Incheon Airport and Duty-Free Shops Hold Meeting for 8 Days... Will Additional Rent Reduction Measures Emerge?

Third Meeting on the 8th

President Gu Bon-hwan: "Actively Considering Support Measures"

[Asia Economy Reporter Lim Hye-sun] Attention is focused on whether Incheon Airport Corporation will introduce additional rent reduction measures for duty-free shops. According to the duty-free industry on the 7th, Gu Bon-hwan, President of Incheon Airport Corporation, will meet with representatives of the three major conglomerate duty-free shops?Lotte, Shilla, and Shinsegae?at 2 p.m. on the 8th. The duty-free shops expect that President Gu will propose measures that can provide practical assistance to the duty-free industry at this meeting.

This meeting between President Gu and the representatives of the major conglomerate duty-free shops is the third since the outbreak of the novel coronavirus infection (COVID-19). The atmosphere has changed considerably. At the first meeting held on March 12, President Gu took a tough stance. As the number of departing passengers at Incheon Airport dropped to about one-tenth of the usual level, around 10,000, causing sales to plummet, representatives of the three major conglomerate duty-free shops gathered to demand rent reductions. However, President Gu maintained the position that there would be no rent reductions for conglomerates and only implemented a three-month rent payment deferral.

The major conglomerate duty-free shops, which had already accumulated losses amounting to hundreds of billions of won, expressed their desperation, and the government announced in early last month that it would grant a 20% rent reduction for six months to the major conglomerate duty-free shops as well. However, conflicts between Incheon Airport and the duty-free shops intensified further. This was because Incheon Airport attached a proviso stating that if a 20% rent reduction is received for six months this year, the six months received this year would be excluded from the rent reduction period next year. Annual rent is calculated based on the previous year's passenger numbers, but the airport shut-down (temporary suspension of operations) period is excluded. If the period is extended until next year, it means there will be no rent reduction, sparking controversy over a "change of the rules after the fact." As a result, Lotte and Shilla duty-free shops, although selected as preferred negotiators in the bidding for the 4th phase duty-free business operator at Terminal 1, took the drastic step of withdrawing.

The monthly rent that the three major conglomerates operating in Incheon Airport must pay regardless of sales is 20 billion KRW for Lotte, 24 billion KRW for Shilla, and 36 billion KRW for Shinsegae. According to the Duty-Free Shop Association, as of March, duty-free sales amounted to 1.0873 trillion KRW, which is half compared to the same period last year. An employee at an Incheon Airport duty-free shop said, "We usually sold about 100 items a day, but in April, only 5 items were sold," adding, "These 5 items were purchased by a Chinese student studying in the U.S. who was returning home and transiting in Korea." Hotel Shilla posted an operating loss of 66.8 billion KRW in the first quarter for the first time ever, with losses from the duty-free business alone amounting to 49 billion KRW.

Given this situation, President Gu's previously tough stance has changed. At the end of last month, President Gu told the duty-free shop representatives, "Since we are a community on the same boat, we will actively consider additional support measures to provide practical help." Additionally, it is understood that the government's decision to reflect support for rent-paying businesses whose sales have plummeted due to COVID-19 as a positive factor in public enterprise management evaluations has had a positive impact. Incheon Airport is also facing difficulties. Due to the sharp decline in passenger numbers, it entered Stage 1 emergency operations at the end of March. At the end of last month, passenger numbers fell below 3,000, setting a record low since the airport's opening. As the airport corporation's performance is expected to hit a record low, rent reductions, which account for 60% of profits, will not be easy. A duty-free shop official said, "Since additional support measures were promised at the meeting before the Golden Week holiday, we expect practical measures to come out at the meeting on the 8th."

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