Hartsfield-Jackson International officials are making plans to cut the rent for the airport’s duty-free shop operator amid lackluster international traveler demand.
Duty Free Americas Peachtree LLC managing member Simon Falic wrote in a letter to Hartsfield-Jackson general manager John Selden that “the business never lived up to our expectations and resulted in multi-million dollars losses each year.”
The projected growth in international passengers at Hartsfield-Jackson did not materialize, according to Falic, whose company operates duty-free stores on Concourses E and F, as well as Coach, Michael Kors and MontBlanc boutiques on Concourse F.
When the international terminal opened, Hartsfield-Jackson officials said they expected 13 million international passengers in 2015.
Instead, there were only 11.2 million international passengers in 2015, and 12.5 million in 2018.
The move to reduce the rent for duty-free stores comes as airport officials seek Atlanta City Council approval for some other airport shops.
Duty Free Americas built the luxury boutiques on the new 12-gate Concourse F to appeal to Asian and South American travelers, with the expectation that Delta would operate more trans-Pacific and South American flights from the new international terminal.
Yet many overseas flights still depart from the older 28-gate international Concourse E, which for years was also the only one with gates large enough to accommodate the super-jumbo Airbus A380 jet that Korean Air flew to Atlanta. It wasn’t until late 2017 that a Concourse F gate was modified to accommodate the A380.
The airline landscape has also changed significantly since the airport designed the international terminal in 2007.
A recession hit, dampening international travel and halting routes to Seoul, Mumbai and Shanghai for years.
Delta’s expansion has also reduced the primacy of Atlanta in the airline’s global network. Delta merged with Northwest Airlines in 2008 and gained a new gateway to Asia with a Detroit hub, then added a trans-Pacific hub in Seattle — lessening the need to launch flights to Asia from Atlanta.
Meanwhile, Hartsfield-Jackson uses unused time on international gates for domestic departures, reducing the share of international customers on Concourse F and requiring duty free shops to deliver goods at the gate instead of allowing travelers to take their purchases from the store.
“We can never recover the millions of dollars of our losses over the first 7 years of the contract but at least we can ensure that we will come closer to breaking even over the next 3 years,” Falic wrote in a letter to Hartsfield-Jackson.
Duty Free Americas won the contract to operate shops at Hartsfield-Jackson in 2012 with a seven-year contract that expired April 30, 2019 and an airport option for a three-year extension, calling for guaranteed rent of $15 million.
Documents submitted by the airport for city council approval of a contract extension cite the same minimum annual guarantee of $15 million.
“It makes sense” to extend the contact, said Hartsfield-Jackson senior deputy general manager Michael Smith, to “continue the operations of concessions that have been operating well and have been providing good services and good revenue.”
Smith said the airport plans to later seek a reduction in the minimum annual rent and high-end specialty retail space, with plans to convert the boutique stores on Concourse F to restaurants or other retail and rebid those spaces.
A union that represents some airport concessions workers, UNITE HERE, is pushing Atlanta city council members not to approve contract extensions for Duty Free Americas and other concessions. They say the contracts were struck during Atlanta Mayor Kasim Reed’s administration and should be rebid.
Adam Smith, the city’s chief procurement officer for 14 years, admitted to taking at least $30,000 in bribes from a different city vendor between 2015 and January 2017 during Reed’s term and was sentenced to federal prison.
“It is imperative that the City of Atlanta strengthen public trust in the airport procurement process,” said UNITE HERE in a written statement.
If contracts are rebid, that could open the door for a company with unionized workers to win the contract.