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Airports seek ways
to make up
for shortfall

Additional revenue will be needed
after DFS' bid to operate duty-free
shops came in at the minimum
of $60 million a year

---

By Russ Lynch
Star-Bulletin

Facing a possible drop of more than $200 million over the next five years in concession fees from its duty-free shops, the state airports system is looking for new ways to increase revenue.

One small step would be selling advertising space on the walls in its parking buildings, Jerry Matsuda, airports administrator said today.

Matsuda said the division had already taken steps to save millions before yesterday's bid opening, in which DFS Group was the only contender for the duty-free shops rights with a minimum bid of $60 million a year. That was down 43 percent from the last contract which on average put $105 million a year in the state airports' coffers.

The airports system has refinanced its 1990 revenue bonds and is refinancing a 1991 issue, Matsuda said. "There are big savings from those," he said.

Meanwhile, the airports system is very solvent, he said. "We have a large cash base right now and we are very lucky for that."

The airports division, part of the state Department of Transportation, has revised its spending on airport improvements, "basically being more prudent in our expenditures," he said.

And it is already bringing in some advertising revenues, as only the third airport system in the United States to carry banner ads on its baggage carousels.

Although DFS bid only the minimum $60 million a year for five years to operate duty free shops in airports and other locations, it is possible that the company could end up paying the state more. If its revenues pass a certain level, DFS could be paying a percentage fee rather than the minimum guarantee.

Previously, the percentage fee would be paid if 20 percent of total duty-free sales equaled more than the minimum guaranteed by the duty-free operator. But that has not happened in at least a decade. With the new contract that begins June 1, DFS must pay the percentage rent if the combination of 30 percent of its off-airport sales, such as from the duty-free part of its big Galleria in Waikiki, and 22.5 percent of its sales at the airports equals more that $60 million a year. Last year, DFS had off-airport sales of $188.5 million and airport sales of $40.9 million. Applying the new percentages to those sales would mean a rent of $65.5 million.

Brian Minaai, state transportation director, said today that the state is confident DFS will generate enough sales to push it into the percentage payment level. The state is helping with such steps as an $18 million renovation of the overseas departure area around the duty-free shop, he said.

"Until now we've enjoyed the fruitfulness of the concession. Now we're going to have to spend money to make money," he said.

Duty-free fees in the past have produced as much as 60 percent of the total airports system's revenues. Last year, the DFS fee of $106 million was 37 percent of the $283 million total from all sources at the airports.

DFS, which does business here as DFS Hawaii, has held duty-free rights in Honolulu since 1962.

DFS, a wholly owned subsidiary of French luxury goods giant LVMH Moet Hennessy Louis Vuitton, still has to go through a final qualifying process before the formal award of the contract, but it has done that many times in the past.