Additional reporting by Luke Barras-Hill

China Duty Free Group (CDFG) subsidiary Sunrise Duty Free [in which it holds a 51% share] has secured the seven-year duty free contract at Shanghai Pudong and Hongqiao Airports following a competitive tender, a CDFG management source has confirmed to TRBusiness.

As first reported on 12 July, CDFG lodged a bid for the contract, the deadline for which was that morning (09:30 Shanghai local time).

A statement issued today confirmed the group swooped for the contract amid ‘fierce competition’ and will now operate an enlarged, 2,088sq m area at Hongqiao (up from 1,500sq m) and 16,915sq m at Pudong (up from 6,600sq m).

FAVOURABLE CONTRACT TERMS

Speaking to TRBusiness during the recent grand opening of the CDF-Lagardère stores at Hong Kong International Airport (12 July), CDFG President Charles Chen confirmed the company had submitted a proposal, but was unable to provide further information relating to the tender process and proposed contract terms.

However, in an interview in the August Top 10 Airports issue, available soon, Bloomberg Intelligence Asia Infrastructure Analyst Denise Wong suggests the Shanghai Pudong/Hongqiao Airport tender was always likely to be issued and awarded sooner rather than later following the new and ‘more favourable agreements’ at Beijing and Guangzhou Airports.

The expiry of the contract encompassing both Shanghai airports earlier this year had fuelled speculation that a tender, which was issued by Shanghai International Airport, Shanghai Airport Group and tender agency Shanghai International Tendering, was on the horizon.

Speaking before news emerged that the tender had been issued and the submission deadline had passed, Wong said: “The contract terms are more favourable in Beijing [where the airport is believed to take as much as 47.5% from shops at its terminals -Ed] than previously so the expectation is that they will be at least as favourable in Shanghai.”

It is understood that the Shanghai Airport Authority will take no more than an estimated 25% of sales from its merchants under the current agreement.

Wong added: “Shanghai International Airport actually offers better duty free revenue growth prospects (than Beijing) which bodes well for contract prices. The airport’s international flight ratio is over 50%, compared to Beijing Airport’s 26%.

“Its international passenger growth is also three to five percentage points higher. The opening of a new satellite terminal in 2019 could also further boost international passenger traffic.”

A high ratio of international versus domestic passengers ‘is supposed’ to mean better duty free revenue prospects, emphasised Wong. 

“Shanghai is one of the world’s most affluent cities and international traffic is expanding aggressively. More airlines are adding more routes and on top of that I feel Shanghai Pudong [which handled more than 70m passengers in 2017-Ed] is the city’s international hub.

“Shanghai Hongqiao is more focused on short- or medium-haul flights and the wealth profile is probably greater among passengers flying long-haul flights than regional short-haul ones.”

‘LUXURY & CONVENIENCE’

The airport handled 41.8m passengers last year, while Pudong exceeded 70m as mentioned.

Following the victory Sunrise/CDFG will work closely with operator Shanghai Airport to ‘enhance the shopping environment’ and ‘enrich’ the brand and product mix at both locations as part of a ‘Shanghai Shopping’ development vision.

Chen Guoqiang, General Manager, CDFG stated: “We [will] continue to maintain the price advantage of value for money, providing more attractive commodity prices for tourists at home and abroad. In terms of service, we [will] pursue excellence and create a more luxurious and convenient tax free shopping experience for consumers.”

Guoqiang says the CDFG/Sunrise victory represents an ‘unforgettable leap forward’ for the Group followings its winning bids at Hong Kong International Airport and Beijing Capital International Airport last year, with the merger of the companies greatly improving the strength of its bidding power.

“The deepening of the strategic partnership will ultimately benefit the development of China’s tax free industry, the development of [the] airport duty free businesses and the vast number of consumers,” Guoqiang added.

COSTA CRUISES

Meanwhile, in what has been an extremely busy and exciting time for the company, CDFG has secured the duty free contract on Costa Cruises’ Costa Atlantica vessel following a ‘fiercely competitive tender’ launched in 2016.

CDFG and Costa Cruises have signed an initial memorandum signifying a ‘comprehensive future cooperation.’

The company said: “This marks the first time CDFG has independently operated on an internationally renowned cruise ship. This is a new chapter in the cruise duty free business.”

Founded in 1948, Costa Cruises is the largest cruise fleet in Europe. In 2006, it opened its first international route sailing out of China and over the past decade has provided cruise holidays for more than two million Chinese tourists.

CDFG added: “With the explosive growth of cruise tourism, China has become the fastest growing emerging market in the global cruise tourism industry. In recent years, the tax free cruise industry has become a key strategic project for China Duty Free Group.”