[Asia Economy Reporter Yuri Kim] The duty-free industry’s introduction of non-landing sightseeing flights as a last-ditch effort since December last year has shown little impact on total sales. However, promotions in preparation for an increase in non-landing sightseeing flight operations are actually on the rise. This is due to the desperate mindset of "trying anything" despite low sales contributions rather than just waiting for customers who are not coming. The industry is focusing all efforts on minimizing losses by reducing offline stores during the "With Corona" period and is waiting for the "Post Corona" era when overseas travel will be freely possible again and normal business operations can resume.
◆Non-landing sightseeing flights contribute only about 0.3% to sales
According to the duty-free industry on the 21st, the monthly sales share related to non-landing sightseeing flights from December last year to March was only about 0.3%. The Ministry of Land, Infrastructure and Transport announced that since the first non-landing sightseeing flight operation at Incheon Airport on December 12 last year, seven Korean airlines operated a total of 75 sightseeing flights until March this year, with about 8,000 passengers onboard.
The average sales per customer using non-landing sightseeing flights is about 1.2 million KRW at most. Although this is more than three times higher than before the COVID-19 pandemic, considering that about 8,000 people used the service over roughly four months, the total sales amount is slightly less than 10 billion KRW. The total domestic duty-free sales for March have not yet been tallied but are expected to be at the 10 trillion KRW level. The conclusion is that the monthly sales share from non-landing sightseeing flights is only about 0.3%.
More than 90% of duty-free sales come from foreign demand, which is heavily affected by the COVID-19 situation. According to the Korea Duty Free Association, the share of foreign sales in total duty-free sales was 97.23% in January and 95.26% in February this year. Even in the With Corona situation, foreigners, including Chinese peddlers, make up the majority. Domestic duty-free sales in February were about 1.1687 trillion KRW, a 15.5% decrease from 1.3831 trillion KRW in January. This was due to a 17.8% drop in foreign sales. The number of foreign visitors to duty-free stores in February was 40,444, a sharp 32.2% decline from the previous month, marking the lowest point since the COVID-19 outbreak.
◆"Better than starving"
Despite this situation, the duty-free industry is increasing promotions for non-landing sightseeing flights. In fact, with international air routes effectively cut off, non-landing sightseeing flights serve as a lifeline for maintaining sales and employment in the duty-free sector.
According to Lotte Duty Free, sales from non-landing sightseeing flights in March grew about 180% compared to the end of last year. Even compared to February, sales increased by 25%. The number of customers reached about 1,600, roughly three times more than in December last year. The charter flight events for top customers at the Myeongdong main store on March 3 and 10 were sold out in a short time (all 260 seats), and additional flights are being considered.
From next month, non-landing international sightseeing flights will also operate from Gimpo, Daegu, and Gimhae airports. Until now, the Ministry of Land, Infrastructure and Transport allowed non-landing sightseeing flights only at Incheon International Airport for quarantine management. Non-landing sightseeing flights refer to flights that return to the departure airport without landing or immigration. After re-entry, passengers are exempt from COVID-19 testing and quarantine and receive the same duty-free benefits as regular overseas travelers. Initially, the duty-free industry was skeptical, thinking the cost outweighed the benefits, but due to higher-than-expected average spending per customer, they are focusing on expanding non-landing sightseeing flights, including operating charter flights. An industry official said, "Ultimately, quickly overcoming COVID-19 is the fundamental solution," but added, "Until then, we have no choice but to generate sales and minimize losses by any means. We will also increase promotions related to non-landing sightseeing flights."
◆Shinsegae Duty Free to withdraw from Gangnam store in July
Offline stores are continuously withdrawing. Shinsegae Duty Free has decided to cease operations at its Gangnam store in Central City, Seocho-gu, Seoul, after July 17. The Gangnam store opened in May 2018 with five floors and an area of 13,570 square meters but will close after three years. Afterward, Shinsegae Duty Free will operate only three stores: Myeongdong, Busan, and Incheon Airport.
Shinsegae Duty Free was paying about 15 billion KRW annually in rent for the Gangnam store. The industry believes that Shinsegae Department Store judged it difficult to bear this cost due to a sharp decline in visitors caused by COVID-19. Last year, Shinsegae DF, which operates Shinsegae Duty Free, recorded sales of 1.903 trillion KRW, a 42.4% decrease from the previous year, and posted an operating loss of 42.6 billion KRW, turning to a deficit. Employees working at the Gangnam store, including partner companies, will be relocated to Shinsegae Duty Free’s Myeongdong store and others.
Earlier last month, Lotte Duty Free and Shilla Duty Free also withdrew from Terminal 1 of Incheon International Airport. Currently, Shinsegae Duty Free and Hyundai Department Store Duty Free are partially filling the resulting vacancies.
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