They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. Regardless, this shifting of risk may not be acceptable to airports. Most experts agree that there will be no quick snapback of passengers, so airports face the issue of having too many concessions locations or even too many operators. . The airport environment is complex and has become even more challenging due to COVID-19. "We've already . In this model, the airport takes on two roles: landlord and partner in the operation. In airports with residual airline agreements, the airlines will be required to make up the difference between revenue to the airport and required revenue to pay for airport development and other expenses. This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. All rights reserved. The minimum annual guarantee of $3.25 million to the airport for the right to run the restaurant is too high and could result in the partners cutting corners to make the payments or, even worse . New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. Retailers: Minimum annual guarantee 'rules of engagement' have changed This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. This website uses cookies to improve your experience while you navigate through the website. That will, in turn, harm the concession program. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. A different methodology is required to ensure that vendors are allowed to earn a fair return on their investments, are able and willing to reinvest to improve and grow, and still provide a reasonable return to the airports. A by-location per passenger MAG may be too complicated for widespread implementation at this point. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. 6 . Minimum Annual Guarantees. Sea-Tac airport may allow Uber, Lyft and Sidecar to start picking up passengers if new rules are passed. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. Attention: Finance & Administration Division . . However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. Car rental companies are concessionaires at the airport. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. Regulatory Updates Extension of Minimum Slot Usage Requirements. Under one version of an infrastructure plan floated by House Democrats (the Moving Forward Framework), airports and airspace improvements would be funded, in part, by an increase in PFCs. Without this expertise, the concession will almost certainly fail to operate at an optimum level. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. Paid parking went into effect at . We also use third-party cookies that help us analyze and understand how you use this website. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. June 9: Extending the leases of current airport, dining, and retail (ADR) tenants by up to three years, including a temporary suspension of the Minimum Annual Guarantee (MAG) for ADR tenants through the end of 2020, and possibly extending this policy into 2021. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. Strategic agency for engagement and transformation. But opting out of some of these cookies may affect your browsing experience. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. Wealth Management. The future of airport concessions in a post-COVID-19 world, COVID-19's impact on commercial aviation: Customer survey findings, Why sustainable aviation is more than a flight of fancy, Sustainable aviation: A guide for aviation professionals. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . We did not review solicitation or award of concession agreements in this audit. While the bulk of the $10 billion appropriated for airport sponsors can be used to make bond principal and interest payments if necessary, airport sponsors may be faced with difficult decisions about how to prioritize needs while under financial stress. Tallahassee International Airport . North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. Because this rate base is not related to passenger numbers, it is equally as inflexible as a MAG set by any other means in the event of significant changes in enplanements. The big change at Los Angeles International Airport allows concessionaire partners, which include DFS Group, Hudson and HMSHost, among others, to pay percentage rent rather than a minimum annual guarantee (MAG) from April 1 through June 30 as a result of passenger traffic declines due to the coronavirus pandemic. Rent abatement / minimum annual guarantee: A decision to abate rent (including "minimum annual guarantees" and also encompassing fees) is a local . We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. If youre far enough along in the implementation process, you may want to move forward with adopting these standards. The city of Atlanta suspended the minimum annual guarantee payment obligation for concessionaires and rental car companies at Hartsfield-Jackson Atlanta International Airport (ATL) for a four-month period ending June 20. - Suite 1 . The FBOs lease space from the airport sponsor to be able to provide those services. The policies and procedures are available for review here. The Revenue Use Policy document defines permitted and prohibited uses of airport revenue. Rent abatement should be tied to the changed circumstances caused by the public health emergency and done in accordance with Grant Assurances 22 and 24, as well as related statutes. Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. PDF Concession Policy 1. Overview 1 Airports would also have to establish supply lines for products that they have not procured in the past. Most experts agree that there will be no quick snapback of passengers, so airports face the issue of having too many concessions locations or even too many operators. Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). . However, it does reduce the potential benefit to the airport by splitting the proceeds generated. PDF Request for Proposal - Dallas/Fort Worth International Airport Normally, airport concessionaires pay the city a percentage of sales or a "minimum annual guarantee" based on sales the previous year, whichever is greater. Minimum Annual Guarantee listed as MAG. Alternatively, different percentages could be charged for varying levels of sales or by assigning either fixed or variable rates to different product categories (e.g., one percentage for food and non-alcoholic beverage and a separate percentage for alcoholic drinks only). In other parts of the world, MAGs are the airports exact expected rental payments. The concept is not uncommon. a minimum annual guarantee or MAG annually, which more or less translates to rent. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. City of Philadelphia Procurement Department - Bid Solicitation Creation of the lounge would require around a $4-million investment from whichever group decides to take over the space, which is 9,100 square feet -- on the small side for most airport lounges. A different methodology is required to ensure that vendors are allowed to earn a fair return on their investments, are able and willing to reinvest to improve and grow, and still provide a reasonable return to the airports. See how we help fast-changing industries succeed. The competitive landscape may beby necessityaltered. A Guide to Transportation Funding Options - Texas A&M University The single factor most tied to concession success is the footfall past the concession locations. PDF Agreement for Operation of Valet Parking Services Concession San The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG). While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? COVID-19: For airport enterprise recovery, it's time to act now As MSP airport develops long-term relief plan for shops and restaurants In April, the San Jose City Council voted to grant delegated authority to the airport staff to finalize negotiations and execute a 50-year lease to Signature Flight Support. It beat four other finalists. At least for the immediate future, there will be reduced demand for concession services. Consulting. As someone who's sat on all four corners of the airport advertising negotiating table - media owner, airport operator, media agency and client - I have a degree of sympathy with all parties. Providing a product or service inside the airport environment is one of the key qualifiers for a concessionaire. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. If relief drives airline costs to a significantly higher level, thereby reducing airport cost-competitiveness, airlines may choose not to fly to the airport or to operate fewer services. Guarantee: $50,000. Airport concession program in order to maximize non-aviation revenue, increasing sales per enplaned passenger at a rate higher than passenger . At least for the immediate future, there will be reduced demand for concession services. They often charge more than 10% for water and alcohol, Waguespack said. Given the focus on bottom line profits, the investment in variable costssuch as employees, training, maintenance, and product developmentrequired to earn additional sales may no longer make economic sense. In other parts of the world, MAGs are the airports exact expected rental payments. Because of the drastic reduction in flights and passenger traffic, airlines have been shrinking their staffing, space requirements and gate usage. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. In airports with residual airline agreements, the airlines will be required to make up the difference between revenue to the airport and required revenue to pay for airport development and other expenses. SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. Concessions covers more than what you think of served at a traditional concession stand. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . Elsewhere, airports do not expect vendors to exceed their MAGs. mwaa.com - RFP-21-26914: Fixed Base Operator, IAD Airports provide the passengers, the retailers provide the services. There are a few limitations, however, that make this a less than optimal solution. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. Airport Boards approve financial relief plans for concessionaires and The Trinity model can be considered an extension of the joint venture model. The future of airport concessions in a post-COVID-19 world - Duty Free This simplified agreement includes the requirements under the CARES Act and makes funds immediately available for expenses, other than airport development, including payroll, debt service, utility expenses, service contracts, and supplies. An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. These three options do not change the underlying airport-concessionaire relationship. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. Summary: The Metropolitan Washington Airports Authority is seeking competitive bids from all responsible and qualified companies desiring to manage and operate rental car concessions from on-Airport facilities at Ronald Reagan Washington National Airport. Percentage (privilege) Fees - 10% of gross revenue from airport related car rentals, or a minimum annual guarantee, whichever is greater. