Duty-Free Shops "Save Us"... Airport Corporation "We're Dying Too"

Business is slow but rent remains the same

Duty-free shops demand expansion of rent reduction measures

Conflict arises as airport corporation also faces difficult conditions

[Asia Economy Reporters Lim Hye-seon, Yoo Je-hoon] The World Health Organization (WHO) declared the novel coronavirus disease (COVID-19) a 'pandemic,' putting the already struggling duty-free industry on high alert. Business is slow, but duty-free shops are still paying the same rent. While the duty-free industry is demanding an expansion of rent reduction measures, the airport corporation is also facing deteriorating business conditions, making it difficult to find common ground.

According to the airport corporation and the duty-free industry on the 12th, the government will re-discuss next week whether to reduce rents for tenants at the airport corporation. The duty-free industry is requesting that Incheon Airport Corporation expand the rent reductions, which have been applied to small and medium-sized duty-free shops, to include medium-sized and large companies as well. This topic is expected to dominate the meetings between Incheon Airport Corporation and tenants held over two days on the 12th and 13th. On the 12th, 10 companies from the food and beverage duty-free sector will participate, and on the 13th, 18 companies from the convenience store and parcel delivery sectors will join. The meetings will listen to the tenants' difficulties regarding rent and discuss improvement measures.

Lotte Duty Free will indefinitely close its store in the international terminal of Gimpo Airport starting on the 12th. This is the first time since its founding in 1980 that Lotte Duty Free has closed a store due to decreased sales. The number of international departures from Gimpo International Airport, which averaged 24 flights per day in January, has dropped to 1-2 flights per day this month. Consequently, daily duty-free sales, which used to be 100 million to 200 million KRW, have plummeted to 1 million to 2 million KRW. Shilla Duty Free has shortened its business hours, though it has not closed. Small business operators such as restaurants have already shut down.

Incheon International Airport has also seen a reduction of over 60-70% in flights as 116 countries have restricted entry for travelers staying or transiting in Korea due to the COVID-19 situation, and duty-free customers at the airport have decreased by more than 80%. Although the airport is virtually in a state of suspended operation, tenants must still pay hundreds of billions of KRW in rent. Duty-free companies say, "This is the biggest crisis since Korean companies started the duty-free business," and argue that "after rent reductions for small businesses, large companies should also temporarily have their rent adjusted according to sales." Last year, Incheon Airport's annual duty-free rent was 1.0761 trillion KRW. Small businesses accounted for 3% of this. The rent reduction amount is calculated at 5 billion KRW, which is only 0.4% of the total rent. This structure causes medium-sized and large duty-free shops, which are not eligible for rent reductions, to suffer losses unilaterally.

The airport corporation is also in a difficult situation due to COVID-19. The business environment is rapidly deteriorating due to the spread of the virus. Incheon Airport Corporation pays about 45% of its annual profits as dividends to the Ministry of Economy and Finance. The fourth phase expansion project of Incheon Airport, which involves an investment of about 4.8 trillion KRW, is also being carried out with self-financing. Amid this, the corporation faces an unprecedented crisis as its two main sources of income?65% from rental income and 35% from aviation-related income (such as airport facility usage fees)?are both decreasing simultaneously.

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