(Yicai) Aug. 21 -- Shares of Shanghai International Airport and Guangzhou's Baiyun International Airportstayed low even though the two largest airport operators in China refuted rumors of reduced commissions on duty-free sales to keep up with the competition online.

After tanking by 10 percent intraday, Shanghai International Airport [SHA: 600009] closed 8.6 percent lower at CNY41.25 (USD5.70), and Baiyun Airport [SHA: 600004] slipped by 8.9 percent to CNY12.48.

The two companies in eastern and southern China said to Yicai today that the rumors of slashed commissions are untrue.

Over the weekend, online rumors claimed that Shanghai International Airport and duty-free operators had recently agreed on a commission of 15 to 20 percent for the aviation base whereas market participants expected the rate to be around 20 to 25 percent.

Management of the Shanghai-based operator of Hongqiao and Pudong aviation hubs said to Yicai that the company has not changed its multi-year agreement with Sunrise Duty Free, a retail arm of state-owned China Duty Free, set to expire in 2025. Moreover, the latest supplementary contract, penned during the Covid-19 pandemic, is still valid.

In March 2020, the pair agreed to share earnings based on passenger flow instead of the standard rate of 42.5 percent of every yuan spent by customers going to the airport. Thereby, the revenue of Shanghai International Airport for duty-free retail fell to CNY1.2 billion from an estimated CNY4.2 billion (to USD164.5 million from USD575.8 million).

Tight Margins

Gains are decreasing as passenger flows are not like they used to be before the Covid-19 pandemic and moreover, duty-free stores are increasingly competing with cross-border e-commerce platforms, which is driving price cuts.

Duty-free shops’ gross profit margin of perfumes and cosmetics has dropped to about 20 percent from more than 50 percent. This is why airports may need to accept poorer profit-sharing ratios in the future to keep their retail spaces occupied.

The travel giant of the eastern metropolis is also competing with more market players. In recent years, Wangfujing, Hainan Travel Duty Free, China National Service, and Shenzhen State-owned Duty Free have all obtained duty-free licenses.

An insider at the Shanghai airport operator said that the scale of duty-free sales is closely related to the prices of goods because consumers are price-sensitive. The aviation base is starting to have less decision power in pricing so it is better to maintain a higher consumer surplus with lower margins while expanding sales, the person added.

The parties are linked as during the pandemic, Shanghai International Airport acquired a 32 percent stake in Uni-Champion International, a Hong Kong-based tax-free store owner, and a 12.5 percent stake in Sunrise.

Editor: Emmi Laine