① China Exemption and Shanghai Airport announced a supplementary agreement to the duty-free shop management rights transfer contract; ② The two parties all made mutual concessions in terms of guaranteed monthly sales commissions and actual monthly sales commissions; ③ Shanghai Airport stated that by reducing the commission ratio and establishing an incentive mechanism to collect actual fees, it pursues maximum absolute profit rather than maximizing the commission ratio.
Financial News Agency, December 26 (Reporter Hu Haoqiong) This evening, China Free (601888.SH) and Shanghai Airport (600009.SH) issued an announcement on the signing of a supplementary agreement on the transfer of management rights for the duty-free shop project. The relevant person in charge of Shanghai Airport told the Finance Association reporter that the new contract will enhance the airport's duty-free price competitiveness, help stimulate an increase in duty-free sales, and drive the company's performance to pick up.
According to the China Exemption Notice, the main provisions include improving the competitiveness of airport duty-free business, doing a good job in promoting duty-free business sales, actively seeking resource support, and monthly fee collection. Starting from December 1, 2023, the actual monthly fee is calculated using the model of obtaining the highest monthly guaranteed sales commission and the monthly actual sales commission.
Monthly fee calculation model for China Exemption and Shanghai Airport (Source: Screenshot of China Exemption's announcement)
The Financial Services Association reporter combed through and found that there are some differences between the supplementary agreement signed this time and the supplementary agreement announced by the two parties on January 30, 2021.
First, since July 31, 2022, Shanghai Hongqiao Airport has been included in the scope of the consolidated statement of Shanghai Airport. This time, the two parties signed “Supplementary Agreement 1 to the Shanghai Hongqiao International Airport Duty Free Shop Project Management Rights Transfer Contract” (hereinafter referred to as “Supplementary Agreement 1”).
Second, the “Supplementary Agreement 2 to the Shanghai Pudong International Airport Duty Free Shop Project Management Rights Transfer Contract” (hereinafter referred to as “Supplementary Agreement 2”) was signed. The supplementary agreement with January 2021 was updated on major terms such as “monthly fees” and “monthly guarantee fees”. The main purpose is to benchmark the international passenger flow situation from the actual monthly international passenger flow in 2019 to the average monthly passenger flow for the third quarter of 2023.
It is worth mentioning that in terms of sales commission ratio, this supplementary agreement adjusts the ratio by category. The category commission ratio is 18%-36% according to different circumstances, which is a decrease compared to the “comprehensive sales commission ratio of 42.5%” in the 2018 project selection announcement.
According to the Shanghai Airport announcement, Dongcai Choice data, and financial association reporters, in the third quarter of this year, Shanghai Pudong International Airport had a passenger throughput of 5,511,600 passengers on international, Hong Kong, Macao and Taiwan routes, and 761,400 passengers at Hongqiao Airport. Data recovery at Pudong International Airport is still 55% of the same period in 2019.
“The decline in the sales commission ratio is a concession on the part of Shanghai Airport, and international passenger traffic was changed to a concession in the third quarter of this year, that is, on China's exemption side. At the same time, due to the 'higher monthly guaranteed sales commission and actual monthly sales commission', there will be a guarantee when the sales situation is poor.” An agency source told the Financial Services Association reporter's analysis that judging from the results, the two sides chose a “compromise treatment.”
In response to adjustments to some of the terms of the two preliminary contracts and supplementary agreements in Shanghai (Pudong and Hongqiao), Shanghai Airport said that this contract adjustment takes into account the characteristics of multi-channel operations such as online, in-city stores, outlying islands duty-free, and cross-border e-commerce in an integrated manner. By reducing the commission ratio and establishing an incentive mechanism for collecting paid expenses, the airport side and the duty-free side have reached a development consensus to “reduce the commission ratio, promote sales scale, and increase absolute profit.”
Currently, inbound and outbound passenger throughput at Shanghai Airport is gradually recovering. According to data provided by Shanghai Airport, in November of this year, the total international passenger throughput of Shanghai Airport in Pudong and Hongqiao has recovered to 61% of the same period in 2019. In 2024, the passenger throughput of Shanghai Airport is expected to reach 110 million passengers, recovering to 90% of 2019; it is estimated that by the end of 2024, the inbound and outbound passenger throughput of Shanghai Airport is expected to return to close to 90% in 2019.