Suk-yeol’s delegation to Japan, at a press briefing held after their trip, made positive comments on the possible resumption of flights, restoration of the visa waiver and expansion of quarantine exemptions between Korea and Japan. In particular, they highlighted the reopening of the key route between the two countries, linking Gimpo and Haneda airports.
We will need to wait for official announcement on the timing, pace, and extent of the resumption of flights between Korea and Japan, with several variables requiring thorough review. In the meantime, investors should prepare ahead for the reopening of Korea-Japan routes by focusing on stocks likely to benefit from Japan demand recovery. Low cost carriers (LCCs) should notably benefit with Japan routes accounting for nearly 55% of total passenger demand as of 2019. Among LCCs, Air Busan depends on Japan routes for the largest portion of sales, followed by T’way Air, Jin Air and Jeju Air.
In the leisure sector, we expect Paradise and Hana Tour Service to emerge as key beneficiaries. Compared with other domestic casinos, Paradise had relied heavily on inbound travel from Japan before the pandemic, with Japanese visitors accounting for roughly 35% of total VIP drop and more than 40% of total table drop including mass customers in 2019. Travelers coming in from Japan had helped to offset the decline in Chinese VIP visitors amid China's casino crackdown.
Paradise also partnered with Japan-based Sega Sammy on the development of Paradise City, located on Yeongjong Island in Incheon. Considering the marketing manpower in Japan, geographical proximity of the two countries and profit model of the resort complex, we believe Paradise stands to benefit the most among domestic casinos from Japan demand recovery. In efforts to secure first mover advantage ahead of the upturn in demand, Paradise has already dispatched a portion of its marketers to Japan.
Meanwhile, Hana Tour Service remains most exposed to Japan demand among domestic travel agencies, despite closing down a large share of its Japanese businesses amid the pandemic and change in ownership structure. The company had significantly increased its Japanese businesses before the pandemic, listing Hanatour Japan on the local bourse and expanding its hotel, duty free and bus tour operations geared toward travelers visiting Japan. Travelers to Japan accounted for 25% (vs. 11% at Modetour) of its outbound operations in 2019, with the previous peak recorded at 37% in 2017. Backed by its extensive expertise in the field, Hana Tour Service is expected to remain ahead of rivals in providing cost competitive and attractive Japan tour packages.