Registration for the third Incheon International Airport Terminal One tender opened yesterday (5 October). Interested parties have until 12 October 2020 to declare their interest in the re-tendered stores (DF2, DF3, DF4, DF6, DF8, DF9) and up to 16:00 KST on 13 October to submit business and financial proposals.

Incheon International Airport Corporation (IIAC) is overseeing a third tender for the Terminal 1 concessions after insufficient bids were received for each store on the previous two occasions. This meant both tenders were declared invalid under Korean law.

As reported, the first tender was put to market in January 2020. A lack of of bidders meant a fresh tender for the spate of undecided contracts was announced on 6 August. On this occasion IIAC made a number of key amendments due to the impact of the coronavirus (Covid-19) pandemic.

The minimum annual guarantee threshold linked to annual increases or decreased in passengers levels (+9%:-9%) was removed until normal monthly demand (+60%) returns.

The estimated rental price was also slashed by around 30% compared with the last bidding round. It was also apparent that a force majeure clause in the contract would necessitate a drastic reduction in Minimum Annual Guarantee (MAG) to a level equivalent to a 50% decrease in passengers levels year-on-year. This, however, would only be the case if passenger levels dropped by 40% year-on-year after the Covid-19 pandemic.

TERMINAL 1 TENDER DISPPOINTMENT

Amendments to the contract terms were seemingly not enough to encourage further bidders, alongside Lotte Duty Free and Shinsegae Duty Free to participate, much to the disappointment of Bum-Ho Kim, Deputy Executive Director of Concession Marketing Group, Incheon International Airport Corporation.

Kim, who was assigned to another IIAC department in 2018, but is now back at the heart of IIAC’s concession management plans, told TRBusiness: “I am very disappointed about the result [of the second Terminal 1 tender] because we thought we lowered the MAG properly at the time and considered the Covid-19 crisis when proposing percentage rent for a certain period.”

He added: “I think [the second tender result] is clear evidence that operators are undergoing a severe crisis. Future expectations are very gloomy due to the pandemic. I am very disappointed but understand the situation.”

Regarding the third tender, IIAC has followed national contract law protocol in executing the re-bid under the same conditions.

In terms of the possible outcome, Kim does not expect many participants as bidding conditions haven’t changed and companies in Korea and elsewhere are still suffering at the hands of the deadly Covid-19 pandemic.

Shilla Duty Free is one company which did not participate in the second tender due to the ‘prolonged uncertainty’ caused by Covid-19. A Spokesperson for the retailer told TRBusiness the company is pursuing internal stability rather than expansion, meaning it is unlikely to participate in the third tender.

Kim, who is trying to remain optimistic commented: “I hope [the third Terminal One tender] will represent a new chance for global hidden competitors or long-term strategists.”

OPTIONS MOVING FORWARD

Should the third tender be unsuccessful, which is a distinct possibility in the current climate, IIAC will have three options. Kim explained: “One option is direct negotiation with operators, while another is re-bidding with different conditions. A further solution could be postponing the bid until things change. At the moment, I can’t say which option is accessible. It is too early.”

Meanwhile, Lotte Duty Free, which is ‘carefully reviewing’ the latest tender documents was surprised at how the second tender panned out.

A Spokesperson for the retailer, which previously submitted bids for the liquor and tobacco concessions (D3 and D4) told TRBusiness: “We believe business uncertainty due to Covid-19 had a significant impact.”

On the possibility of a fourth tender, the Spokesperson elaborated on of the options raised by Kim. “In the event of a fourth bid, IIAC will be able to make private deals with exclusive bidders for respective concessions, according to national contract law.

“IIAC, will, however, still need permission to do so from the Ministry of Land, Transport and Maritime Affairs, which is something all operators should be aware of.”