Korea's rental car industry, which had been anxiously watching to see whether sparks would fly its way as the war between the United States and Iran dragged on, is breathing a sigh of relief. Many were concerned that domestic travel demand would fall as domestic airfare fuel surcharges rose due to a surge in oil prices from the war, but reservations are instead increasing on the back of more travelers.
According to the rental car industry on the 14th, Lotte Rental's reservation rate for Jeju in May has topped 40%. SK Rent-a-Car is said to be recording a similar reservation rate.
Reservation rate refers to the share of reserved vehicles out of the total number of rental cars a company has. According to the Ministry of Land, Infrastructure and Transport, as of September last year Lotte Rental had 3,931 cars in Jeju and SK Rent-a-Car had 3,724.
For Jeju rental cars, reservations open one month in advance. The fact that by early April nearly half of May's reservations were already made is interpreted as a noticeable increase in travel demand compared with previous years.
A Lotte Rental official said, "Current rental car reservations in Jeju are at a level similar to August, the peak season," adding, "The operating rate (the share of vehicles in operation out of total fleet) is projected to exceed 90%."
Reservation rates for April across all regions are also showing a stable trend. Lotte Rental said its March operating rate rose by 5 percentage points from a year earlier, and April's reservation rate has already exceeded 80%. April reservations are nearing 20,000 vehicles, up 24% year over year. May reservations are also around 8,000 vehicles, up 47% from a year earlier. SK Rent-a-Car said it recorded operating and reservation rates similar to last year.
Initially, there were many concerns in the rental car industry that it could be hit by "stray bullets" from a surge in oil prices caused by the war between the United States and Iran. The reason was that fuel surcharges that airlines add to domestic fares were rising sharply due to higher jet fuel prices, which could dampen domestic travel demand.
Korean Air Lines and Asiana Airlines said they will raise domestic fuel surcharges by about 4.4 times from the current 7,700 won to 34,100 won starting next month. Because of this, there were expectations that rental car companies in Jeju would take a hit, as many Jeju visitors book rental cars along with airline tickets and lodging.
Contrary to expectations, the industry analyzes that the strong reservation performance is because people who had planned overseas trips are turning to domestic travel. Although the increase in domestic fuel surcharges is larger than on international routes, the monetary burden of international surcharges is much higher, reducing overseas travel demand while increasing domestic demand.
For Korean Air Lines, the one-way fuel surcharge on U.S.-bound routes from Incheon to New York, Dallas, Boston, Chicago, Atlanta and Washington, D.C., rose from 99,000 won last month to 303,000 won this month, more than tripling. On a round-trip ticket basis, that means 606,000 won just in fuel surcharges.
Fuel surcharges applied to tickets on other routes also rose across the board. One-way fuel surcharges for routes from Incheon to the U.S. West Coast such as Los Angeles (LA) and San Francisco, and to Europe such as London, Paris and Rome, climbed from 79,500 won to 276,000 won, more than tripling.
In fact, since the start of this month, reservation rates for Jeju routes operated by several airlines have reportedly increased sharply from last year. For Jeju Air, Korea's No. 1 low-cost carrier, the load factor from the start of this month through the 12th was 97%, up 10 percentage points from the same period last year (high-80% range).
An official at a low-cost carrier said, "Last year, Jeju route reservation rates fell significantly due to the aftermath of the late-2024 Muan Airport accident, but recently demand has increased to above typical levels," adding, "The Jeju route usually enters peak season from April, and as fuel surcharge hikes drove up overseas airfares, travelers turned to Jeju instead of Southeast Asia, which seems to have restored peak-season demand."
Another low-cost carrier official said, "From this month, Jeju routes have been nearly fully booked," adding, "As temperatures rise, seasonal demand such as school trips has increased significantly, which also contributed to the growth in Jeju travelers."
The rental car industry also enjoyed a boom from 2020 to 2023, when the coronavirus crisis unfolded. Social distancing rules were eased, but overseas departures were blocked, concentrating travel demand within Korea, including Jeju.
Lotte Rental achieved record results at the time, posting 2.7394 trillion won in sales and 309.5 billion won in operating profit in 2022 on a consolidation basis. SK Rent-a-Car recorded 1.2466 trillion won in sales and 95.1 billion won in operating profit at the time.
A rental car industry official said, "Although the United States and Iran have agreed to a cease-fire for now, uncertainty remains high, so overseas travel demand is likely to remain subdued for the time being," adding, "The shift of overseas travel demand to domestic trips could turn the current situation into an opportunity for rental car companies."