INDIA. The Airports Authority of India (AAI) has re-issued details of the latest round of global tenders for setting up duty free shops at Delhi, Mumbai, Kolkata and Trichy airports.
Late last year (The Moodie Report, 24 November 2003) the tenders were invited but no eligible bids were received. Insiders said the lack of response was due to the small space being offered. Also, the minimum concession fee was too high for projects to be economically feasible.
AAI officials now say the sale of tender documents will begin on 20 May and will last until 4 June. Tenders can be submitted until 17 June and the technical bids will open the same day.
The decision to go in for fresh tendering comes in the wake of government moving forward on the privatisation exercise with Delhi and Mumbai airports. However, to the frustration of retailers, most conditions of the duty free bid remain the same as they were in the earlier exercise.
Alpha Retail regional managing director (Asia & Middle East) Paul Topping told The Moodie Report: “The tenders are almost unchanged from the first attempt. The Airports Authority of India must realise that duty free shopping is only successful if it is run as a partnership with the airport itself and that demanding Changi or Heathrow-like rentals, with built in accumulators for Delhi and Bombay, is simply not going to work.
“The businesses cannot generate the required returns to make them profitable for all parties. Rentals and investment must be realistic and suited to the environment.
“Foreign business will not invest in something that will patently lose them money,” said Topping.
A successful duty free retailer in India needs patience, a sense of humour, good political and civil service connections, according to Topping. Bidders are being asked to pay a minimum monthly licence fee of US$42.60 per square metre, rising +10% in each year of the five year term, in addition to an annual royalty of not less than US$5,269 per square metre.
For example in the case of Delhi, which has a 175sq m (1,883sq ft) arrivals store and a 44sq m (473sq ft) departures store up for bid, the Minimum Annual Guarantee being asked equates to a total US$1,265,864 in year one (the annual fee of US$1,153,911 plus the monthly fees of US$111,953).
Local reports said Dubai-based Flemingo International is continuing with the set up of duty free outlets at six international airports across the country: Chennai, Bangalore, Hyderabad, Calicut, Goa and Ahmedabad.
Meanwhile AAI officials have shut out India Tourism Development Corporation (ITDC) from bidding on this latest tender. The AAI had rejected the ITDC bid last time over alleged non-payment of concession fees. The Delhi High Court recently rejected a ITDC appeal challenging the AAI’s move.
The ITDC had outbid other retailers in 2000 when the AAI floated the first global tenders for duty free shops.
If all the existing airports were allowed to operate on a commercial basis without any central interference, it is not inconceivable that the country’s duty free market could grow to around US$100 million quickly. Around 16.8 million international passengers passed though Indian airports in fiscal year 2003-2004, representing an increase of +6%. In ten years, this is expected to touch 28.6 million.
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