Korean travel retailers have welcomed news of further rent relief as the industry continues its recovery from the devastating coronavirus (Covid-19) pandemic.

An announcement from Minister of Economy and Finance Hong Nam-Ki yesterday (27 August) revealed a number of measures which will help operators in the future.

New measures include the implementation of a sales-based rent system for concessionaires (duty free operators and banks etc), as opposed to a minimum annual guarantee threshold. This will be implemented at all Korean international airports regardless of their size.

In addition, large and medium-sized concessionaires operating at airports where domestic flights have been curtailed can now receive full rent cuts. Previously, only small concessionaires could receive this benefit.

Crucially, retailers can also receive rent relief until monthly passenger traffic reaches 80% of what it was before. The previous threshold was 60%.

MUCH-NEEDED SUPPORT

“A Lotte Duty Free Spokesperson told TRBusiness: “We appreciate the government’s rent relief measures, in particular the full rent cuts at Gimpo and Gimhae Airports. We will continue doing what we can to prevent epidemics at our stores and workplace and ensure employment stabilisation.”

A Shinsegae Duty Free Spokesperson commented: “As you know, the rent at Incheon International Airport is the biggest fixed cost. The Korean duty free industry welcomes the government’s announcement.”

The Shilla Duty Free also thanked the Korean government for its increased support, but implied further relief was needed. “Continuous support is required since passenger numbers are yet to normalise,” the retailer said.

These latest measures revealed yesterday follow the announcement of further reductions to concessionaire rental fees in South Korea announced in June.

Yesterday’s announcement is also likely to spark interest in the new Incheon International Airport Terminal 1 tender, bidding for which will begin shortly.

As reported, six packages (four general enterprise; two small and medium-sized enterprises) covering 33 shops and 6,131sq m, part of the original eight concessions revealed in the January T1 tender, will return to market in a competitive bid process.

In key amendments from the January tender, IIAC has removed the minimum annual guarantee threshold linked to annual increases or decreases in passenger levels (+9%:-9%) until normal monthly demand (+60%) returns.

As the likes of Lotte Duty Free, Shilla Duty Free and Shinsegae ponder their participation in the new Incheon Terminal 1 tender, they will be buoyed by the increased year-on-year monthly passenger traffic threshold relating to the rental aspect of contracts. This has risen from 60% to 80% as mentioned above.

With Incheon reporting traffic losses of circa 90-97% between March and April, it could be sometime before year-on-year monthly traffic reaches 80% of pre-crisis levels. This means retailers will be able to benefit longer from the government relief measures currently in place.