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. DOCX Airport Rescue Grants Airport Concession Certification for XYZ Airport Airlines, while they may be able to reduce some operating costs associated with vacated premises, must still cover all their fixed and operating costs associated with the vacated space. Airport Actions in Response to the COVID-19 Pandemic Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. By using this site you agree to our use of cookies. A collective of travel retailers have agreed that operational contracts hinging on minimum annual guarantees (MAGs) are no longer workable in a Covid-ravaged air transport climate and must be reformed. Land . This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. In either case, history has shown that MAGs are not supportable in the event of severe downturns. . When passenger traffic does come back, airports should rethink how their concession contracts work. C. Concession Fee. In North America, airports tend to look at MAGs as the least amount of acceptable rent. The joint venture lease must be similar to those given to other concessionaires, and enforcement of the airports rules and performance requirements must be uniform. The airport operator also brings knowledge of how to do business in an airport environment while allowing the concessionaire to concentrate on what they do best: operate a highly successful restaurant or shop. February 2, 2021January 28, 2021 | AirportU. That $7.4 billion is divided in half and distributed in two ways: 50% is allocated among all commercial service airports based on each sponsors calendar year 2018 enplanements as a percentage of total 2018 enplanements for all commercial service airports., 50% is allocated among all commercial service airports based on an equal combination of each sponsors fiscal year 2018 debt service as a percentage of the combined debt service for all commercial service airports and each sponsors ratio of unrestricted reserves to their respective debt service.. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. Rates and Fees are adjusted annually based on the Airport's fiscal year, from October 1st through September 30th. Airport Operations. Test. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. To ensure that the program is performed in accordance with law. Discover the top trends shaping government in 2023. Passengers have needs while at airports. Notably, the GASB has deferred the implementation date of GASB Statement No. In the event that the concessionaire is unsuccessful, the airport absorbs the losses. To help develop firms that can compete in the marketplace outside of the DBE program. PDF The term will begin on (" ") or upon opening to the public; Food worker shortage at Sacramento airport prompts closures | The The repayment will occur over time, with 50% of the deferral being due by Dec. 31, 3021, and the remaining due by Dec. 31, 2022. . Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. Lets consider six potential options. AAAE CM Exam Module 1 Own Verison Flashcards | Quizlet Kansas City names company to run concessions at new KCI Airport - KMBC It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. Project. There are several types of concessionaires that lease space to operate at the airport. With the new economic and industry realities, capital access may be an even greater hurdle. The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. Most airports already calculate a PSF rent amount in their airline rates and charges (e.g., office space with passenger access) that applies to concession-type spaces. Discover our insights for a sustainable, low-emissions future. Products and services both fall into the concessions category. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. Airports maintain goals of working with Disadvantaged Business Enterprises or more commonly referred to as DBEs. Weve compiled the top 10 things that you should know about the CARES Act funding for airports. Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . Supplemental Airport Grant-In-Aid Funding The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. The airport operator is always present and has a wealth of knowledge about the airport. Where do we go from here? It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee (MAG). Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. Considering all the current changes in our business, this model may be a solution to sharing risk and encouraging a strong representation of critical brands in airports. First, and most important, the recently enacted Coronavirus Aid, Relief, and Economic Security Act (CARES Act) contains a supplemental appropriation of $10 billion to be made through Grants-In-Aid for Airports. That $10 billion is divided into the following categories: Any airport that receives money under the CARES Act must continue to employ, for the remainder of 2020, at least 90% of the number of employees that airport had as of March 27, the date of the enactment of the Act. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. Flashcards. There are means of counting passengers who pass a concession location, but few airports have installed such technology. The 10-year contract was awarded on the basis of the minimum annual guarantee payment totaling $352,000 or a percentage of gross receipts, whichever is greater. Manchester Airport Group in the U.K. had started to operate a restaurant in their home airport before the pandemic, so there is precedent for this strategy. No one is sure how long recovery will take. Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. A concessionaire's rent structure in an airport may differ from the traditional model. In other parts of the world, MAGs are the airport's exact expected rental payments. Until a few weeks ago, your organization has likely been focused on implementing several new GASB standards, including GASB Statement No. Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). Looking for abbreviations of MAG? Milwaukee, Wisconsin General Mitchell International Airport Car Rental As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. The future of airport concessions in a post-COVID-19 world Duty Free Americas Receives Recommendation for Miami Airport Deal Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated?