"What's the Use of a Crowded Incheon Airport?" No Cash Bonanza... Suffering at '8,987 Won per Passenger' Leads to Lawsuit Worth 100 Billion Won [Why&Next]

Incheon Airport Duty-Free War, Round 2
Shilla and Shinsegae Duty-Free Withdraw, Paying 190 Billion Won in Penalties
Shilla Files Lawsuit for Return of Unfair Gains
Application of Civil Act Article 398, Court May Reduce Penalties
Shinse

Yonhap News

Hotel Shilla has filed a lawsuit against Incheon International Airport Corporation seeking the return of unfair gains worth over 100 billion won, bringing the controversy surrounding the duty-free shop rental fee system back into the spotlight. Since the COVID-19 pandemic, international passenger numbers have rebounded to record-high levels, causing duty-free shop rental fees—calculated based on passenger figures—to skyrocket. As a result, duty-free operators, suffering from worsening profitability, have been returning their business rights one after another. In this process, the penalties imposed on duty-free operators for early contract termination have ultimately become a boomerang for the corporation.

According to the duty-free industry on June 22, Hotel Shilla filed a lawsuit last month against the corporation to reclaim 106.5 billion won in unjust enrichment. Hotel Shilla argues that the penalty it was required to pay for returning the business rights for the DF1 area at Terminal 1 of Incheon Airport was excessive.

Shilla Duty Free Paid 434.7 Billion Won in Incheon Airport Rent Last Year... Nearly Half That Amount in Penalties

Previously, after deciding to withdraw from Incheon Airport in September last year, Hotel Shilla paid a penalty of 190.2 billion won to the corporation. Subsequently, Lotte Duty Free was chosen as the new duty-free operator through a public bidding process, and Hotel Shilla ceased operations at Incheon Airport on April 16.

According to the standalone financial statements disclosed by the corporation, Hotel Shilla paid 434.7 billion won in rental fees for Incheon Airport last year. The penalty imposed for withdrawal amounted to 43.75% of the annual rental fee. According to Article 398 of the Civil Act (Stipulation of Damages), penalties are considered a predetermined amount of compensation for damages, and if unreasonably excessive, the court may reduce them to an appropriate level. Hotel Shilla appears to be seeking a court decision based on this provision.

Before returning its business rights at Incheon Airport last year, Hotel Shilla, along with Shinsegae Duty Free, demanded a reduction in rental fees and proceeded to court mediation. At that time, the court proposed a 25% reduction in rental fees, but the corporation refused to accept the proposal, leading to the failure of a settlement and ultimately prompting the withdrawal decision.

The court's proposal for a fee reduction was prompted by the fact that the rental fees exceeded Shilla Duty Free's sales at Incheon Airport. In its public disclosure regarding the suspension of operations at Incheon Airport, Hotel Shilla stated that sales at the Incheon Airport branch were 429.2 billion won as of 2024.

Even though the lease contract between Hotel Shilla and the corporation specified a penalty for discontinuing operations, there are criticisms that paying nearly half of the annual rental fee—especially when the rental fee exceeds annual sales—is excessive. A Hotel Shilla representative explained, "We determined that the penalty was excessively burdensome and beyond the usual level, so we filed a lawsuit seeking partial reimbursement." In general, penalties for lease contracts are typically known to be within three months' worth of monthly rent.

There is also the possibility that Shinsegae Duty Free may file a similar lawsuit. The penalty for Shinsegae Duty Free's withdrawal from Incheon Airport was 190.9 billion won, which is equivalent to about half of last year's Incheon Airport rental fee (386.5 billion won). However, a Shinsegae Duty Free representative stated, "We are not currently considering any separate legal action."

'A Belly Button Bigger than the Belly': Incheon Airport Rental Fees... Impacting Incheon Airport's Earnings

The surge in rental fees can be traced to the restructuring of the airport duty-free rental system after COVID-19. Previously, Incheon Airport duty-free shops operated under a fixed rent model, but following the pandemic, the system was changed to a "per-passenger rent" model. While a sales-linked rent system is most favorable for duty-free operators, Incheon International Airport Corporation has maintained the per-passenger rent system, citing the difficulty of revenue predictability as the reason.

During the 2022 year-end bidding for Incheon Airport duty-free business rights, the industry anticipated a rapid rebound in tourist demand as the pandemic came to an end. At that time, Hotel Shilla and Shinsegae Duty Free each proposed high per-passenger rental fees of 8,987 won and 9,020 won, respectively, and won the business rights.

However, due to the combined effects of the global economic slowdown and high exchange rates, the increase in Incheon Airport users did not translate into higher demand at duty-free shops. Since duty-free shops purchase overseas brand products directly, rising exchange rates increased procurement costs and eroded price competitiveness.

In contrast, the number of Incheon Airport users soared. Passenger numbers at Incheon Airport jumped from 17.87 million in 2022 to 56.13 million in 2023, 71.16 million in 2024, and 74.07 million in 2025. This year, it is expected to reach nearly 80 million.

The duty-free industry has long been offsetting losses at Incheon Airport through downtown duty-free shops. However, as the Daigong (Chinese bulk buyers) market—previously the industry's core customer base—shrank rapidly, profitability has worsened further. This is the backdrop for the operators' decision to withdraw from Incheon Airport.

However, the cessation of business by former operators has also significantly impacted Incheon Airport. Last year, the combined rental fees paid by Hotel Shilla and Shinsegae Duty Free at Incheon Airport amounted to 821.2 billion won, accounting for 27% of the corporation's standalone sales of 2.9 trillion won. These two companies were the top contributors to Incheon Airport's sales. However, the per-passenger rental fees for Lotte Duty Free (DF1) and Hyundai Duty Free (DF2), which were selected earlier this year, have dropped by 40% compared to previous operators, at 5,345 won and 5,394 won per passenger, respectively.

An industry official commented, "With the ongoing changes in consumer behavior since COVID-19 and the shrinking Daigong market, the increase in passenger numbers is no longer directly leading to an increase in duty-free sales, which has reignited the debate over the appropriateness of the per-passenger rent system. The return of business rights by Shilla and Shinsegae, as well as the current lawsuit, can be seen as examples that highlight these structural problems."

This content was produced with the assistance of AI translation services.