(Yicai) Dec. 27 -- Chinese airport operators Shanghai International Airport and Beijing Capital International Airport will cut the commission for China Duty Free Group by up to 90 percent, given the slow recovery in international flights and the negative impact of e-commerce.

The rent charged to China Duty Free Group by Shanghai and Capital airports is based on whichever is higher between the guaranteed sales commission and the actual sales commission, according to the statement released by the duty free shops operators yesterday. 

Shanghai Pudong International Airport and Shanghai Hongqiao International Airport will charge guaranteed monthly sales commissions of CNY52.5 million and CNY6.5 million (USD7.3 million and USD910,000), respectively, if their monthly passenger traffic exceeds 80 percent of that in the third quarter of this year, according to the new agreement signed by China Tourism Group Duty Free and Shanghai International Airport.

Beijing Capital International Airport will charge an annual guaranteed commission of CNY558 million (USD78.1 million) if its annual passenger traffic exceeds 9.6 million, the new deal signed by China Tourism Group Duty Free and Beijing Capital International Airport showed.

The actual sales commission amount is the sales value multiplied by the category commission ratio of between 18 percent and 36 percent of duty-free stores’ perfumes, cosmetics, cigarettes, alcohol, general merchandise, and food.

The commission amount and ratio have dropped sharply from the pre-pandemic period. Before, Shanghai International Airport charged about CNY6 billion (USD840 million) of guaranteed annual sales commission, with an actual sales commission ratio of nearly 43 percent, according to the contract the firm signed with China Duty Free’s units Sunrise Duty Free Shanghai in September 2018.

International flights have recovered to about 50 percent of the pre-pandemic level in 2019, with slow recovery in the flow of both inbound and outbound passengers, an airport insider told Yicai, adding that this has greatly impacted duty-free sales at airports. Therefore, given the circumstances, airports need to take duty-free stores by hand, the insider pointed out.

Competition from cross-border e-commerce platforms and new duty-free licensees also led to changes in the competitive landscape of airports’ duty-free market, an analyst said. Cross-border e-commerce platforms charge no rent and have a combined tax rate of 9.1 percent, much lower than the previous 43 percent commission ratio of duty-free airport stores.

Editor: Futura Costaglione