Nuke Test Cuts Geumgang Tour Profits

Hyundai Asan is considering adopting an emergency management system in the face of the steep decline in the number of tourists to Mount Geumgang due to North Korea’s nuclear test.

On November 3, an official of Hyundai Asan said, “North Korea announced its nuclear test last month during a high-demand season and the actual number of Mount Geumgang tourists fell by 40,000 to 50,000 from the previously estimated 300,000. It looks like the revenues from the North Korean resort will drop by 15 billion won. We are reviewing several cost-cutting measures in case the business environment further worsens.”

First of all, Hyundai Asan is looking for ways to reduce fixed expenses, including scaling back the accommodation facilities and restaurants in Mount Geumgang.

Hyundai Asan is running accommodation facilities such as Geumgangsan Hotel and Haegeumgang Hotel, restaurants and spas, where a total of 1,600 (about 1,000 South Koreans from Hyundai Asan itself and its partner companies and 600 North Korean workers included) are employed.

Another option considered at Hyundai Asan is restructuring, which will be followed by cutting wages and reducing its payroll.

Last month, 22,000 travelers went to Mount Geumgang, a 45 percent fall from the estimated 40,000. In November, the downward trend, according to Hyundai Asan, is likely to continue with only 10,000 tourists traveling to the mountain resort, a decline from the number of tourists (13,000) in November of last year.

Hyundai Asan’s plan before the nuclear test was to make up for falling demand during this year’s long monsoon season by attracting as many tourists as possible during the high-demand autumn months.

Hyundai Asan, directly hit by last month’s North Korean nuclear test, will be in deeper trouble as the low-demand winter approaches.

The Mount Geumgang project has been a key part of Hyundai Asan’s business operation in North Korea.

The tourism project accounted for 45 percent of Hyundai Asan’s sales last year, which were 235 billion won. In the first half of this year, 74 percent or 12.5 billion won of the group’s profits (16.9 billion won) came from its Geumgang project.

As is shown in Hyundai Asan’s financials, the North Korean tourism business serves as a cash cow to the company. The money from the business has been essential in funding Hyundai Asan’s Gaesong Industrial Complex in its infancy.

North Korea’s return to the six-party talks gave Hyundai Asan a pause for breath. But, for the foreseeable future, the number of visitors to Mount Geumgang is expected to remain reduced, which makes it inevitable for Hyundai Asan to turn to emergency management.

aryssong@donga.com