South Korea’s leading duty-free operators are considering an exit from Incheon International Airport as the number of international passengers plunged 97.8 percent on-year in the second quarter.

According to Korea Civil Aviation Association Sunday, South Korea’s nine airlines witnessed international flight passengers plummet to 328,345 from 15.2 million people, a 97.8 percent decline on-year, in the second quarter.

Korean Air saw a drop of 96.2 percent to 190,458 from 5 million people while Asiana Airlines suffered a 96.5 percent dip to 12,574 from 3.4 million people in the same period.

Due to the drastic fall, South Korea’s two leading duty-free operators -- Hotel Lotte and Hotel Shilla -- are considering pulling out of Incheon airport unless rents are renegotiated, according to industry sources.

Lotte and Shilla, whose operation licenses for two of the eight airside sections DF3 and DF4 in the airport’s Terminal 1 expire next month, are reluctant to renew their licenses due to hefty rents that cost 20 billion won ($16.7 million) and 24 billion won a month, respectively. DF3 and DF4 sell liquor and tobacco.

If the two duty-free operators retreat, Incheon International Airport Corporation risks having both sections empty starting September. IIAC is struggling to find new operators after Lotte and Shilla in April gave up their preferred bidder positions for operation licenses for DF4 and DF3, respectively.

Though IIAC asked Lotte and Shilla to extend their businesses until it finds new operators, the request was met with an immediate resistance as it offered fixed monthly rents.

In response, IIAC later suggested flexible rents that are tied to monthly sales, but Lotte and Shilla are asking for improved terms as they are taking losses just to keep employees on the payroll.

“We have requested that IIAC come up with more progressive terms for the contract that will allow duty-free operators to minimize their losses,” a duty-free industry source said.

By Kim Byung-wook (kbw@heraldcorp.com)