As Hotel Shilla and Shinsegae Duty Free have applied to the court for mediation to reduce the rent by 40% against Incheon International Airport Corporation, attention is focused on the increasing cases of major airports in Asia lowering duty-free shop rents.
According to the related industry on the 23rd, Airports of Thailand (AOT) held a board meeting on the 16th (local time) and decided to form a crisis response task force (TFT) and review rent adjustments. This action was prompted by the request from King Power Duty Free (KPD) to renegotiate airport rent and terminate contracts due to management deterioration.
KPD operates at five airports: Suvarnabhumi, Don Mueang, Phuket, Chiang Mai, and Hat Yai. However, it has faced management challenges due to the closure of in-transit duty-free shops, a reduction in wine taxes, and a decline in Chinese tourists. According to KGI Securities research, while the total number of tourists in Thailand increased by 1.9%, visitors from China and Hong Kong declined by 24% and 23%, respectively.
Additionally, sluggish domestic demand in Thailand, the COVID-19 pandemic, and the global economic downturn adversely affected operations. AOT indicated in a statement sent to the Thailand Stock Exchange that "such force majeure factors are beyond KPD's control," suggesting there may be room for further negotiations with the duty-free shops.
Previously, this duty-free shop lowered the minimum guaranteed amount for rent after the COVID-19 pandemic to 127.30 baht (approximately $3.93) per passenger, but has reportedly requested additional adjustments last May. AOT plans to reach a conclusion within 60 days after undergoing external consulting to create a fair solution. The contract period for both parties extends until March 2031.
Singapore's Changi Airport recently lowered rents while renewing contracts with overseas duty-free operators whose leases have expired. Hong Kong International Airport also stated that it could accommodate rent reduction requests for duty-free shops facing poor sales at the beginning of the year. However, in the cases of Guam (2024) and Shanghai (2023) international airports, financial support has been provided as duty-free shops faced difficulties due to delayed market recovery.
On the other hand, Incheon International Airport has not accepted the rent adjustment requests from Shilla Duty Free and Shinsegae Duty Free, leaving the decision to the court. Shilla and Shinsegae Duty Free, which won the duty-free shop business rights through a 'passenger-based proportional' method in 2023, fell into deficits as sales did not increase relative to passenger numbers. This year, Incheon Airport recorded the highest number of international passengers in Q1, reaching 18.6 million, which is approximately a 4% increase compared to the same period in 2019 and about an 8% increase compared to last year.
However, as duty-free shop sales have not recovered, Shilla Duty Free reported an operating loss of 5 billion won and Shinsegae Duty Free experienced an operating loss of 2.3 billion won, turning to deficits year-over-year. The decrease in Chinese group tourists, who are significant spenders, along with high exchange rates, seems to have compounded the burden of airport duty-free shop rents that exceed 30 billion won monthly.
In response, Shilla Duty Free applied for a rent adjustment at the Incheon District Court on the 8th, and Shinsegae did so on the 29th of last month. Both companies requested a 40% reduction in rent for cosmetics, perfume, liquor, and tobacco stores within Incheon Airport's Terminal 1 and 2.
Incheon Airport is reportedly maintaining a stance that rent reduction is not possible. This is due to concerns about fairness issues that could arise with other duty-free shops, convenience stores, and food and beverage (F&B) businesses located in Incheon Airport if the rents of the two duty-free shops are lowered.
The mediation date at the Incheon District Court, originally scheduled for the 2nd, has been postponed to the 30th. The industry is paying attention to whether Incheon International Airport and domestic duty-free shops can find a compromise like overseas airports. Some express hope for the new government. Additionally, due to the sensitivity of the matter, there are speculations that the mediation date could be postponed again to coincide with the completion of the cabinet formation.
A duty-free industry official noted that "among the five airports in Asia where duty-free rent issues have been discussed, only Incheon is not considering rent reductions," adding, "I hope Incheon Airport will also establish sustainable solutions like those in overseas airports."