Its parent, San Francisco-based DFS Group Ltd., was the only bidder for the contract at a bid opening yesterday and its offer of just more than $420 million all but guarantees it the job.
There is still a formal qualification process but as the operator since 1968, DFS has already shown its qualifications many times.
After the successful bid was announced by Tom Toyama, airports property manager, DFS Hawaii President John Reed described the bidding process as "very taxing" and "excruciating." Until 2 p.m. yesterday, Reed had no way of knowing if someone might take away the company's business with a slightly higher bid.
"On a personal basis, would I ever like to bid again? The answer is no," he said.
Reed said he would just love to get 25-year contract without having to bid for it, but added that the process guarantees the state the highest income and is the fairest way.
Faced with having to make a bid of at least $100 million a year under state Department of Transportation rules to renew its Hawaii concession, DFS bid $102 million for the first year, starting June 1, $104 million for the second year, $106 million for the third year and $108 million for the fourth year ending May 31, 2001.
The contract is a major part of the funding for the state's airports system.
Under the contract, which is to be awarded within the next 30 days, DFS must pay the state 20 percent of all its duty free revenues or its minimum guarantee bid, whichever is higher.
Through the first three years of the current four-year, $401 million contract, DFS has had to pay the state the minimum amount. The bid documents show DFS had gross revenues of $412 million in the first year, $420 million in the second and $426 million in the third.
In return for its lease payment, DFS gets the right to continue to operate a 12,300-square-foot shop at Honolulu Airport and a 184-square-feet shop at Keahole Airport in Kona.
More important, though, is the right to sell tax-free, imported products, such as cognacs, watches, and perfumes at the company's 85,000-square-foot store in Waikiki, soon to be expanded to 120,000 square feet. The company also has an outlet of 8,000 square feet at the Hilton Hawaiian Village.
Under the state rules, DFS can show its wares at the off-airport locations and take orders. Travelers bound for foreign countries can pick them up at the airport.
DFS's owners had a small tax-free store at Honolulu Airport in the early 1960s but DFS first got into the current contract system in 1968, with a bid of $1 million a year. Showing the rise of Japanese tourism, DFS in 1970 bid an average of $7 million a year for a 10-year contract. At its peak, it bid $1.15 billion in 1988 for a four-year contract.
In an unrelated development, parent company DFS Group announced earlier this week that it plans to sell majority ownership in its business to French luxury goods giant LVMH Moet Hennessy Louis Vuitton for $2.5 billion.
One of the founders of DFS Group, Charles Feeney, and the company's tax attorney, Alan Parker, who managed the Hawaii concession in the 1960s, agreed to sell their 59 percent stake. The move is being opposed by the other two owners. Reed said that if the sale takes place it will have no effect on the Hawaii operations.