SOUTH KOREA REPORT: KOREA AIRPORTS CORPORATION
international passengers.” In the case of Jeju International
Airport, Chinese pax was less than 50% on its previous levels during 2017, with 1.5 million fewer passengers using the airport according to KAC figures. The international passenger slow down caused Hanwha’s Jeju Airport duty free shop sales to plunge by 60% to $26m in 2017.
Rent reductions Shilla Duty Free recently took up residence at Jeju International Airport, taking over the five-year international duty free departure shop concession on March 1, 2018 from Hanwha Galleria under KAC’s newly introduced revenue sharing contract programme after the retailer terminated its agreement. State-run KAC’s new duty free
operator revenue sharing contract arrangements were introduced in 2017 as part of the corporation’s efforts to increase non-aeronautical service revenue. “Hanwha told us mid-2017,
three months before their contract terminating date early in August, but we extended its contract until December 31 and then gave them a second extension until February 28, 2018,” notes Kim. “For the extension period the
operator does not pay any fixed rental fee, just a revenue share.” Korea Customs Service’s new role
in evaluating duty free shop bids and approving the award of concessions to new operators was a factor in KAC’s decision to extend Hanwha’s concession termination period a second time. “We extended its contract after
terminating as it takes five to six months to appoint a new operator,” comments Kim. “Korea Customs Service takes two
to three months to decide and two to three months to choose the winning bid. Also, it takes time for the new operator to open its shop.” Hanwha was not the only KAC
airport duty free operator to face financial difficulties due to a fall in sales. SME duty free operators in three other airports such as Chongju, Muan and Yangyang, were awarded a reduction in duty free concession
MAY 2018
fees after notifying KAC of financial difficulties. “Some duty free shops faced a
hard time last year but we discounted their rental fee so we think they are recovering slowly,” comments Kim. “We discounted at four airports –
Jeju, Chongju, Muan and Yangyang. We discounted 30% for each airport operator from November 1, 2017, for four months. “We have now extended the
discount period using the same percentage. We have not decided how long, it depends on how long passenger numbers take to recover. Also, we have delayed the rental payment date until passenger traffic recovers.” KAC’s concession fee discount
applies only to operators with a fixed sum concession fee contract, Kim notes [this excludes Shilla Duty Free, which has a revenue sharing contract with KAC to run Jeju Airport’s international departure shop - Ed]. “In the past operators offered
a fixed sum when they bid for an airport duty free shop licence,” says Kim. “Now it’s a percentage of revenue.” The actual revenue sharing
concession fee paid depends on which is higher of the two figures, Kim explains.
Busan Gimhae tender The revenue sharing percentages for the different categories range from 8% for electronics products to up to 30% for perfume and cosmetics. Other categories are somewhere in between the 8% and 30% mark, such as tobacco, which is 25%. “We have had these revenue
sharing percentages for a long time,” explains Kim. “We are working to change them, maybe before June. “For Busan Gimhae and Daegu
airports we expect to set a higher revenue share figure in the future.” Asked about the weighting that
KAC’s bid evaluation team gives to revenue sharing and other aspects of bidders’ proposals for duty free shop licences, Kim says that the bid price accounts for 20% of the bidder’s proposal score, while the proposal itself represents 80% of the total points that can be awarded. “We will use this revenue sharing
“We will use this revenue sharing duty free concession contract formula in [the] future. We first used it for Yangyang Airport where we appointed a new operator in October 2017. They have a five-year mixed category store concession.”
Kim Su Min, Commercial Facilities Team Assistant Manager, KAC
KAC is set to tender the liquor and tobacco concession at Busan Gimhae Airport later this year.
duty free concession contract formula in [the] future. We first used it for Yangyang Airport where we appointed a new operator, Dongmu of Seoul, in October 2017. They have a five-year mixed category store concession.” Meanwhile, KAC soon will begin
preparing bid documents for the liquor and tobacco concession at Busan Gimhae Airport, currently operated by Dufry Thomas Julie, which is due to expire on 4 February, 2019. “We will have international
bidding in August or September using our new revenue sharing contract rules,” Kim confirms to TRBusiness. «
The buzzing perfume and cosmetics space at Shilla Duty Free Jeju International Airport.
TRBUSINESS 113
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