THAILAND. Airports of Thailand (AOT) has chosen to negotiate with its anchor commercial tenant, King Power Duty Free, over revised contractual terms.
In a statement to the Stock Exchange of Thailand yesterday (30 October), AOT said a Board of Directors meeting had resolved to approve solutions to financial issues facing three King Power duty-free concessions – Suvarnabhumi Airport, Bangkok; Don Mueang Airport, Bangkok; and (collectively) Phuket, Chiang Mai and Hat Yai airports.
Any solution will be based on a soon-to-be appointed consultant’s report. The results will serve as a “framework for negotiation with King Power Duty Free for AOT’s maximum benefits while ensuring fairness to the contracting party”, the airport company said.
The negotiation results will then be proposed to the AOT Board of Directors for consideration.
Importantly from both an AOT revenue perspective and as a discouragement to any legal challenge by an unsuccessful bidder from the original tender, AOT confirmed to influential Thai media The Nation that King Power’s revised financial requirements will be at least as high as the second-highest bidder.
In a pragmatic decision, AOT believes the benefits of renegotiation outweigh the cancellation of the contracts, which would mean a loss of revenue and consumer services and the need to issue a new tender.
That position is in sharp contrast to that of Incheon International Airport Corporation in South Korea where the airport company has flatly refused to renegotiate terms with The Shilla Duty Free and Shinsegae Duty Free, prompting both retailers to quit their contracts.
In a separate communication a day earlier to the Stock Exchange, AOT said it is in the process of hiring consultants from state universities to study options to resolve the contractual issues.
An AOT board meeting on 29 October resolved to approve the resolution of the issues, as reported by the consultant’s study.
“AOT management is instructed to use the study findings as a framework for negotiations with King Power to maximise AOT’s benefits and ensure fairness to contract parties,” the airport company said. “The results of the negotiations are to be submitted to the AOT Board for consideration.”
The three concessions have been under the microscope for several months, following King Power Duty Free’s request to renegotiate the terms.
The company said its rental terms have become unsustainable amid an array of negative pressures.
These include the loss of arrivals duty-free space, softened Chinese consumer arrivals (and even softer spending), global economic uncertainty and reduced passenger volumes.
Other factors include reduced domestic market taxation on wine and reclamation of commercial space by AOT. ✈
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