King Power's Don Mueang bid astonishes

ANALYSIS: Enormous offer to AOT crushes the competition, likely tightening the duty-free operator's stranglehold

King Power Duty Free Co has proposed a surprisingly high return to Airports of Thailand Plc (AOT) in its bid for the contract to run the duty-free and commercial areas at Don Mueang airport.

The AOT board is expected to select the company to run the duty-free shops at the old airport today.

According to a source at AOT, King Power Duty Free is offering a minimum return of 63 million baht a month, or 756 million baht a year, to AOT. In comparison, Central Retail Corporation has offered a minimum return of 40.6 million baht a month, Shilla Mall consortium proposed at least 35.2 million baht a month and Siam Future Development Co presented an offer of at least 24.2 million baht every month.

The proposed financial returns from King Power Duty Free are 55% more than Central Retail's offer and nearly three times Siam Future's bid.

However, the steep offer was called into question by some observers given that Don Mueang will only serve a small number of international flights.

The airport will handle about three million passengers on international flights a year.

Only passengers of international flights are entitled to buy products at airport duty-free shops.

If King Power Duty Free wins the contract at Don Mueang airport, it will monopolise the airport duty-free shop business in Thailand. There is usually more than one duty-free shop concessionaire at overseas airports, unlike Thailand, the AOT source said.

The proposal for the business at Don Mueang airport could prompt the AOT to consider if the returns from King Power Duty Free at Suvarnabhumi airport are too low.

The company pays 2 billion baht to AOT annually for its duty-free shop and commercial space contracts at Suvarnabhumi airport which serves 36 million passengers annually.

An aviation industry source said King Power Duty Free might be offering the huge return at Don Mueang airport to crush the competition.

The company may want to retain its presence at all of the country's major airports to gain stronger bargaining power over the companies that supply goods to its shops.

The greater bargaining power could translate into larger discounts for the company from suppliers amounting to tens of billions of baht annually, according to the source.

At present, King Power Duty Free has very high bargaining power compared to most duty-free operators in the world, and it can choose to place or reject products at its commercial areas at airports.

AOT chairman ACM Sumet Photimanee said the AOT board would consider the selection of the duty-free and the commercial area operators at Don Mueang airport today.

He said the decision had to be concluded quickly because Don Mueang airport will reopen fully for commercial services on Oct 1.

He added that basically the contender proposing the highest returns for AOT should win the concession.

However, the AOT would also take into account how the company will be able to achieve its revenue target.

About the author

columnist
Writer: Amornrat Mahitthirook
Position: Reporter