[The Editors' Verdict] Incheon Airport Must Rethink Its Rent Calculation Method

New Rent Calculation Method for Incheon Airport Duty-Free Shops
Duty-Free Operators to Apply from Q3 This Year... Consecutive Losses

The food delivery platform Baedal Minjok faced heavy criticism during this year's National Assembly audit for charging advertising fees every time users click on partner stores. The delivery app market is a monopolistic structure with only three platforms, including Baedal Minjok, and it was criticized for generating profits by causing excessive cutthroat competition among restaurants highly dependent on delivery. The business model of charging more than 200 won per click even when users only browse restaurant menus without ordering delivery is a form of platform bullying disguised as advertising.

A similar situation occurred at Incheon International Airport. Since the bidding for the 4th duty-free operators last year, Incheon International Airport Corporation changed the rent system to be proportional to the number of passengers. The rent increases as the number of departing passengers rises. From the airport's opening in 2001 until the selection of the 3rd operators in 2015, the bidding process involved proposing a minimum guaranteed amount (fixed rent), and the duty-free operator who offered the highest rent was selected.

At that time, the duty-free market was booming to the extent it was called the "golden goose," and fierce bidding competition among duty-free operators caused rents to skyrocket. The monthly rent per 1㎡ for the 3rd duty-free operators at Incheon Airport reached up to 16 million won, which was more than 150 times higher than the rent in Myeongdong, Seoul, where land prices are the highest (about 100,000 won per ㎡).

However, following China's retaliation over the Terminal High Altitude Area Defense (THAAD) system, Chinese group tourists, who were major customers of duty-free shops, disappeared. During the COVID-19 pandemic, with borders closed, the duty-free industry faced a crisis, and Incheon Airport's excessive rent became a contentious issue. Korea Airports Corporation reduced the rent burden by linking rent to duty-free sales starting from the COVID-19 period.

The 4th duty-free operators, who began operations in July last year, paid rent proportional to sales during the temporary operation period, and a new calculation method was applied from July this year. From the beginning of this year until October, the number of departing passengers at Incheon Airport approached 30 million, an increase of about 29% compared to last year. However, Incheon Airport duty-free sales did not increase proportionally with passenger numbers. For example, Hotel Shilla's domestic downtown store sales in the third quarter rose by 8% year-on-year, but airport store sales decreased by about 6%. Due to high inflation and economic downturn, preference shifted towards cost-effective products rather than global luxury brands, and high exchange rates reduced price competitiveness, which did not translate into purchases.

As a result, large corporations holding Incheon Airport duty-free licenses turned to losses one after another. Hotel Shilla's duty-free division recorded an operating loss of 38.7 billion won, while Shinsegae Duty Free and Hyundai Duty Free also posted operating losses of 16.2 billion won and 8 billion won, respectively.

The problem lies ahead. Passenger numbers this year are expected to recover to the pre-COVID-19 level of 35.56 million in 2019. If passenger numbers increase further, Incheon Airport rents could soar even more. The duty-free industry is saying that the "winner's curse" has begun. The primary responsibility lies with the companies that participated in the bidding knowing Incheon Airport Corporation's rent calculation method. However, since Incheon Airport is Korea's gateway and a symbol of the duty-free business, duty-free operators have no choice but to enter the bidding "reluctantly." Incheon Airport Corporation encouraged bidding competition by opening the 4th bidding to overseas operators, driving up the winning bids. Charging fees when travelers only browse without shopping is unreasonable. Incheon Airport Corporation must rationally revise the rent calculation method.