Room Glut Leaves Hotels Empty

  • By Lee Hai-woon

    December 21, 2017 12:22

    Hotels worry about low occupancy because the North Korean threat and a Chinese boycott are keeping tourists away and fatal miscalculations have led to a room glut.

    The number of available hotel rooms surged 40 percent over the last five years, but the number of tourists has not increased apace.

    According to the Ministry of Culture, Sports and Tourism, there were 683 hotels in 2012 with 74,737 rooms, which grew to 971 and a whopping 109,880 rooms last year. That suggests most of them are big and geared towards bog-standard mass tourism, which is rapidly going out of fashion except among the Chinese, and they are not coming.

    In the boom times of 2012, when the number of foreign tourists surpassed the 10-million mark for the first time, the government eased regulations to bolster the number of available rooms. At the time, rooms were so scarce that a three-star hotel in the downtown shopping district of Myeong-dong could charge W200,000 a night (US$1=W1,084). Hotel occupancy soared to over 90 percent.

    Thanks to the lifting of restrictions, the number of three and four-star hotels in downtown Seoul has surged over the last few years. But that was based on a wildly optimistic projection from state-run research institutes that foreign tourist numbers would rise to 20 million a year by 2018.

    The problems started when the number of foreign tourists tanked in 2015 following the outbreak of Middle East Respiratory Syndrome in Korea and continue today with the North Korean nuclear threat and a Chinese ban on cut-price package tours to Korea.

    The actual number of foreign tourists visiting Korea this year is estimated at only 12 million and not many more are expected next year.

    Even the upmarket Lotte Hotel suffered a W94 billion operating loss in the first to third quarters of this year, twice as much as last year, when sales dropped 4.4 percent to W506.4 billion. Over the same period, the Westin Chosun saw sales plunge 18 percent to W452.7 billion, while net losses doubled to W19.4 billion.

    Industry insiders are not optimistic about the Winter Olympics in Pyeongchang either, because among the 288 hotels that opened over the last five years, 193 are in Seoul and Jeju, where they are no use to visitors to Gangwon Province. The number of hotels in Seoul rose from 151 to 280, up a whopping 85 percent, and on Jeju Island it more than doubled from 54 to 118. And almost none of these new hotels stand out in any way, being firmly geared to the cheap end of the market.

    Another factor burdening the hotel industry is a rise in the minimum wage because they rely on low-paid workers and outsourcing staff. That means costs are going up steeply. "I agree with the idea of improving welfare for hotel employees, but the minimum wage hike will be disastrous for smaller hotels," a hotel staffer said. "At this rate a number of hotels could end up going bankrupt."

    The key is whether foreign tourists can be lured back to Korea. Japan's tourism policies have been a solid success resulting in a booming hotel industry, but they cater to more sophisticated tastes as well as the mass market.

    Oh Ik-keun of Keimyung University said, "There is no fundamental solution other than attracting more tourists from countries other than just China and Southeast Asia. In the long term, we need to develop alluring tourism attractions that are not affected by the North Korean threat."

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