Incheon Airport Duty-Free Shops Ahead of Bidding... Industry Faces Growing Concerns

This Week's New Duty-Free Operator Bid Announcement Outlook
Industry Voices Concerns Over Rent Burden

On the 22nd, when the number of daily passengers at Incheon Airport exceeded 120,000 for the first time since the COVID-19 pandemic, the duty-free area of Terminal 1 at Incheon Airport was crowded with travelers.
Yeongjongdo - Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Eunmo Koo] As the announcement of the bid for new duty-free operators at Incheon Airport is scheduled within the year, the concerns of duty-free operators are deepening due to the increased rental burden following the termination of Incheon International Airport Corporation’s rent reduction policy.

According to the duty-free industry on the 27th, Incheon International Airport Corporation is expected to announce the bid for new duty-free operators at Incheon Airport sometime this week. The bid will cover a total of 15 business rights spanning Terminal 1 and Terminal 2.

This bid is expected to be influenced by the recent disagreements between the duty-free industry and Incheon International Airport Corporation regarding the rent policy. Currently, Incheon International Airport Corporation wants to base rent calculations on passenger numbers, while the duty-free industry prefers to use average spending per customer as the standard. Whether the bid will be integrated for Terminals 1 and 2 and adjustments to the duty-free business zones are also variables. Currently, Incheon International Airport Corporation operates duty-free business rights as DF1~12 in Terminal 1 and DF1~6 in Terminal 2.

Last month, Incheon International Airport Corporation proposed a new rent policy called the ‘Special Rent Reduction System’ to the duty-free industry. It plans to end the rent reduction benefits implemented during COVID-19 this year and switch to fixed rent from next year, while offering a 50% reduction based on the decrease in passenger demand compared to 2019, before the pandemic. However, the special reduction will end if passenger demand recovers to 60% or more of 2019 levels. The industry believes that since passenger demand has recently recovered close to the 60% threshold, the special rent reduction system proposed by Incheon International Airport Corporation lacks effectiveness. An industry official said, “Currently, on good days, passenger demand is around 58%, so the corporation’s proposal to restore rent once it exceeds 60% can only be interpreted as effectively ending the rent reduction benefits.”

They also point out that the recovery in passenger demand does not directly translate into sales recovery. Especially in Terminal 1, which heavily depends on Chinese customers such as daigou (Chinese proxy shoppers), sales remain stagnant despite passenger demand recovery because Chinese routes have not yet normalized. In this situation, if the rent burden increases, it will be difficult for companies to actively participate in the upcoming bid.

Given these circumstances, the duty-free industry is requesting an extension of rent reduction support until the end of next year, when passenger demand is expected to recover to over 80%. They are asking the government to adhere to the original clause that rent would be charged based on item-specific operating rates until monthly passenger numbers at Incheon Airport reach 80% of pre-COVID-19 levels.

While the entire industry agrees on extending the rent reduction policy, there are differences in urgency among companies. In particular, Shinsegae Duty Free, which has more than seven months remaining on its existing contract, appears to be under significant pressure. Shinsegae Duty Free’s contracts for DF1 and DF5 in Terminal 1 run until July 31 next year, and if the rent reduction policy is not extended, the current monthly rent of about 8 billion KRW will nearly triple to 22.4 billion KRW. Increased rent burdens could limit their flexibility in the upcoming new bid, putting them at a disadvantage. In fact, Shinsegae Duty Free was unable to participate in the Jeju Airport duty-free bid that closed on the 9th.

On the other hand, Lotte Duty Free and Shilla Duty Free, which do not operate stores in Terminal 1, are in relatively better positions. Their contracts for Terminal 2 expire simultaneously on January 17 next year, and these companies will continue to operate temporarily until successors are selected.

Meanwhile, Incheon International Airport Corporation states that it can no longer endure accumulated deficits compounded by passenger and cargo declines plus rent reductions. The accumulated deficit during the COVID-19 period reached 1.7 trillion KRW, with a projected deficit of 501.1 billion KRW this year and 59.9 billion KRW next year, marking four consecutive years of deficits since 2020.

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