Incheon Airport Likely to Accept Demand for Duty-Free Shop Rent Reduction

Deficit Doubled Compared to Last Year

Overseas Airports Also Lowering Fees One After Another

Ministry of Land, Infrastructure and Transport: "Matter Under Discussion"

[Image source=Yonhap News]

[Asia Economy Reporter Lim Hye-seon] Incheon International Airport Corporation is expected to accept requests from duty-free shop operators for rent reductions due to a sharp decline in sales caused by the COVID-19 pandemic. Expectations are growing that the government's upcoming support measures for the tourism industry will include 'airport rent reductions.'

According to the Ministry of Land, Infrastructure and Transport (MOLIT) and the duty-free industry on the 24th, MOLIT is discussing a plan to reduce rents for airport corporations and duty-free shops and commercial facilities. The airport corporation bases the payment method for duty-free shop rents on the first-year rent, adjusting annually according to passenger fluctuation rates (applying 50%) linked to a minimum guaranteed amount. If the amount calculated by multiplying the first-year sales and operating rate exceeds the minimum guaranteed amount, the operator must pay the higher amount to the corporation.

The duty-free industry has requested that rents be temporarily set based on duty-free sales, paying a percentage of sales determined by an operating rate. Previously, the Korea Duty Free Association also appealed to Incheon International Airport Corporation to reduce rents.

Incheon International Airport Corporation had postponed the association's request on the 17th, citing that it had been less than a month since the COVID-19 outbreak intensified and that concrete statistical data was insufficient.

The reason why companies operating duty-free shops at Incheon Airport are urgently requesting rent reductions is that deficits in airport duty-free shops are snowballing. As customer visits to Incheon International Airport duty-free shops have stopped, the deficit has more than doubled compared to the previous year.

A duty-free industry official said, "Last year's rent was usually about 30-40% of sales, but with sales halving, the rent ratio has risen to 70-80%. This is beyond what operators can bear." Over the past five years, the top three duty-free shops?Lotte, Shilla, and Shinsegae?have paid about 6 trillion won in rent, which is about 40-50% of their annual sales.

During the THAAD crisis, MOLIT reduced rents for duty-free shops and commercial facilities in airports with a sharp decline in international passengers by 30%. At that time, Incheon Airport was excluded from the reduction because the decrease in international passengers was small. However, this time, with a sharp decline in international passengers, Incheon Airport is expected to be included in the rent reduction target. In 2009, Incheon Airport Corporation temporarily reduced rents by 10% due to a nine-month consecutive decline in passenger demand caused by the H1N1 influenza and the global economic crisis.

Incheon Airport Corporation has sufficient capacity to reduce duty-free shop rents. Last year, Incheon Airport Corporation recorded sales of 2.769 trillion won and an operating profit of 1.314 trillion won. The operating profit margin is known to have maintained the 40% range. In the case of Incheon Airport, non-aeronautical revenue is twice that of aeronautical revenue. Among non-aeronautical revenues, rental income from commercial facilities accounts for more than 90%.

Famous overseas airports are also lowering rents for duty-free shops. Singapore Changi Airport reduced rental fees for retail stores, food and beverage (F&B), and other service outlets by 50% for six months starting from the 1st of last month. The Airports of Thailand Public Company Limited also decided to reduce monthly rents by 20% at six airports until January next year.

A MOLIT official said, "It is a matter under discussion," adding, "No rent reduction plan has been finalized yet."