Incheon Airport‘s T2 duty-free allotments complete after tumult

The long-awaited second passenger terminal of Korea‘s main gateway airport has finally completed its duty-free operator allotments after a tumultuous process.

After over three months of bidding, the operators for the duty-free areas at the new terminal were awarded to Shilla Duty Free for perfumes and cosmetics, Lotte Duty Free for liquor and tobacco, and Shinsegae DF for fashion and accessories.

The tenders came at an inopportune time, directly in the aftermath of public outcry over allegations of bribery in the awarding of downtown duty-free licenses at the end of 2016. At the time, the duty-free industry was riding high, boosted by sales coming from heavy tourism traffic from China. A license to operate a duty-free outlet was considered to be a guarantor of high revenues, and public opinion sought more accountability in the tender process.

In January, the Korea Customs Service, which is ultimately responsible for certifying tax-free operations, announced that it would be taking part in the evaluations to decide firms for the second passenger terminal at Incheon. It was a big move, taking away Incheon International Airport’s power to evaluate operators on its own.

“(The current model used by Incheon Airport) does not align with the goals of current customs law, which focuses on public benefits such as the development of the tourism industry, giving back corporate profits to the community, and mutual growth between large and small companies,” the KCS said in a statement.

The two sides came to an agreement in February to have the airport conduct the first round of evaluations, then to have the KCS conduct a second round.

Before the delayed tenders were opened in April, the Chinese government in mid-March imposed an unofficial travel ban to Korea seemingly in retaliation for Korea’s decision to employ an American missile shield here, abruptly stopping the constant flow of duty-free shoppers into the country.

Spiraling sales across the duty-free industry sent operators reeling, and in the end the third duty-free area at Incheon‘s second terminal -- assigned to fashion and accessories -- did not receive a single bid. Airport duty-free outlets are less profitable for operators than downtown shops because of the high cost of renting the airport space.

This third area eventually went through six rounds of tenders, with Incheon Airport lowering its asking rent price by 30 percent in desperation. With Shinsegae DF coming in as the only bidder in the fifth and sixth rounds, the KCS agreed to allow Incheon Airport to negotiate a separate contract with the company.

“We expect the contract to be complete in mid- or late July,” a spokesman for Incheon Airport said. Since the opening preparations for major luxury brands such as Chanel or Hermes require six months or more, it is highly unlikely that all of the stores run by Shinsegae will be able to open before the time the second terminal opens.

The spokesman said that the airport plans to complete testing the facilities at the second terminal by December, and to open the terminal to the public before the PyeongChang Winter Olympics in February after consulting with relevant government agencies. 

By Won Ho-jung (hjwon@heraldcorp.com)