As the auction for the concession to operate the duty-free zone at Suvarnabhumi airport comes closer, the fate of an underachieving industry hangs in the balance. The state-run Airports of Thailand (AoT) has not yet revealed whether it will do away with the current monopolistic concession model that has allowed only the sole operator, King Power International, to grow richer -- at the cost of both the state and shoppers.
For more than a decade, King Power, the business empire of the late Leicester City football club owner Vichai Srivaddhanaprabha who died in a helicopter clash on Saturday, has benefited from the duty-free business monopoly at Suvarnabhumi and Don Mueang international airports.
It has been the sole duty-free operator at Suvarnabhumi since the airport's opening in 2006. But its concession will expire in September 2020. AoT said that it would hold a new auction by this year and wouldfinalise the terms of reference (ToR) for the bid last month. But as of yesterday, nothing had emerged.
The devil is in the details -- whether or not the AoT will cling to its monopoly model for "ease of management" or free up the market. Given that stakes in the sector are high, there is no reason for AoT not to diversify the duty-free industry.
The sector needs fair competition and good governance, something which has been lacking for years. And that means the AoT's auction should be open for multiple concessions, allowing various players to run the duty-free zone at not just Suvarnabhumi but also Don Mueang airport when another sole concession granted to King Power International expires in 2022.
The company also has standalone duty-free shops in Bangkok and other major cities, and runs its branches at Phuket, Chiang Mai and Hat Yai airports. In fact, AoT has given the company greater monopoly powers, allowing it to be the sole operator of the duty free pick-up counters, where tourists collect their purchased items upon departure, at the two Bangkok airports. This makes it impossible for other competitors, who run duty-free shops in downtown areas, to have a pick-up place for their customers.
This monopolistic business model is bad for everyone except the concessionaire.
Firstly, it is bad for consumers. Thailand's duty-free shops are not attractive to tourists, the average of whom spends merely US$47 or 1,500 baht on them, according to research by Euromonitor. This is much less than the spending per head of US$260 at South Korea's Incheon International Airport, the size of which is comparable. Worse still, King Power International's prices are also higher than shops in other airports such as those in Hong Kong and Dubai.
The monopoly is also bad for state coffers. A study by Goldman Sachs last year indicated the concession fee collected by AoT at 17% of sales is lower than that at other airports of comparable size.
It is also not healthy for an industry which should promote competition and draw in more players. Having multiple duty-free operators can make the sector achieve its real commercial potential. Incheon airport, for example, has granted 12 concessions and its duty-free revenue is booming.
Meanwhile, King Power International has grown richer from its exclusive rights to run the duty-free zone at the airports -- by buying products at low prices from overseas and selling at higher prices.
The duty-free sector plays a key role in tourism. Given that the sector has recently suffered a decline in Chinese arrivals, there is no reason for AoT not to open bids for multiple concessions for the duty-free zone operation at Suvarnabhumi this year. This could boost growth in an underachieving industry.