"Sales Down 80% but Only 3 Months Payment Deferral... Feeling Frustrated"

"Look Overseas" Duty-Free Industry Repeatedly Requests Rent Reduction

With Increasing Number of Flight Suspensions... Air Passenger Traffic Down 92% from March 9 to 15

Overseas Airports Link Rent to Travel Volume... Incheon Airport Collects Minimum Guaranteed Rent

Industry Believes Ministry of Economy and Finance Rejects Rent Reduction Due to Dividend Interests

[Asia Economy Reporters Lim Hye-seon, Cha Min-young] As the government decided to grant a three-month rent payment deferral for large and medium-sized enterprises operating in airports facing difficulties due to overseas entry restrictions amid the spread of COVID-19, duty-free companies plan to once again demand rent reductions.

At a meeting chaired by Koo Bon-hwan, President of Incheon International Airport Corporation, held on the afternoon of the 19th at Incheon International Airport, the duty-free industry intends to request rent reductions again. Representatives and executives from 16 companies, including duty-free and food and beverage businesses, will attend. Despite the government's 'passing over large corporations,' companies continue to seek support due to the urgency of the situation. A duty-free industry official lamented, "The support plan from the Ministry of Land, Infrastructure and Transport is just a three-month interest-free deferral, which is disappointing," adding, "Rent reduction is desperately needed."

◆ Monthly Sales Twice the Rent = In the early stages of the COVID-19 outbreak, domestic air passenger traffic mainly decreased in the Greater China region, but as more advanced countries such as Australia and Spain suspended flights, passenger numbers from March 9 to 15 dropped 91.7% compared to the previous year (1.66 million). In particular, Incheon International Airport, which had an average daily passenger count of 190,000 last year, fell to 16,000 on the 16th, marking the lowest performance since its opening. Consequently, customers using airport tenants also sharply declined. It is estimated that duty-free sales at Incheon Airport decreased by 80% compared to the same period last year. Typically, monthly sales at Incheon Airport duty-free shops amount to 200 billion KRW, with rent around 80 billion KRW. However, March sales are expected to be only 40 billion KRW. This means they are in a situation where they must pay twice the amount earned in a month as rent.

◆ Different Approach from Overseas International Airports = Since the COVID-19 outbreak, airports such as Singapore Changi Airport, Hong Kong International Airport, and Beijing Capital International Airport have been fully or partially waiving duty-free rents. Overseas airports link duty-free rents to the number of travelers, so when passenger numbers decrease, rents become cheaper. These airports are even providing additional reductions beyond the decreased rent. In contrast, Incheon International Airport, which ranks first globally in duty-free sales, collects a minimum guaranteed rent regardless of passenger numbers. When bidding for duty-free business sites at Incheon Airport, companies are required to propose amounts above the minimum rent based on passenger numbers. Despite the sharp decline in passenger numbers that formed the basis for the minimum rent, the Ministry of Economy and Finance, which controls Incheon Airport, remains reluctant to reduce rents. A duty-free industry official criticized, "The Ministry of Economy and Finance, which owns 100% of Incheon Airport shares, is trapped in a frame that supports only small and medium enterprises excluding large corporations, thus refusing rent reductions."

◆ Small and Medium-Sized Partner Companies Facing Bankruptcy Risk = As duty-free companies struggle, small and medium-sized partner companies are also fighting for survival. Large duty-free companies cooperate with about 1,000 partner companies. One small company said, "Large corporations are implementing various self-help measures to reduce costs," adding, "Ultimately, small and micro enterprises will also face difficulties." Damage to small brands operating within duty-free shops is also severe. A representative of an in-store brand revealed, "We are currently forced to reduce labor costs and are even considering withdrawing the brand." In fact, Lotte Duty Free indefinitely closed its store at Gimpo Airport, where flights have almost stopped, due to strong demands from in-store brands. A duty-free industry official said, "Brands operating at Incheon Airport duty-free shops complain, asking why they cannot close when there are no customers," adding, "Since airlines suffer from the lack of passengers, duty-free shops are also struggling."

◆ Why Refuse Rent Reduction? = The industry believes that Incheon International Airport Corporation does not provide rent reduction benefits to large and medium-sized tenants because of dividend profits paid to the Ministry of Economy and Finance. Among Incheon Airport Corporation’s total revenue, 65% comes from rental income and 35% from aviation-related income (such as airport facility usage fees). Last year, large corporations accounted for 91.5% (984.6 billion KRW) of the total 1.0761 trillion KRW in duty-free rents at Incheon Airport. If rental income decreases, Incheon Airport Corporation’s profits also decline, naturally reducing the dividends paid to the Ministry of Economy and Finance. The corporation pays about 45% of its annual profits as dividends to the Ministry. Last year, the Ministry received 399.7 billion KRW in dividends from Incheon Airport Corporation’s net profit of 890.5 billion KRW. The government’s support (rent reductions) for small and medium enterprises operating airlines, ground handling, and commercial facilities within the airport totaled 65.1 billion KRW, which is only 17.0% of the three-month rent (381.3 billion KRW) of large corporate tenants. This also represents about 2.3% of Incheon Airport’s sales and 7.3% of its net profit last year.

Professor Lee Ki-hoon of Hanyang University explained, "In these times when everyone is striving for coexistence, the corporation should take a more proactive stance to support the duty-free industry," adding, "Since the duty-free industry is struggling to maintain employment, it is necessary to consider ways to assist them."

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