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Thai duty-free monopoly under pressure after election

Foreign rivals including Lotte and The Mall aim to break King Power's grip on sector

King Power's duty-free monopoly in Thailand may be coming to an end. (Photo by Shinya Sawai)

BANGKOK -- After more than three decades, King Power's duty-free monopoly in Thailand may be coming to an end as the country's next government is expected to act on calls to break the company's long-standing grip on the sector.

Rival retailers filed a petition with regulators in January seeking to end King Power's monopoly when the latter's current license expires next year. A new government is expected to be formed once the results of the recent general election are formally announced.

Suvarnabhumi International Airport, Thailand's main gateway, handles some 62 million passengers annually, and is currently under expansion. "It is too big to allow only one duty-free operator," Worawoot Ounjai, president of the Thai Retailers Association (TRA), told the Nikkei Asian Review in an interview following Sunday's nationwide poll. "There are several operators with the potential to compete.”  

The military's Palang Pracharat party and opposition Pheu Thai party are among those competing to form the next government, with the former supporting Prime Minister Prayuth Chan-ocha's bid to remain in office. 

King Power has had duty-free monopolies at Suvarnabhumi and three other airports since 2006, and has been in business for 30 years since being granted a license to operate a duty-free concession at Don Mueang, Bangkok's former main airport, and at Chiang Mai and Phuket international airports.

The duty-free business has been ascendant in recent years following solid growth in the Thai tourism industry, which was valued at about 3 trillion baht ($94.2 billion) in 2018. 

King Power's present license comes up for renewal in September 2020. That prompted the TRA to submit a letter in January to Prayuth and to the Office of Trade Competition Commission (OTCC), an anti-trust watchdog. The issue is likely to heat up once a new government enters office. 

“There were several parties who expressed concerns about bidding that could lead to a monopoly," Prayuth told the TRA and other members of the business community just 15 days ahead of the election. "I want the related authorities to consider it carefully to prevent any monopoly.” 

The TRA includes about 80 major retailers in Thailand, including Siam Piwat, The Mall Group, Central Group, Tesco Lotus, and CP All.

“Retailers such as The Mall Group, Central Group, and Siam Piwat have the potential to operate airport duty-free shops, including at Suvarnabhumi,” Worawoot told Nikkei. “There are also foreign companies keenly interested in joining the bidding, such as Lotte Duty Free from South Korea.” 

In February, state-owned Airports of Thailand (AOT) opened the bidding for new licenses for concessions at Suvarnabhumi, Phuket, Chiang Mai, and Hat Yai. Terms of reference were due to be made available to bidders on Mar. 19 ahead of the September 2020 expiration. 

Nitinai Sirismatthakarn, AOT's president, told reporters on Mar. 19 that the terms of reference were fair and would not lead to a continued monopoly. However, following TRA’s involvement and criticism from elsewhere, distribution of the terms of reference documents has been postponed.  

Nitinai gave no date for restarting the bidding process, but said AOT plans to retain its master concession model, which enables concessionaires to sell goods at higher prices, thereby providing a higher yield to the state agency. 

A key TRA concern is that this master concession model has seen the lumping together of four of Thailand's main airports under a single license, which the association considers unfair. 

“The concession should be separated into four licenses to allow more companies to bid,” Worawoot told Nikkei. He was also sceptical about the transparency of the bidding process, noting how important details are not available to prospective bidders. 

For now, King Power has the best knowledge about airport layouts, the numbers of passengers, the routes they follow, logistics, and other matters relevant to profitability, and this is a handicap to rivals. 

Founded in 1989 by the late Vichai Srivaddhanaprabha, King Power has enjoyed solid revenue and profit growth from its duty-free shops in Thailand and abroad, bolstered by a global tourism upturn. 

Gross revenues rose from 89 billion baht in 2015 to 100 billion baht in 2016, and reached 108 billion baht in 2017. Net profit rose from 13.2 billion baht in 2015 to 15.3 billion baht in 2016, but dropped back to 11.5 billion baht in 2017.

King Power has held the concession at Don Mueang since 1989, last renewing it in 2012 until 2022. It contracted then to pay 63 million baht per month, well above Central Group's offer of 40.6 million baht. It has held the Suvarnabhumi concession since the airport opened in 2004. 

In 2010, King Power added Leicester City football club in the U.K. to its portfolio for $44 million. Leicester went on win the Premier League championship in 2016.

According to Forbes magazine, Vichai was the fifth richest man in Thailand at the time of his death last year aged 60 with assets of at least $5.2 billion. The future of King Power became more uncertain with his death in a helicopter crash at the Leicester stadium, which is still under investigation. He was replaced at King Power by his son, Aiyawatt. 

TRA wants AOT's new bidding requirements to ensure that other potential concessionnaires can compete on a level playing field, and this includes eliminating the old master concession model.

“We are pinning our hopes on the new government," Worawoot told Nikkei. "We and potential foreign investors want the new government to end this monopoly.”

Others support free competition. “In economic theory, every company should be allowed to compete freely in a fair market as competition benefits consumers,” said Thanawat Polvichai, director of the Economic and Business Forecasting Center at the University of Thai Chamber of Commerce.

King Power declined comment to Nikkei for this story. 

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