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Travel, transport sectors suffer most from novel coronavirus outbreak

Rising virus infections will affect credit ratings of Korean firms: Moody’s

(Yonhap)
(Yonhap)

The continued spread of China’s new coronavirus is hitting the South Korean economy hard, adversely affecting many sectors including travel, tourism, services, airlines and auto firms.

Among them, the tourism industry has been more severely affected due to fears of infections in tourist spots and airports where many people gather.

Hana Tour, the nation’s biggest tour agency, saw overseas travel demand dip around 50 percent last month. It is urging employees to apply for unpaid leave as the demand is likely to shrink further this month. Mode Tour, which has the second-largest market share here, also saw a 23 percent decline in revenue from overseas travel last month. 

“The problem is that travel demand has declined not only for China but also other regions because consumers are reluctant to use airports. More than 90 percent of consumers canceled their trips to Thailand and the Philippines following news reports on infections there,” said an official at one local travel agent, asking for anonymity.

On Monday, Transport Minister Kim Hyun-mee met with top executives of the nation’s 10 air carriers, promising them full support.

“The number of passengers on international fights has surged by four times from the 2003 severe acute respiratory syndrome, with the number of air carriers increasing exponentially,” she said.

Since last week, the ministry has allowed airlines to reserve their unused flight quota to and from China as well as their slots, she added. The ministry will take additional administrative measures to allow changes to the alternative route openings for airlines, allowing them to operate irregular flights as per demand, Kim said.

Other measures would include allowing payment delays or reducing the airport facility usage fees depending on the damages they suffer.

The number of international passengers at airports across the country stood at 7.9 million last month, down 1.8 percent on-year as the virus hit aviation demand, said Hanwha Investment & Securities.

The suspension of flights to and from China resulted in low-cost airlines reducing flights by up to 80 percent. Jeju Air, Air Seoul, Eastar Jet and T‘Way have recently asked their staff to take unpaid leave.

From February, the decrease in foreign tourists and the contraction of outbound Koreans are expected to result in hurting the service sectors, especially accommodation and restaurants, according to a recent report by the Korea Development Institute.

The situation is similar to the Middle East respiratory syndrome outbreak, when the number of foreign tourists declined 45.5 percent, while service sector activities fell 0.8 percentage point between June and August 2015 on-year.

The virus is also hitting the domestic auto industry, which is 30 percent dependent on Chinese parts, mostly simple auto parts.

Last week, the nation’s largest automaker Hyundai Motor decided to suspend all production lines at local plants due to the disruption of parts supplies from China. Kia Motors and SsangYong Motor have also shut down their plants.

ChungNam Institute released a new report on Monday, saying that the new coronavirus infection may hit the local economies of Asan and Seosan, where the automobile industry is concentrated.

It said if the auto production plant stops operating for one week due to a shortage of parts supply, the total industrial production is expected to decrease by 1 trillion won ($840 million) in the region.

“The spread of the new coronaviruses is negative for the credit ratings of Korean firms in many industries as it can reduce consumer sentiment and consumption expenditure while disrupting the production and supply chain within and outside China,” said global credit rating agency Moody’s.

By Shin Ji-hye (shinjh@heraldcorp.com)
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