Incheon International Airport Corporation (IIAC) is studying plans offering concession relief to its small and medium-sized duty free tenants after the announcement of a fiscal injection by the South Korean government.

Asked about rent reductions for SMEs and whether there would be future concessions for larger duty free operators, an IIAC spokesperson said: “All things related to rents are currently under consideration following the guidelines of our government. For this reason, we cannot share the details at the moment.”

The Ministry of Economy and Finance last week announced a monetary support package worth more than KRW20tn/$17bn to boost the economy, which includes rent concessions for SMEs at Korean airports [a subsequent budget of KRW11.7tn/$9.8bn was pledged on Wednesday 4 March – Ed].

‘SIX MONTHS, 25% RELIEF’

Reports circulating in Korean media had put the level of rent reduction for SMEs renting businesses from state-run enterprises at anywhere between 20-35% for six months.

Should rents be linked to sales, there is a provision to suspend payments for six months and the measures would not encompass larger conglomerates.

However, it is now understood from a duty free source close to the matter that the proposed offer to Incheon tenants is 25% (relief) and that would apply only to City Duty Free and Grand Duty – not Entas Duty Free or SM Duty Free due to their designations as ‘medium’ enterprises under Korean law, a proposal that has caused ‘outrage’.

“All duty free operators are suffering under the coronavirus situation – the proposal is being heavily criticised by the Korean media and the National Assembly,” said the source.

Another source said: “Concessions operated by large companies like Shilla, Lotte, and Shinsegae are not subject to a reduction, therefore there is currently controversy over fairness in Korea.”

Meanwhile, Covid-19 continues to spread at an alarming rate within the country, with South Korea’s duty free industry braced for a large drop in sales this year. The virus has infected more than 6,200 and claimed the lives of more than 42 (click here for a detailed report on the situation in South Korea and the ramifications for duty free).

“Although Korean duty free retailers are recording sales declines since the COVID-19 outbreak began, this issue is a short-term crisis,” said the source.

“From a long-term point of view, the advantages of running major concessions in Incheon International Airport are much bigger. Incheon International Airport is very important because it makes the world’s highest duty free revenues.

“The possibility of ten years [as a contract] option also attracted tenderers. Considering these, all companies who participate in this bidding would have presented their business and financial proposals very thoroughly and carefully.”

Shinsegae Duty Free, the subject of an exclusive interview earlier this year, was among the ‘big three’ to lodge proposals for packages at Terminal 1, albeit for just one: Fashion/misc (DF7).

“The coronavirus has not changed Shinsegae Duty Free’s bidding strategy,” said a Shinsegae Duty Free source. “Shinesegae Duty Free submitted a bid proposal to DF7 for its strength in fashion and cosmetics. We already operate much of the cosmetics and perfume in Terminal 1.”

Separately, IIAC is yet to declare its plans for the Terminal 1 beauty (DF2) and fashion and accessories (DF6) duty free concessions following a dearth of bids.

In line with current rules, at least two bids are required for each concession before they enter South Korea’s two-stage assessment system.

As reported last week, DF2 failed to receive any bids while DF6 received only one from newcomer Hyundai Duty Free. Both concessions are currently held by The Shilla Duty Free.

It is reliably understood that ‘unviable’ financial terms played a part in the failure of the DF2 auction to attract interest.

In January, the airport tendered a total of eight airside concession packages (five for general enterprises; three for small and medium-sized enterprises) but only four travel retailers – The Shilla Duty Free, Lotte Duty Free and Shinsegae Duty Free – bid for concessions reserved for conglomerates.

Stay close to TRBusiness for more on this developing story…