As fuel surcharges have surged to a record high on the back of a sharp rise in global oil prices, the travel industry has moved to protect demand by focusing on promotions centered on price defense and themed products. Despite a recent recovery in results, concerns are emerging about weakened travel sentiment, and uncertainty over industry conditions is growing again.
According to related industries on the 10th, the fuel surcharge on international tickets issued this month will be set at level 33, up 15 levels from level 18 last month. This is the highest level since it was introduced in 2016. Korean Air Lines will charge a one-way fuel surcharge ranging from 75,000 won to as high as 564,000 won. Compared with last month's 40,200 won–303,000 won, it is nearly double. Asiana Airlines also set its one-way surcharge at 85,400 won–476,200 won. That is about double last month's 43,900 won–251,900 won.
The prolonged high oil prices stem from continued geopolitical risks following the outbreak of war in the Middle East. Travel expense burdens have also jumped sharply, and it is highly likely that a rapid easing of the burden in the short term will be difficult.
The travel industry has entered a hold-the-line strategy by expanding promotions to minimize price burdens. Hanatour rolled out a "Fuel ZERO" special that does not reflect the fuel surcharge increase. It moved to protect demand with limited-time deals via its live-commerce channel, Hana LIVE. Modetour Network organized a "fixed price" promotion featuring products centered on airlines that did not raise fuel surcharges or kept increases limited. Earlier, it also ran a "fuel compensation program" that reimbursed in full, as tour mileage, the amount of the May fuel surcharge increase for customers who finalized reservations in April. Kyowon Tour, through its "original booking price guarantee" products, ensures that even if the fuel surcharge rises after booking, customers can travel without any additional expense.
Safety nets to reduce consumer burdens are also being strengthened. Some companies are waiving cancellation fees within a set period before departure or adopting policies that fully refund ticketing fees if flights are canceled. Some travel agencies are also selling products that minimize the impact of fuel surcharge increases by using pre-secured seats or foreign carriers.
Accordingly, the travel industry is worried about deteriorating profitability. In fact, it is reported that not a few products are being sold at a loss.
A travel industry official said, "If fuel surcharges remain high, the burden on the industry is inevitable," adding, "In particular, the decline in demand for long-haul routes, which are highly profitable, is a major pressure factor." In fact, as fuel surcharges have spiked, bookings for long-haul routes such as to the Americas and Europe, which carry high expense burdens, have slowed, while short-haul travel to Japan, China, and Southeast Asia is relatively steady. Another industry official said, "New bookings for long-haul routes have inched down, but overall travel demand itself has not decreased," adding, "Demand is concentrating on short-haul routes with lighter burdens."
Accordingly, travel agencies are also trying to create new demand with experiential products such as "in-person tours." They are expanding high value-added, fandom-based products such as European pro soccer, MLB (Major League Baseball) and NBA (National Basketball Association) games, and packages tied to international sporting events to target fandom groups.
With conditions improving, the travel industry appears set, for the time being, to hunker down and focus on defending results. Hanatour posted 57.6 billion won in operating profit last year, up 13.2% from a year earlier. Modetour Network also recorded 7.4 billion won in operating profit, up 51% year over year. Yellow Balloon Tour posted 2.2 billion won in operating profit, swinging to a profit from an operating loss of 6.5 billion won a year earlier. This year, the double whammy of fuel surcharge burdens and softer demand is seen making a deterioration in profitability unavoidable. A decline in B2B (business-to-business) demand, such as corporate travel, is also acting as a pressure factor.
A travel industry official said, "With the summer peak season ahead, this is when long-haul travel demand should start moving in earnest, but reservations are not picking up due to fuel surcharge burdens," adding, "We need to stem demand declines through promotions while watching for upcoming fuel surcharge announcements."