SOUTH KOREA. The bitter dispute over rental fees between Incheon International Airport and its anchor tenants Shinsegae Duty Free and The Shilla Duty Free took another twist this week after Incheon District Court issued a ‘compulsory mediation decision’ stipulating that Incheon International Airport Corporation (IIAC) must grant a -25% reduction to Shilla.
It is expected the court will make a similar ruling over Shinsegae Duty Free’s claim in coming days.
However, the order is not legally binding and IIAC has already declared it “unacceptable” and signalled an intention to file an objection, increasing the likelihood of a prolonged dispute. According to leading Korean business title ChosunBiz, should one party file an objection the mediation proposal is nullified and full legal proceedings ensue. The Moodie Davitt Report has approached IIAC for comment.
As reported, the two retailers are in a bitter row with IIAC after the airport company’s refusal to agree to -40% fee reductions relating to their respective T1 and T2 concessions.
Despite facing heavy termination penalties of around KRW200 billion (US$144 million), both retailers have threatened to terminate their concessions if negotiations are unsuccessful due to the punitive losses they are incurring prompted by rents calculated at a fixed price per passenger.
In a telling observation (that will be read with interest throughout the airport commercial world), IIAC was quoted by the Kyunghyang Shinmun media title saying, “If this kind of adjustment is made, in the future if the bidder with the highest bid is selected and then runs a deficit, the way will open up for them to apply to the court for mediation and receive a rent reduction.”
The way would also open for a challenge from Lotte Duty Free, the Korean travel retail powerhouse out of Incheon International Airport altogether since its lowball bid on the 2023 mega-tender (see table below).
That approach was based on a cautious view of existing and future market conditions and the potentially punitive cost of doing business at Incheon. Why should its rivals benefit from being less prudent, Lotte Duty Free may – and probably would – ask?
Given the current impasse, a high-profile dual withdrawal and subsequent rebid is looking increasingly likely.
If so, both Shilla and Shinsegae would be eligible to bid alongside Lotte Duty Free and any other contenders. China Duty Free Group bid unsuccessfully in 2023 and may be convinced it stands a better chance this time around despite the notorious parochialism of Korean airport tenders.
Hyundai Duty Free is another possible bidder, though it did not table an offer for DF1 & 2 in 2023. ✈
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