Why Has the High-Cost Travel Model Returned?
With oil prices, exchange rates and local costs all rising, the cost of overseas travel packages is climbing rapidly. Large travel companies have room to respond through their purchasing power and access to capital, but small travel agencies and local operators lack the financial buffers needed to absorb higher costs.
The military conflict involving the United States, Israel and Iran, which began on February 28, 2026, has heightened uncertainty in energy transportation and financial markets. Still, it would be misleading to attribute today’s high-cost travel environment to the war alone. It is more accurately understood as the result of several factors acting together, including international oil prices, exchange rates, air capacity, local labor costs and accommodation prices.
Oil Prices and Exchange Rates Squeeze Airfare and Local Costs
The Korea Institute for International Economic Policy, in its May 2026 outlook, forecast average 2026 prices of $85.40 a barrel for West Texas Intermediate and $96 for Brent crude, factoring in tensions in the Middle East and delays in restoring supply facilities. Prices could fall if a ceasefire holds and maritime transport returns to normal, but the possibility of renewed conflict remains an upside risk.
The Bank of Korea also identified uncertainty surrounding the situation in the Middle East and the pass-through of cost shocks into consumer prices as key risks in its July 2026 assessment of economic conditions. When the won is volatile and oil prices rise at the same time, travel companies that settle overseas hotel, vehicle, meal and guide costs in foreign currencies face higher expenses alongside the rising cost of air tickets.
According to the National Data Office’s May 2026 consumer price report, international airfares rose 33.5% from the same month a year earlier, while overseas group-tour prices increased 26.3%. The figures show that the pressure on travel consumers is clearly visible in official data.
South Korea’s Travel Industry by the Numbers
According to tourism-industry statistics based on the Tourism Promotion Act in the Korea Culture and Tourism Institute’s 2024 tourism industry survey, South Korea had 43,928 tourism businesses. Travel companies accounted for 20,903 of them, or 47.6% of the total, an increase of 7.4% from the previous year.
The same survey counted 60,515 people employed in the travel industry and annual sales of 5.3743 trillion won. A simple calculation puts the average number of employees per company at about 2.9, highlighting how heavily the travel market depends on small businesses.
Under the special classification system for the tourism industry, there were 70,867 tourism businesses in 2024, employing 449,272 people and generating 87.5012 trillion won in sales. Because the scope of the survey differs from the statistics based on the Tourism Promotion Act, the two sets of figures should not be treated as describing the same population.
The term “local operator” generally refers to a business that sources accommodation, vehicles, guides and restaurants at the destination and supplies them to travel agencies. However, local operators are not listed as a separate category in publicly available tourism industry surveys. Official statistics alone therefore cannot establish the exact number of local operators in South Korea or their average revenue.
Why Small Travel Agencies and Local Operators Are More Vulnerable
Sales Prices Are Fixed While Costs Keep Moving
Package tours are often priced several months before departure. If exchange rates, hotel prices or vehicle costs rise in the meantime, travel companies may find it difficult to pass the full increase on to consumers, squeezing the margins of both travel agencies and local operators.
Large travel companies can secure airline seats and hotel rooms in bulk or spread profits and losses across multiple destinations. Smaller businesses, by contrast, generally have less bargaining power with suppliers because of their lower transaction volumes, and a decline in demand for one destination can quickly worsen their cash flow.
The Timing Gap Between Cancellations and Settlements Adds to the Burden
Travel agencies collect payment from customers in won and then pay overseas suppliers in foreign currencies. If exchange rates rise between the time a contract is signed and the payment is made, actual costs can exceed projections. If a departure is canceled, recovering deposits that have already been paid can also become a problem.
Local operators can likewise be left with losses when they have prepaid hotels and vehicle companies but bookings decline or itineraries are canceled. Businesses whose revenue is concentrated among a small number of clients are especially vulnerable to the loss of a contract or delayed payments.
