Re-visiting the rapid retail rebound at Incheon International Airport

By Benedict Evans |

Lee-Myeong-gu, Deputy Director of KCS, visits Gyeongbokgung DF shop at ICN in April.

South Korea’s leading air gateway has some thinking to do on how it can fully win back spending despite its impressive traffic recovery, says Kevin Rozario.

Incheon Airport (ICN) experienced a remarkable traffic comeback in 2023.

International passenger numbers more than tripled to 55.8 million at South Korea’s biggest gateway, an increase of more than 210%. This pushed the hub back into the top 10 for the first time since 2020.

ICN landed in seventh place, up from 32nd in 2022.

It is also the only airport in the top 10 with a triple-digit increase in yoy traffic. However, it wasn’t all good news. The hub is also the only gateway in the elite group of 10 to be 15% or more down on its pre-pandemic international traffic numbers. In fact, the discrepancy is 21% versus the 70.6 million that the airport processed in 2019.

Navigating the rebound

Building back the 15 million missing travellers won’t be easy. Incheon is in an unenviable position when it comes to its passenger profile. While traffic rebounded fast last year, it was from a low base. Moreover, Chinese numbers remain subdued, and it is this nationality that was the key driver of Incheon’s enormous retail revenue pre-Covid.

At its peak, the airport was the biggest location for duty free sales in the world generating $2.4 billion in 2019, according to the operator, Incheon International Airport Corporation (IIAC). However, with 20% of international passengers yet to return, getting back to this figure will be tricky.

IIAC was not available for comment for this piece, but Singapore-based airport commercial revenues analyst, Justin Lee, told TRBusiness: “The Chinese traffic is not really recovering, and the airport does not have another equally high-spending nationality to offset them. This is a big challenge for Incheon’s retail business. “The Japanese are also not an option at the moment,” he added. “The Japanese market is in a difficult place, and the weak exchange rate of the Yen had dented the spending power of Japanese travellers. Without the Japanese and Chinese – and still low levels of Americans and Europeans – Incheon is reliant on its own Korean travellers. This is not really enough to bring the business back to where it was pre-Covid.”

The Shilla Duty Free perfumes and cosmetics store at ICN.

Since mid-2020 the Japanese Yen has been steadily declining against the South Korean Won. On the other hand, there has been an upswing for the China’s Yuan, but this, alone, has not been enough to bring mainlanders back.

In August 2023, the Chinese government lifted its ban on group tours to Korea after six years, which is having a positive impact on travel through ICN. The ban started after the deployment of the US’s anti-ballistic missile defence system (THAAD) on the border with North Korea, considered as a provocation by the Chinese administration and too close for comfort.

A charm offensive is in place to get the Chinese back to their pre-pandemic numbers. The Korean government put a visa-waiver scheme in place for them last year, and KTO has designated 2023-24 Visit Korea Year with a series of actions and events being put in place to rebuild visitors.

Traffic edging back

Data released by Korea’s Ministry of Tourism shows that first quarter 2024 tourist numbers topped 3.4 million, an 88.6% recovery versus Q1 2019. Half of the top 10 inbound markets had surpassed Q1 2019 numbers but, crucially, not the top two: China and Japan. Chinese numbers did, however, top one million in Q1 2024, with the Japanese at 666,000.

These figures will be welcomed by ICN’s duty free retailers and by IIAC. A reshuffle took place last year following a major tender and, as a result of that process Lotte Duty Free, Korea’s largest duty free operator, exited ICN in July. China Duty Free Group also tried its luck in the tender with no wins.

ICN still has a healthy mix of duty free operators led by the big winners The Shilla Duty Free and Shinsegae Duty Free, which have control of the perfume, cosmetics, and liquor/tobacco concessions.

Shilla also has the fashion and accessories contract, while Hyundai Department Store Duty Free has the luxury boutique concession. Kyung Bok Kung Duty Free and City Plus Duty Free were selected as the operators of the all items packages designated to small and medium-sized businesses.

In 2023, Shinsegae Duty Free reported a 44% decline in total sales but thanks to the sequential opening of its stores at ICN, and rising traffic, airport revenue was up +10% year-on-year. Over the same period, The Shilla Duty Free’s total sales were down by about 32% reflecting the downtown malaise.

Interestingly, Shilla’s share of revenue from  the airport business rose substantially to 52% in Q4 2023 versus the same prior period (just 16.2%) reflecting the retailer’s ICN expansion.

The figures from both retailers indicate just how important the airport channel has become. So while ICN is still scrambling to regain 2019 passenger traffic, it has helped major duty free operators survive a spectacularly bad downtown environment.

Promotions step up a gear

IIAC is doing the best it can with fewer passengers. In tandem with KCS and the tourism ministry, the airport promoted a spring season event to take advantage  of Golden Week holidays (Korea Children’s Day and Buddha’s Birthday, China’s Labor Day, and Japan’s Golden Week).

The event ran for 20 days from 26 April to 15 May offering passengers coupons worth KRW10,000 for use in the airport’s duty free shops so long as they followed the official Instagram of Incheon Airport Duty Free Shop (@icndutyfree). For those passengers purchasing $100 or more, 20 were also entered into a draw with a prize of a travel gift certificate worth KRW1 million.

IIAC stages a ‘Welcome Week’ for foreign travellers at Incheon Airport.

IIAC’s President, Hag Jae Lee, commented: “Incheon Airport will continue to provide more diverse duty free events to attract passengers (and) improve shopping satisfaction. We plan to use this year as the first for digital transformation to innovate overall airport operations. Based on airport infrastructure and service innovation, we will actively support the number of foreign tourists to reach 30 million by 2027.”

On the same day the Spring event started, the tourism ministry’s Second Vice Minister, Jang Mi Ran, was at Incheon Airport for the launch of ‘Welcome Week’ to mark the start of the 2024 Visit Korea campaign and hand out welcome kits to foreign tourists.

Also attending was Visit Korea Committee Chairman Lee Boo Jin, and IIAC’s Hag Jae Lee underlining just how seriously South Korea is investing in its tourism drive. A second Welcome Week will take place in September.

This feature first appeared in the Top 10 Airports June/July Issue of TRBusiness Magazine, available to view here.

READ MORE:Shilla promotes skus and slashes prices as Incheon T2 liquor store goes live

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