Operating Profit Soars 553% in H1... Hotel Industry Benefits from Influx of Foreign Tourists

Hotel Lotte and Hotel Shilla: Hotel Division Surpasses Duty-Free in Profitability
Foreign Tourist Boom and Strong Room & F&B Sales Drive Margins Higher

The hotel business, which is the primary business of Hotel Lotte and Hotel Shilla, has emerged as a new source of income. Although sales from their duty-free businesses still overwhelmingly outpace those from the hotel business, the gap in operating profit has narrowed significantly. In particular, in the second quarter, Hotel Lotte’s hotel business generated less than half the sales of its duty-free business, but its operating profit actually surpassed that of the duty-free division. The hotel business, previously overshadowed by the ‘star performer’ duty-free sector that drove overall results for hotel companies, is now gaining prominence.

According to the hotel industry as of September 7, 2026, during the first half of the year, Hotel Lotte’s duty-free business posted sales of 1.6965 trillion won, which was more than twice as much as its hotel business sales of 765.7 billion won. However, operating profit was 64.1 billion won for duty-free and 57.6 billion won for hotels, with a difference of only 6.5 billion won. While duty-free sales are dominant in scale, the hotel business is leading in profitability. In fact, the operating margin for the hotel business stood at 7.5%, double the 3.8% of the duty-free division. Notably, in the second quarter, the hotel business generated less than half the sales of the duty-free business but delivered an operating profit of 32 billion won, surpassing the 31.9 billion won of its duty-free counterpart.

The same is true for Hotel Shilla. Its duty-free business sales in the first half totaled 1.6572 trillion won, which is 4.5 times its hotel and leisure business sales of 368.1 billion won. However, the gap in operating profit narrowed significantly, to 48.6 billion won for duty-free and 32.9 billion won for hotel and leisure. In terms of operating margin, the hotel and leisure division recorded 8.9%, triple the 2.9% of duty-free. Moreover, as hotel and leisure sales rose 15.1% year-on-year, operating profit surged 46.2%, indicating a rapid improvement in profitability.

The improved profitability of the hotel business is primarily driven by the increase in foreign tourists visiting Korea. According to the Korea Tourism Organization, in the first half of the year, the number of inbound foreign visitors reached 10,709,919, an increase of 21.3% compared to the same period last year. As the rise in foreign tourists drives up room demand, the limited supply of major hotels in Seoul has kept room prices at high levels.

Nam Sung-hyun, a researcher at IBK Investment & Securities, stated, “In July, approximately 2.09 million foreign tourists visited Korea, a 20.8% increase from the same month last year, and this trend is highly likely to continue into next year. The number of Chinese tourists was 780,000, with additional flight routes to China already added in the first half, and further increases being considered for the second half. Given these factors, the expected further expansion in inbound tourism next year will continue to positively impact the hotel industry.”

The hotel industry operates under a structure where, once room sales surpass a certain level, increases in sales rapidly translate into higher profits. Since fixed costs such as labor and maintenance are significant, a higher occupancy rate and increased room rates can sharply improve profitability. In fact, during the first half of the year, Hotel Lotte’s hotel business sales rose 12.9% year-on-year, while operating profit soared by 533.1%. Over the same period, the number of foreign guests increased 13.1%, and room sales rose 13.5%.

Hotel Shilla also achieved profit growth that outpaced revenue growth. In the second quarter, the occupancy rate at both The Shilla Seoul and The Shilla Jeju increased by 9 percentage points each, reaching 75% and 79%, respectively. This drove hotel and leisure sales up 13.6% and operating profit up 23.5% to 24.7 billion won in the second quarter.

In contrast, while the duty-free business has recovered thanks to the increase in inbound tourists, there are limits to its profitability improvement compared to hotels. High and fixed costs, such as expensive airport duty-free rents and marketing expenses at city duty-free stores, are significant burdens. Furthermore, the reduced bulk purchases by Chinese group tourists and 'daigong' (Chinese personal shoppers) have made it difficult for the increase in foreign tourists to directly lead to a rise in profits. This situation explains why the duty-free industry, including Hotel Shilla returning some of its Incheon International Airport duty-free licenses last year, is focusing more on securing profitability than expanding its operations.

Nevertheless, since the duty-free sector has also shown a clear recovery, experts suggest that rather than hotels replacing duty-free as the main profit steamer, hotel companies are diversifying their revenue streams. In the past, duty-free businesses led performance thanks to Chinese tourist demand, but recently, as more tourists spend on accommodation and dining, the core hotel operations are establishing themselves as another significant profit pillar.

An industry insider commented, “The recent improvement in high-end hotels’ results reflects not only strong room sales but also the success of banquet and food & beverage operations. In addition to the general recovery in hotel demand due to the increase in foreign visitors, fine dining at luxury hotels is gaining popularity, aided by factors such as the rise of 'Heukbaek Chef.' Currently, the overall environment for high-end hotels is favorable, so improvements across rooms, banquet halls, and food & beverage divisions are contributing to higher operating margins, rather than just a single business line.”

This content was produced with the assistance of AI translation services.