The Paradox of Online Price Competition
Online platforms expand access to customers, but they also allow consumers to compare the prices of multiple products instantly. Small businesses must respond to lowest-price competition while absorbing advertising costs and sales commissions, meaning that digital transformation itself can become a new fixed cost.
Survival Strategies for a High-Cost Environment
Set Clear Quote Validity Periods and Exchange-Rate Adjustment Rules
Rather than guaranteeing fixed prices for extended periods, small travel agencies and local operators should set shorter quote-validity periods and clearly specify in their contracts how prices will be adjusted when exchange rates or fuel surcharges change. The timing of deposits and final payments should also be linked to the cancellation terms of overseas suppliers.
Turn Expertise and Trust into Products, Not Just Low Prices
Instead of competing with large companies on price alone, smaller businesses may find a more realistic path in markets that require specialized expertise, such as particular regions, small-group themed tours, corporate travel, and educational, historical or security-related tourism. They need a model that reflects customized itineraries and the ability to resolve problems locally in the price of their services.
Combine Group Purchasing with Direct Sales
Small businesses can improve their purchasing power by jointly securing hotel rooms and vehicles or by building regional networks of local operators. Direct sales through their own websites and social media can reduce intermediary commissions, but companies must also establish systems for refunds, personal-data protection and customer support.
- Cost management: Review destination-level profitability and exchange-rate movements weekly
- Contract management: Disclose oil-price and exchange-rate adjustment clauses, along with cancellation fees, in advance
- Product strategy: Increase the share of small, specialized products rather than low-cost package tours
- Sales strategy: Combine direct online sales with existing agency and distributor relationships
- Risk diversification: Reduce dependence on any single airline, destination or business partner
Government Support and the Outlook for the Travel Industry
The Ministry of Culture, Sports and Tourism allocated 260.12 billion won to tourism out of the 461.4 billion won in supplementary budget funding approved in 2026 in response to the Middle East crisis. Of that amount, 200 billion won was earmarked for loans to tourism businesses, with a focus on easing the financial burden on travel agencies and other tourism companies.
However, loans must be repaid, which can limit access for small businesses with weak credit or insufficient collateral. Policies tailored to the scale of these companies should be implemented alongside lending, including guaranteed loans, interest subsidies, foreign-exchange risk management training, and support for shared booking and IT systems.
There is no certainty that high oil prices and elevated exchange rates will continue indefinitely. But in an environment where geopolitical conflict and supply-chain instability recur, small travel agencies and local operators will struggle to survive if they continue bearing cost fluctuations entirely on their own.
The travel industry’s competitiveness will likely depend less on simply cutting prices than on transparent contracts, cash-flow management, specialized product development and diversified supply chains. Policy support should likewise go beyond temporary lending expansions and focus on strengthening small businesses’ bargaining power and digital operating capabilities.
Frequently Asked Questions (FAQ)
What is a high-cost travel model?
It refers to a situation in which the overall cost of travel products rises as international oil prices, exchange rates, airfares, and overseas accommodation, transportation and meal costs increase together.
How many travel companies are there in South Korea?
According to the Korea Culture and Tourism Institute’s 2024 tourism industry survey, there were 20,903 travel companies under the Tourism Promotion Act classification. The number of registered businesses and the number actually operating may differ depending on the reference date and survey criteria.
Are local operators included in official travel industry statistics?
Local operators generally provide destination services, but they are not classified as a separate category in official statistics. Depending on how they are registered, they may be included under travel businesses or other service industries.
Why do travel products become more expensive when exchange rates rise?
Hotels, vehicles, meals, admission tickets and guide services overseas are paid for in foreign currencies. Even if the foreign-currency amount stays the same, a weaker won increases the cost to the travel agency in won.
How can small travel agencies respond to a high-cost environment?
Key measures include shortening quote-validity periods, introducing exchange-rate adjustment clauses, developing specialized themed products, pursuing joint purchasing with suppliers, expanding direct sales and diversifying business partners.
