[IB Tomato] How about here, ‘making money’ with cancellation fees… Consumer protection takes a backseat

Ranked #1 in applications for consumer damage relief with 523 cases over 3 years
Complaints are aggravated as some products are free for cancellation within 10 minutes.
Increased profit margin due to rapid increase in commission income including cancellation fee

#Consumer A, who lives in Seoul, recently made a reservation for accommodation through Yeogi Eottae. After making a reservation in the early morning, I canceled it the next morning, but was informed by the company that "if the regulations are followed, it is difficult to refund the already applied fee." Yeogi Eottae said, "We will inform you after checking other options." Initially, they said they would check at 2 PM and give an answer, but they remained silent the next day.

Consumer complaints about lodging platforms, including Yeogi Eottae, have been going on for several years. Like Mr. A, people who booked accommodations but clicked the wrong cancellation button or simply changed their mind canceled the stay, and the majority of complaints occurred when it was impossible to get a refund or withdraw the cancellation decision.

No. 1 in applications for consumer damage relief… 79.38% increase in 3 years

According to the Korea Consumer Agency on the 16th, applications for consumer damage relief related to the use of lodging facilities received over the past three years have been increasing every year. Accordingly, the status of damage relief, which was only 1,047 cases in 2021, increased to 1,428 cases in 2022 and 1,643 cases in 2023.

When looking at the reasons for application, complaints about penalties for contract cancellation were the most common at 78.5%. There have been frequent cases where some lodging facilities unconditionally refuse refunds regardless of the time of contract cancellation request due to the fact that the non-refundable terms and conditions were notified in advance. The number of penalty complaints was 848 in 2021, which was less than 1,000, but increased every year to 1,115 in 2022 and 1,271 in 2023.

By platform, Yeogi Eottae received the most applications for damage relief, with a total of 523 cases over the three years. This was followed by Agoda with 505 applications, Yanolja with 502 applications, and Naver with 358 applications. Although there were repeated increases and decreases every year, the number of applications for damage relief by platform increased by 79.38% from 97 cases in 2021 to 174 cases last year.

Such consumer complaints appear to be due to difficult cancellation fee policies and difficulties in confirming cancellation fees. Previously, the Korea Consumer Agency has been encouraging accommodation reservation service providers to self-improve when cases of refunds were refused when cancellations were made on the day of contract signing. Accordingly, since 2017, Daily Hotel, Yanolja, Yeogi Eottae, and Hotel Enjoy have decided to provide full refunds for all products, including non-refundable products, if canceled within 10 minutes to 1 hour after signing the contract.

However, consumer dissatisfaction is still high. In particular, the inability to find out the cancellation fee at a glance before making a reservation was also pointed out as a problem. Consumer A said, "It was difficult to check the cancellation fee policy without directly clicking the red letters in the terms and conditions. When I used the same lodging company before, I complied with the request to cancel because all the rooms were full, but the problem is that they do not agree to a refund when the consumer is actually losing money."

Growing dissatisfaction with ‘unfair contracts’ favorable to accommodation platforms

According to the 'Act on Consumer Protection in Electronic Commerce, etc.', cancellation of subscription regarding the relevant contract is possible within 7 days from the date of receiving the written document regarding the contract details. However, on lodging platforms, there are frequent cases where people, like Mr. A, do not receive a refund despite canceling on the same day.

Accordingly, competitor Yanolja recently received a class action lawsuit from consumers. According to the Electronic Commerce Act, products traded can be withdrawn within a week, but some products can only be canceled for free within 10 minutes, so a structure that is advantageous only to the platform was pointed out as a problem. According to Article 6, Paragraph 2 of the Terms and Conditions Act, clauses that are unfairly disadvantageous to the customer, clauses that are difficult to predict, and clauses that limit fundamental rights are presumed to have lost fairness and are treated as invalid. Daeryun Law Firm, which handled the lawsuit, pointed out that the refund policy was unfavorable to customers and thus lost fairness.

