SOUTH KOREA. Korean Air’s duty free sales are set to hit US$134-135 million this year, the inflight retailer has confirmed to The Moodie Davitt Report. The result means that, once again, the Korean carrier ranks as the world’s most successful inflight retailer.
Korean Air will view the performance with satisfaction given difficult market conditions. Although this year’s turnover represents a -5.6% year-on-year decline from 2018’s US$143 million, the -5.6% depreciation of the Korean Won against the US Dollar implies duty free sales were flat in a year characterised by external challenges.
Passenger traffic to key locations such as Hong Kong and Japan was affected by political circumstances, namely the Hong Kong protests and a souring Japan/Korea relationship. Additionally, Incheon International Airport opened arrivals duty free stores in May, providing additional competition to onboard sales.
Nonetheless, the comparative turnaround in inflight duty free sales is encouraging news given a sustained decline in annual revenues over recent years.
That fall has been driven by increasing competition from low cost carriers and increasingly aggressive downtown duty free free retailers.
The sharp drop in cosmetics sales (and share), in particular, shows the impact that downtown and online duty free retailers with their heightened promotional activities and buying power have had on Korean Air this decade.
Cosmetics will generate sales of around US$39 million this year or 29% of the mix. This will make it the second-biggest category behind liquor, which will account for around 34% (US$46 million). 2019 marks the first time in many years where cosmetics has not held number one spot. In 2011, the category grossed US$77 million – almost double projected sales in 2019.
The turnover for South Korean airlines for the first nine months of 2019 in Korean Won shows Korean Air’s duty free sales eased by -2% year-on-year to KRW114.7 billion (US$98.8 million).
Arrivals shopping impact muted so far
Industry experts had predicted a more severe impact for Korean Air’s inflight sales when the country’s first duty free arrivals stores opened at Incheon International Airport in late May.
Incheon International Airport Corporation predicted the stores would gross KRW100 billion (US$86.19 million) in the first year, the equivalent of over KRW8 billion every month. Yet the stores only generated KRW18.8 billion (US$16.2 million) in their first four months, a monthly average of just over KRW4 billion.
As reported, the Korean government has reacted to the disappointing performance by allowing tobacco sales at the stores from February 2020. While Korean Air does not sell tobacco, the addition of the category on-airport may mean customers are more likely to also purchase liquor on arrivals.
2020 is set therefore to be another challenging year for Korean Air but its status as the world’s top inflight retailer is unlikely to change.
