Tourism affected by MERS outbreak in South Korea; Korean Air Lines shares drop

SEOUL, Korea, Republic Of – For a South Korean tour agency, the outbreak of Middle East respiratory syndrome feels like a bigger threat to business than a North Korean attack or nuclear reactor meltdown.

Kim Chun Choo’s company, which has provided tour services for the last quarter century, is going through its worst year ever.

Following the outbreak last month, most tourists from China, Hong Kong and Taiwan, who account for about half of Kim Travel’s clients, cancelled tours to Seoul. Almost all international conferences, which were set to bring in participants who would use his company’s tour services, were cancelled or postponed.

“Even after the Yeonpyeong Island shelling and Japan’s Fukushima crisis, it wasn’t this bad,” said Kim, referring to the North Korea’s shelling of a South Korean island in 2010 and Japan’s nuclear accident in 2011.

Kim said revenue in June is expected to plunge to less than 30 per cent of what it was a year earlier. The massive cancellations are dealing a blow to business for July and August as well, which are usually high-demand months.

“It’s a step backward for South Korea which has built a good image,” he said. “I just hope that the outbreak ends quickly so that business in the fall wouldn’t be hurt.”

Efforts to foster stronger growth in Asia’s fourth-largest economy have been set back by the MERS outbreak, which is denting tourism and spending by locals. Eleven people have died and more than 120 people in South Korea have been diagnosed with the disease since the country reported its first case on May 20.

The outbreak, the largest outside Saudi Arabia, has been contained to hospitals but it has caused widespread fear. Nearly 3,000 schools and kindergartens remained closed on Friday despite calls from the World Health Organization for them to reopen.

Lee Ju-yeol, Bank of Korea governor, said spending by South Koreans has been shrinking since last week. The central bank on Thursday slashed its key interest rate for the second time this year by a quarter of a percentage point to a record low.

Since the first reported case and especially during the first few weeks when the government withheld the names of the hospitals with MERS patients, South Koreans have avoided crowded spaces such as public transport, movie theatres and shopping malls. New movies have pushed back their release dates.

IKEA Korea postponed a sale that was set to start on Thursday citing the local government’s recommendations. A resident of a southwestern village which is quarantined after a patient was released before getting a positive test result told a South Korean television network that some people cancelled their online food orders out of panic.

South Korea’s government is providing emergency loans to small and medium-sized companies that are the hardest hit by the MERS outbreak. The loans will be distributed next week to small hospitals that had contact with MERS patients, hotels and concert organizers.

Markets have also reacted to the outbreak. Cosmetics companies and airlines that count Chinese consumers as their key customers have suffered share price slumps in the past month. Shares of Korean Air Lines are down 14 per cent since May 20 while Asiana Airlines lost nearly 20 per cent of its market value during the same period. Shares of Amorepacific, South Korea’s largest cosmetics maker, are down nearly 10 per cent.

For Kim, the head of Kim’s Travel, it is time for his staff to recharge and prepare for the future.

“We decided that this is time to do preparation for the next busy season, from September to November,” he said. “We are doing the things that we were too busy to do, like developing new tour products and having employees get some time off.”


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