Here, it is also notified that some of the domestic hotel, resort, pension, guesthouse, camping, and home and villa products can be canceled free of charge only within 10 minutes after reservation and payment, and that the cancellation and refund policy of the relevant accommodation applies thereafter. However, in many cases, it was difficult to intuitively understand these regulations because 3-4 images and room information were located at the bottom of the last scroll.

There was also a difference when making a reservation directly through the hotel website rather than through the platform. According to its terms and conditions, Lotte Hotel does not charge a fee if the accommodation contract is canceled in whole or in part due to the customer's circumstances, and if cancellation is made by 6 PM (hotel local time) one day before the scheduled stay date. Cancellation after 6 p.m. was possible by paying only one night’s fee.

Consumer confusion is increasing due to different cancellation fee policies depending on the reservation method. An industry insider said in a phone call with , "There is a volume of rooms provided by contract for each accommodation platform, and in order to handle this, we will have no choice but to conduct promotions or marketing, etc." and "For this reason, there is a possibility that we will not have enough room to pay cancellation fees."

The 'Consumer Dispute Resolution Standards' also stipulate that even if the contract is canceled due to reasons attributable to the consumer, the down payment must be fully refunded if canceled 10 days before the scheduled use date or on the day of the contract conclusion. However, consumer dispute resolution standards are literally 'recommendations' and therefore have no binding force, making it difficult to actually receive compensation.

Part of the cancellation fee is converted into platform revenue... Performance is also growing

While consumer complaints are increasing every year, Yeogi Eottae's performance continues to show an upward trend. In particular, last year, despite a sharp decline of 22.54% in room sales revenue from KRW 133.1 billion to KRW 103.1 billion compared to the previous year, sales growth was maintained with commission income growing 13.42% from KRW 109.5 billion to KRW 124.2 billion and advertising fee income growing 30.41% from KRW 62.8 billion to KRW 81.9 billion.

Commission income refers to income including all fees related to reservations. The cancellation fee is basically paid to the affiliated store, but a portion of it is paid to the affiliated store. The share of such commission income in total revenue amounted to 40.18%. This is an increase of about 4.33% points compared to 35.85% in the previous year.

In particular, Yeogi Eottae's fee income increased by 58.47% from 69.1 billion won in 2021 to 109.5 billion won in 2022. Last year, it recorded 124.2 billion won, a 13.42% increase compared to the previous year. During the same period, its share of total sales also increased to 33.7%, 35.8%, and 40.2%. In particular, last year's fee income wasYanolja’s sales commission revenue on a separate basis (KRW 209.5 billion)It was only 59.28% of . According to Mobile Index, the average number of monthly users over the past year was 2.2 million for Yeogi Eottae, which was 80,000 fewer than Yanolja (2.28 million).

Nevertheless, from 2022, the number of applications for damage relief has been higher than that of Yanolja. As a result of a survey by the Korea Consumer Agency of the status of applications for damage relief by platform, the number of applications for Here is a surge from 97 in 2021 to 252 in 2022. However, last year, there were 174 cases, a 31.0% decrease from the previous year. During the same period, Yanolja's applications for damage relief increased and decreased repeatedly: 133, 198, and 171. However, it is positive that Yeogi Eottae's damage relief processing (settlement rate) increased to 63.9% in 2021, 71.8% in 2022, and 78.2% in 2023.

Among these, Yeogi Eottae's sales and operating profit showed even growth, and its operating profit ratio increased to 7.56% in 2021, 10.64% in 2022, and 15.01% in 2023. Profitability has nearly doubled in three years. During the same period, operating profit continued to increase to KRW 15.5 billion, KRW 32.5 billion, and KRW 46.4 billion.

The cash reserves are also ample. The current ratio at the end of last year was 130.98%. Among these, Yeogi Eottae's cash and cash equivalents, including short-term financial products, totaled KRW 100.2 billion, exceeding the combined amount of trade payables and accounts payable, which was KRW 54.9 billion.

In relation to this, an official from Yeogi Eotae said in a phone call with , "We will continue to strengthen CS to resolve civil complaints."

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