Shanghai Pudong International Airport’s (PVG) plan to acquire 100% of the shares in Shanghai Hongqiao International Airport (SHA) has possible implications for duty free & travel retail revenues, TRBusiness has learned.

The plan, announced in June, involves Shanghai Airport buying the airport, a logistics centre and fourth runway from controlling shareholder and state parent Shanghai Airport Group.

Speaking to TRBusiness recently, Bloomberg Intelligence Infrastructure Industry Analyst Denise Wong suggested the move could reduce the contribution of duty free sales to under 30% of Pudong Airport’s total revenue mix – down from 50% in 2019 – when traffic eventually recovers.

REVISION OF DUTY FREE TERMS

DF&TR income from Shanghai Pudong Airport surged by 2.6 times between 2016 and 2019, with rising per-passenger sales and higher commissions driving revenue 1.6-times higher.

However, such gains are unlikely to recur following an unfavourable revision of duty free revenue sharing terms, it has been suggested, in the wake of the travel shock linked to Covid-19.

Previous agreements offered 42.5% average commissions and minimum annual guaranteed revenue, which would have been 2.3-times higher between 2019 and 2025.

Under new agreements, disclosed on 30 January 2021, operator China Duty Free Group has to pay lease fees only based on actual passenger volume, with a cap of RMB3.53 billion/US$545 million if traffic recovers to between 81% and 108% of 2019 levels.

Minimum guaranteed revenue in the original contracts will now serve as payment ceilings if passenger volume exceeds 108% of 2019 levels between 2022 and 2025, TRBusiness gathers.

“Revenue may climb more slowly but steadily with Shanghai’s air traffic likely to benefit from China’s air travel growth and push to make the city an international aviation hub,” said Wong.

To read the full report in the TRBusiness July/August e-zine by clicking here.