Sources close to Incheon Airport have confirmed there is still much work to do before any duty free tender schedule or packages are released.

 

This follows the October 7 appointment of Park Wan Su (pictured below) as the new CEO, who is only now settling into the airport hot seat, as he faces the task of finalising details of the keenly anticipated duty free tenders.

 

The huge value of these concessions, at around $1.8bn, and politicians’ growing interest in South Korea’s huge duty free industry will doubtless ensure that Park treads carefully in overseeing what is expected to be a fiercely-contested bidding process.

 

The former Mayor of Changwon City and a known ally of South Korean President Park Geun Hye, the CEO has a lot to learn quickly and is unlikely to rush into anything.

 

“The schedule and tender packages are not officially decided yet,” said a very well informed source in Seoul last week. “It’s too early to say when the tenders will be. New CEO Park has just been appointed. It will take a little time to confirm details [of the tender].”

 

TENDERS ARE VERY LATE

Bids for the world’s largest airport duty free concessions were originally expected last May or June with awards due in September or October of this year.

 

The long delay now means that any new concession holders – there could be many more this time around – may simply not be appointed in time to take over the many shops and boutiques when Incheon’s concessions expire on February 28, 2015.

 

The IIAC may therefore have to issue existing retailers with temporary extensions until the new bids and licensing awards have been agreed.

 

The original tender timetable has fallen well behind schedule due to the time taken to find a suitable replacement for IIAC’s former CEO, Chung Chang Soo, who resigned last March.

 

It should also not be forgotten that Incheon Airport earlier appointed PricewaterhouseCoopers (PwC) to advise on drawing up and tidying its new tenders beyond the existing structure consisting of seven licenses.

 

 

LICENSES LIKELY TO BE SPLIT

One big anticipated change is a new formula to include at least two liquor and tobacco licenses, following complaints that the current concession structure does not encourage price competition for the benefit of Incheon’s passengers.

 

In line with current Korean Government policy to cut large company dominance of the duty free industry, the new CEO Park – a state appointee himself – must also ensure that both small and medium-sized companies have the opportunity to bid for concessions – even though this policy has proven to be fraught with difficulties.

 

Just two years ago, two rounds of bids failed dismally to find small and medium operators to take over the Korea Tourist Organisation’s (KTO) concessions. KTO still retains these by default, after no less than three  ‘temporary’ license extensions.

 

Then, in 2013, 12 new small and medium-sized wannabe duty free concession holders were appointed to run downtown shops in second-tier cities – only for four of them to return their licenses after big problems with sourcing products – i.e. many brands would not deal with them since they had limited track records.

 

There is also a big question related to Incheon Airport’s second terminal, which is expected to be completed by 2017 – one year ahead of the PyeongChang Winter Games in 2018. This is expected to increase overall capacity by 18m to 62m when it opens.

 

 

Cosmetics & Perfume is the biggest duty free contract at Incheon International Airport where it is run by Shilla Duty Free. This license is expected to be split into two when the tenders are out to encourage more competition. The same is expected to happen with the new Liquor & Tobacco licenses.

 

STRONG TRAFFIC BASE

Incheon has not given any indication as yet whether this will fall under the new tenders – in whatever form they are finally released.

 

The existing airport configuration handled just over 40m passengers in 2013 for the first time since it’s opening in 2001 – compared with 39m in 2012. The number of passengers has also grown by 6.4% year-on-year on average since the airport opened in 2001 when 14m used the facility in the first year.

 

The number of airlines operating at Incheon has also risen from 47 to around 84 over the past 13 years, while city numbers linked to Incheon have increased from 109 to 176, with transfer passengers showing strong growth over the same aforementioned period from 1.63m to 7.06m.