Incheon Airport Corporation Begins Selection of DF1 and DF2 Operators
Shilla and Shinsegae Duty Free Exit Due to Deteriorating Profitability
Minimum Acceptable Rent Lowered by Up to 11.1%
Candidates Expected to Set Conservative Unit Prices
Penalties for Returning Business Rights Also a Factor
As Incheon International Airport Corporation begins the process of selecting new operators for the duty-free stores at Incheon Airport previously returned by Shilla Duty Free and Shinsegae Duty Free, the original pool of candidates is weighing whether to participate in the bidding, signaling the start of intense strategic maneuvering. Since the previous operators withdrew due to deteriorating profitability, fierce competition is expected as bidders try to determine the optimal bid amount for new market entry.
According to industry sources on December 16, Incheon International Airport Corporation plans to hold a business briefing and on-site tour on December 18 for up to five employees per eligible corporation interested in operating the duty-free stores in the DF1 and DF2 zones, which handle cosmetics, perfumes, liquor, and tobacco. This is the first stage in screening potential participants for the bidding process.
All current duty-free operators are expected to attend the briefing with the intention of participating in the bid. For example, Lotte Duty Free stated, "We plan to thoroughly review the announcement to participate in the bid in a progressive and rational manner, taking into account the operational direction presented by Incheon International Airport and the current state of the duty-free market." Shilla Duty Free and Shinsegae Duty Free, which previously returned their business rights, also indicated they would review the bid announcement before deciding whether to attend the briefing, leaving open the possibility of participation.
Previously, on December 11, Incheon International Airport Corporation announced the minimum acceptable per-passenger rent (the lowest acceptable unit rent per customer) for selecting new duty-free operators: 5,031 won for DF1 and 4,994 won for DF2. These amounts are 5.9% and 11.1% lower, respectively, than those set during the 2023 public bidding. The rent system remains based on multiplying the number of airport passengers by the unit price proposed by the operator, maintaining the 'per-passenger rent' model. The corporation explained, "We have adjusted the minimum acceptable amount downward compared to the previous bid to reflect recent changes in consumption and tourism trends affecting the duty-free industry."
This duty-free zone, which handles cosmetics, perfumes, liquor, and tobacco, has high customer demand, making it one of the most expensive rental areas at Incheon Airport. During the public bidding two years ago, the minimum acceptable amount was 5,346 won for DF1 and 5,617 won for DF2-two to five times higher than other zones handling fashion and boutiques. At that time, Shilla Duty Free and Shinsegae Duty Free submitted bids of 8,987 won and 9,020 won for DF1 and DF2, respectively, securing the business rights. These figures were 68% and 61% higher than the minimum acceptable amount, and the difference with unsuccessful bidders was around 2,000 to 3,000 won.
In contrast, for this bid, candidate companies are expected to make more complex calculations to win the business rights at prices as close as possible to the minimum acceptable amount. An industry insider commented, "Based on the previous bids by Shilla Duty Free and Shinsegae Duty Free and the losses incurred since then, it is now clearer what the break-even point might be. It is highly likely that bidders will set their unit prices as conservatively as possible, so the winning bid could be determined by a difference of just 10 or 100 won near the minimum acceptable amount."
If Shilla Duty Free and Shinsegae Duty Free re-enter the bidding, penalties for returning their previous business rights could become a variable. Incheon International Airport Corporation will assign a qualitative evaluation score (5 points) based on the reliability of business execution by tenant companies over the year preceding the bid announcement. Previously, Lotte Duty Free submitted higher bids than competitors in some zones during the 2023 bidding but failed to secure the rights due to lower qualitative evaluation scores. This was attributed to its decision to forgo operating the duty-free store at Incheon Airport in 2018 due to rental burdens. There is also speculation that China Duty Free Group (CDFG), which failed to win the contract in the 2023 competition, may try again.
Meanwhile, the bidding process will proceed with registration of participants, proposal submission and evaluation, and Korea Customs Service patent review until January 20 next year. Once Incheon International Airport Corporation selects eligible operators for each business right and notifies Korea Customs Service, the latter will conduct a patent review to select the successful bidders. The contract period is approximately seven years, running from the business commencement date until June 30, 2033. According to relevant laws, operators may request to renew the contract for up to 10 years.
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