Last month, Hyun Jung-a boarded a flight from South Korea’s Incheon airport. About two hours later, he returned to the same airport and charged tax-free shopping, even though he had never landed in another country.
The Air Busan Co. flight, organized by Lotte Duty Free for its VIP customers, was Hyun’s first since the pandemic began and cost him not a penny. As the route briefly left Korean airspace and crossed a Japanese island, the 130 passengers on board qualified to shop at duty-free shops in Seoul normally reserved for people who have traveled internationally.
Non-destination flights like these are an attempt by duty-free operators to save an industry decimated by Covid-19. Before the virus, the business was booming: the global tax-free market was worth $ 85 billion in 2019 and was on track to reach 139 billion by 2027, according to verified market research.
Sales fell as countries restricted international travel. Globally, only 1.8 billion people took scheduled flights last year compared to 4.5 billion in 2019, according to the International Civil Aviation Organization. The annual revenue of Swiss franc giant Dufry AG, which operates outlets worldwide, fell 71%.
While buyers of flights like Hyun’s will not fill the financial gap, they will at least provide some much-needed business.
“I saw a lot of people with bags full of tax-free items,” said Hyun, who bought a Chanel bag, shoes and cosmetics. “I tell all my friends it’s worth taking the flight for the opportunity to buy tax-free.”
Hotel Shilla, South Korea’s second tax-free operator after Lotte, is offering 114 seats on two so-called nowhere flights on May 23 and 30 to customers who have spent more than $ 550 in their stores since of May 3rd. Lotte puts in five more flights this month.
Tax-free operators and other stores are among the last in South Korea to recover from the pandemic, as the country’s retailers and wholesalers launched 182,000 positions in April, even when the economy added 652,000 jobs a year earlier, the statistics office reported on Wednesday.
The industry is at a time when domestic air traffic has picked up and there are tax-free shopping areas. The Chinese island of Hainan, bordered by palm trees, has become an even more popular getaway for tourists from the peninsula who now lack international travel. This helped the province’s tax-free sales, which more than doubled to 27.5 billion yuan ($ 4.3 billion) last year, according to the Commerce Ministry.
Tax-free purchases have been allowed for domestic tourists in Hainan since 2011. In July, the government raised the spending limit to allow people to buy more and extended some tax-free purchases in Beijing, Shanghai and other cities to take advantage of the trapped purchasing power growth in China.
Meeting the demand of Hainan, the logistics unit of Alibaba Group Holding Ltd. initiates daily cargo flights from Singapore to deliver cosmetics, handbags and other products to the island. Laox Co., Japan’s leading tax-free retailer, which was acquired by Chinese retailer Suning Holdings Group Co. in 2009, it plans to enter Hainan as soon as the second half of this year, establishing stores designed similarly to its stores in Japan.
“The trend of visiting Hainan for luxury shopping has come for the Chinese,” said Jonathan Siboni, CEO of data information firm Luxurynsight.
International air travel, if occurring, tends to short-distance regional routes and from places where vaccination programs are at a more advanced stage. Seven of the busiest international routes in the world during the first four months of the year included U.S. connections, such as Cancun-Houston and New York-Santo Domingo, according to aviation analysis company Cirium.
Stock prices suggest investors are optimistic. Shares of Dufry have risen more than 100% since late September, while the Shilla Hotel is close to the nearly 15-month high in Seoul.
Paris-based Lagardere Travel Retail, which operates duty-free shops, restaurants and other shops at airports, has customers closer to home to help it spend an uncertain summer in Europe after its revenue drops 56% from a year earlier to 341 million euros ($ 414 million) in the first three months.
“We are more committed to traveling retired Europeans,” said Frederic Chevalier, the company’s chief operating officer in Europe, the Middle East and Africa. McKinsey predicts that passenger flows between Asia and Europe will only return to 2019 levels “beyond 2024,” said Anita Balchandani, the company’s partner.
With a reduced vaccination rate in places like South Korea (which has delivered enough blows to just 4% of the population, according to Bloomberg Virus Tracker), marketers can rely on tricks like flying anywhere for a while. time.
“The contribution of flights to nowhere is small, but it’s better than having nothing,” said Sung Junewon, an analyst at Shinhan Investment Corp. in Seoul. “Every bit counts.”
Seven South Korean operators have operated these flights, with a total of about 8,000 passengers. Authorities are also considering plans to allow overseas flights to Incheon, where passengers can spend a few hours shopping without leaving the airport before returning to their original departure point.
Park Ju-hyun, a 31-year-old office worker from Seoul, paid about 90,000 won ($ 80) in March for a flight ticket to nowhere. It was the first time he had traveled by plane since a trip to the Philippines before the pandemic, and it was worth it for shopping, said Park, who spent about $ 600, mostly on cosmetics.
“It was nice to be back at the airport,” he said.
