China state tourism group to run Hong Kong airport’s duty free stores

A unit of state-owned China National Travel Service Group has edged out LVMH’s DFS and South Korea’s Lotte Group to win the right to operate all alcohol and tobacco duty-free stores at Hong Kong International Airport, the world’s most profitable air hub.

The move means China’s largest tourism conglomerate will run the airport’s eight duty free boutiques covering some 34,000 square feet for seven years until 2024, following the expiry of the operational contract with DFS.

China Duty Free (CDF) Group, owned by the state tourism titan, will run the operation in a joint venture with France’s travel retail operator, Lagardère Services.

“There will be alcohol appreciation bars, virtual reality facilities and VIP lounges,” the company said in a statement.

The eighth busiest airport on the planet and a top transit hub in Asia, HKIA is third in the latest Skytrax global rankings of the best terminals for shopping.

Last year, it handled a record 70.5 million commuters, and maintained its claim as the most profitable aviation hub among peers.

According to Industrial Securities, annual duty free store sales at Hong Kong airport are estimated to hit as much as 6 billion yuan (US$869 million).

Separately, the perfume and cosmetics and fashion accessories concession has been awarded to Shilla Travel Retail Hong Kong Limited.

An explosion in the numbers of large-spending Chinese tourists has made tax-free shopping a money-making machine for global duty-free retailers, such as DFS and Lotte.

It’s a landmark foray into the sector for China National Travel, which has undergone a major business overhaul following its merger last year with another state-owned travel agency, China International Travel Services Group, in a multibillion yuan deal.

“It is a milestone in our mission of ‘going global’, and we are grateful for the trust Hong Kong’s airport authority has bestowed on us,” said Chan Guoqiang, general manager of China Duty Free Group.

CDF has a network of 248 duty free outlets across the mainland, Hong Kong and Southeast Asia. In 2014, it opened the world’s largest duty free mall in Sanya, the resort town in southern Hainan province.

It has also bought a 51 per cent controlling stake in domestic rival Sunrise Duty Free, which runs the majority of duty free shops in Beijing Capital Airport and Shanghai’s Pudong International Airport – both among the world’s top ten busiest airports by passenger traffic.

Market observers now expect the pair to form an alliance in bidding for duty free store licences at other major airports in Asia.