THAILAND. In big breaking news, Airports of Thailand (AOT) today (3 December) announced a decision to amend its duty-free concession agreements with anchor commercial tenant, King Power Duty Free.
The decision comes after AOT’s 30 October announcement that the Board of Directors had approved measures to resolve financial challenges affecting King Power’s duty-free operations at Suvarnabhumi Airport, Bangkok; Don Mueang Airport, Bangkok; and (collectively) Phuket, Chiang Mai and Hat Yai airports.
The solution was based on a consultant’s report, with its findings serving 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.
AOT assessed two options – contract termination with a new bidding process or contract amendments – and concluded that amendments offered the most strategic benefits.
The decision reflects several considerations:
Ensuring business continuity: AOT will maintain continuous duty-free services, a key component of the passenger experience, without engaging in the extensive process of appointing a new concessionaire, which could take at least 14 months.
More stable revenue: AOT will continue to collect concession fees at an appropriate level, avoiding revenue gaps and loss that could arise from the absence of a duty-free retailer during a new tender process.
Reasonable return: The AOT consultant’s findings indicate that amending the contract is projected to deliver higher financial returns than those expected from a new tender and not lower than the second-ranked bidder from the previous tender.
Minimising economic damage: AOT assessed the potential consequences of contract termination, including effects on employment among related commercial operators and the wider economy. By amending the contract, operations continue while minimising these adverse effects.
AOT also noted the benefits of amending the contract, which prevents 14 months of revenue gaps and uncertainty over fees, while maintaining a minimum guarantee with +5% annual growth, +20% revenue sharing, and additional concession (upside) fees.
Provided the conditions are met, the following outlines the proposed key contract amendments by airport:
Suvarnabhumi Airport: AOT will continue collecting a minimum guarantee of THB232.90 (US$7) per passenger, increasing +5% annually, with an additional 35% revenue share on excess spending per passenger.
The contract extension by two years aligns with the BKK Development Plan, ensuring continuity of duty-free services during the South Terminal construction and closure of existing terminal areas from 2032 to 2035. During this period, AOT does not expect new concessionaires to be interested in taking part in any bidding process {main story continues following the communication below}.
Don Mueang International Airport: The contract maintains a monthly passenger-based minimum guarantee of THB39,187.76 (US$1,230) per square metre and 20% revenue sharing, with the minimum guarantee reverting to the previous rate if passenger traffic exceeds 100% of 2019, pre-pandemic levels.
Under the airport development plan, a two-year extension is proposed to facilitate the concessionaire’s move to Passenger Terminal 3 and the removal of existing investments, in line with the five-year investment payback period, as identified in the study.
If the terminal’s opening is delayed and less than one year remains on the current contract, AOT reserves the right to terminate King Power Duty Free’s concession and launch a new bidding process.
Phuket, Chiang Mai, Hat Yai and other regional airports: For regional airports, AOT will retain an annual, passenger-based minimum guarantee. This will start at THB129.67 (US$4) per passenger in 2030 and increase by +5% annually, an adjustment that accounts for post-pandemic shifts in passenger volume and spending patterns.
In addition, AOT has secured an extra revenue-sharing component of 35% on excess spending per passenger, under the same conditions as those applied at Suvarnabhumi Airport. This gives AOT the potential to earn additional revenue if the aviation industry improves, surpassing the original contract’s 20% revenue-sharing rate.
However, following the contract amendment, if the business returns to the level outlined in King Power Duty Free’s original proposal, AOT reserves the right to collect concession fees as specified in that proposal. ✈
A road well chosen
Consumer interest, too, is protected, through the maintaining of what AOT rightly describes as a key component of the airport experience. In a savvy move to ensure no legal challenge from rival bidders in the last tender, AOT will continue to collect concession fees at an “appropriate level” and not lower than the second-ranked offer from the previous tender. Common sense indeed. The great American poet Robert Frost’s signature work The Road Not Taken, concludes thus: Two roads diverged in a wood, and I – As has AOT’s decision. Certainly the right road taken and the one less travelled in the chaos-littered history of airport contract breakdowns. One guided along the way by common sense. |
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A victory for common sense. That’s my emphatic verdict on today’s announcement, an extremely well-articulated decision by Airports of Thailand (AOT) which contains a number of robust protective measures for the airport company while assisting a high-quality, proven retailer to run a sustainable business.
