A real-estate finance approach on pricing duty-free leasing: understanding conflicts at Korea’s Incheon International Airport

ABSTRACT

This letter proposes a real-options pricing model and determinants influencing retail rents from real-estate finance in an attempt to shed light on pricing airport duty-free leasing. A real-options approach suggests that the current leasing price conflicts at Incheon International Airport are incurred by the increased withdrawal option value after negative sales shocks. Determinants of retail leasing rents explain high duty-free rents at Incheon: great location to draw large passenger traffic, diluted anchor tenant power, and favorable-to-the-airport contract type.

KEYWORDS:

• Air travel
• airport concessions
• duty-free leasing price
• Incheon International Airport
• real options

Disclosure statement

No potential conflict of interest was reported by the authors.

ORCID

Woon-Kyung Song http://orcid.org/0000-0002-5720-7382

Hyun Cheol Lee http://orcid.org/0000-0003-4698-065X