Double limit down! Emergency response from two airports; The pattern of the duty-free market quietly changes behind the scenes, due to a rumor of revenue | airport | market

This morning, both Shanghai Airport and Baiyun Airport fell below the limit, related to a market rumor.

In this rumor, it is mentioned that "last week, the penalty rate for tax exemption negotiations at Shanghai Airport, which was widely circulated by the government, was 15-20%, seriously reducing the airport's tax exemption performance. Previously, the market's expectation for airport penalty renegotiation should maintain a penalty rate of 20-25% to ensure a high minimum penalty contract structure.". Regarding this, Liu Yuenan, an analyst at Guojun Social Service, replied on his social media circle, "It wasn't from me.".

Several industry insiders and analysts told reporters that both Shanghai Airport and Baiyun Airport fell below the limit today, which is precisely influenced by this rumor.

In response to this, the first financial reporter consulted with the relevant management of Shanghai Airport and the board secretary of Baiyun Airport, both of which stated that a new tax exemption deduction rate has not been determined and the policy determined during the epidemic is still being implemented.

Rumors of deduction rate causing airport limit down

Why does a rumor of a deduction rate adjustment lead to limit drops at two airports? This is related to the increasing impact of duty-free store related revenue on airport performance.

The so-called "deduction rate" refers to the "sales commission" in the transfer contract of duty-free shop operation rights signed between the airport and the duty-free shop operator.

For example, in September 2018, Shanghai Airport signed a new contract for the transfer of operating rights of duty-free shops with Nissan Shanghai, a subsidiary of China Duty Free Corporation. It was agreed that from 2019 to 2025, Nissan Shanghai would need to pay 42.5% of its monthly sales revenue as rent to the airport, or pay a minimum sales commission to the airport every month, whichever is higher.

42.5% is the "deduction rate". In plain language, it means that if you buy 1000 yuan of toner from a duty-free store at Pudong Airport, 425 yuan actually belongs to Pudong Airport.

At that time, Pudong Airport was expected to generate at least 41 billion yuan in revenue within 7 years. In 2020, it was 4.158 billion yuan, and the following five years have seen an increase year by year.

In the years before the epidemic, revenue from non aviation businesses such as duty-free sales was an important reason for the continuous growth of Shanghai Airport's net profit, rather than an important driving force for the growth of non aviation revenue. It was precisely the implementation of the "Shanghai Pudong International Airport Duty Free Store Project Operation Rights Transfer Contract".

However, the outbreak of the epidemic prevented the smooth implementation of the agreement signed in 2018 in 2020. Starting from March 2020, Shanghai Airport and Japan began to fulfill the contract according to the new settlement method in the Supplementary Agreement. According to the new agreement, the rent for duty-free shops received by Shanghai Airport in 2020 instantly decreased from the originally expected 4.158 billion yuan to 1.156 billion yuan.

The Supplementary Agreement means that the rent that Shanghai needs to pay to Pudong Airport in the future will become a bet against the post epidemic passenger flow of international and Hong Kong, Macao, and Taiwan routes at Pudong Airport: if there is less international passenger flow and less revenue from duty-free shops, Shanghai Airport will receive a share. When there is more international passenger flow and more revenue from duty-free shops, Shanghai Airport can only offer a limited minimum guarantee in exchange for the additional rent collected during the epidemic period.

The pattern of the duty-free market is changing rapidly

The relevant management of Shanghai Airport told reporters that there is currently no new agreement signed between Shanghai Airport and the operator of duty-free shops, which means that the contract is still being executed in accordance with the Supplementary Agreement signed during the epidemic period.

According to the reporter's understanding, due to the current overall recovery of international flights being less than half of what it was before the epidemic, the slow recovery of inbound and outbound passenger flow has also limited the speed of sales recovery at airport duty-free shops. In addition to the impact of passenger flow, more and more competitors who share the "duty-free" cake are cutting prices and "involution", which is also changing the competitive landscape of the duty-free market.

Competitors first come from cross-border e-commerce platforms. Because there is no rent, their costs mainly come from the comprehensive tax rate of 9.1%. When the demand was hot before the epidemic, everyone's price war was not so fierce, and they enjoyed the high profits brought by high gross margins. Now, in order to compete for consumers, the sales prices on cross-border e-commerce platforms and airport duty-free stores have also dropped again and again, such as the gross margin of perfume cosmetics in duty-free stores, which has dropped from more than 50% before to about 20%.

In this case, if the airport insists on charging a deduction rate similar to 42.5%, the duty-free shop will continue to "hand to hand" with cross-border e-commerce on the price of perfume cosmetics, and will face no profit. Therefore, even if a new agreement is signed, reducing the deduction point compared to the previous high of 42.5% is still expected. Lowering the deduction point is to increase sales scale and thereby increase revenue.

Another group of competitors comes from new entrants who have obtained tax exemption licenses.

In recent years, news of obtaining tax exemption licenses, including Wangfujing, Overseas Travel Investment, Haifa Control, China Service Exemption, Shenzhen Exemption, etc., has caused a wave of limit up for related listed companies. They are not only competitors of traditional tax exempt giants such as China Exemption, but also new entrants in different channels of tax exempt sales layout, which also affects the tax exempt sales scale of Shanghai Airport.

"The scale of duty-free sales is closely related to the price of duty-free products, and consumers will choose the most favorable sales channel based on the price," an insider at Shanghai Airport told reporters. The competitive landscape of the duty-free market is changing, and the airport's pricing power is decreasing. It is better to take a long-term view and work with duty-free shops to share benefits with consumers and increase duty-free sales.

It is worth noting that during the epidemic, Shanghai Airport has also had a deeper connection with duty-free store operators: acquiring 32% equity of UNI-CHAMPION INTERNATIONAL LIMITED and 12.48% equity of China Duty Free Daily Online Technology Co., Ltd.

The core assets penetrated by this transaction are 15.68% equity or equity of Rishang Duty Free Trading Co., Ltd., Rishang Duty Free Trading Co., Ltd., China Duty Free Group Beijing Capital Airport Duty Free Products Co., Ltd., and China Duty Free Group Beijing Daxing International Airport Duty Free Products Co., Ltd. The main businesses engaged in are the offline sales and operation of duty-free products at Shanghai Hongqiao Airport, Shanghai Pudong Airport, Beijing Capital Airport, and Beijing Daxing Airport, as well as the sales and operation of online bonded imported goods in Shanghai and Beijing.