While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Food worker shortage at Sacramento airport prompts closures | The Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. Minimum Annual Guarantee (MAG) of at least Eleven Million Dollars ($11,000,000) for each Contract Year and an annual escalation of at least three percent (3%) for the Contract Term. Airports would also have to hire and manage many additional hourly employees. Piedmont Triad International Airport in Greensboro gets $10 million in For construction contracts over _____ federal regulations require the airport to obtain a bid guarantee to equal at least _____ of the bid price, as well as performance and payment bonds equaling _____ percent of the contract. Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. In either case, history has shown that MAGs are not supportable in the event of severe downturns. Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. 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. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. Audit. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. In times of continued and prolonged growth, airports have learned to depend upon MAGs. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. 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. Most simply, the airport and vendor could agree to a fixed percentage rent. The future of airport concessions in a post-COVID-19 world - Duty Free 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. minimum annual guarantee (MAG) obligations to eligible airport concessions. Duty Free Americas Receives Recommendation for Miami Airport Deal Airport Actions in Response to the COVID-19 Pandemic An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . O'Hare and Midway concessionaires to get rent relief - Chicago Sun-Times Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. However, it does reduce the potential benefit to the airport by splitting the proceeds generated. installments during the first year of the Term. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. To ensure that firms meet the requirements of DBE qualification. Airports would also have to establish supply lines for products that they have not procured in the past. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. First, and potentially most important, the FAAs position on rent abatements has gone from NO to: A decision to abate rent (including minimum annual guarantees and encompassing fees) is a local decision. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). . Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. Relaxing in a $4 Million Lounge Under the Dulles Control Tower Could As a result, airports may wish to consider going a step further. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. Learn. February 2, 2021January 28, 2021 | AirportU. Wealth Management. While many contracts include a "force majeure" clause, this does not necessarily cover pandemic scenarios and in many instances, there is no formal agreement in place to review commercial terms in the event of such a . The question that airport managers must ask themselves is which rent strategy is realistic in the current environment. This site uses Akismet to reduce spam. A MAG, as currently developed, is unsustainable in anything but relatively normal times. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. . Both were selected based on a global tender, and need to pay the Minimum Annual Guarantee of 31 crore each to the Airports Authority of India. Meanwhile, Aena is forecasting that in the period to 2023, the minimum annual guaranteed rents and fixed rents, corresponding to contracts in force at 30 June 2020, will decrease. Lets consider six potential options. With the announcement by the GASB of a delay in the required implementation of these new standards, your organization will need to decide how to respond. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. In other parts of the world, MAGs are the airports exact expected rental payments. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. Some larger airports take a percentage of every sale. Page 3 of 61 - Non-exclusive On-airport Rental Car Concession - Proposal documents 3. . Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. Discover our insights for a sustainable, low-emissions future. Additionally, airports required to pay sick leave wages or family leave wages under Section 7001(e)(4) and 7003(e)(4) of the Families First Coronavirus Response Act are relieved of paying the employers 6.2% portion of FICA taxes associated with those wages. The competitive landscape may beby necessityaltered. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. Guarantee: $50,000. 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. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . Airport Operations. Minimum Annual Guarantee. The funds are coming directly from the U.S. Treasurys General Fund to prevent, prepare for, and respond to the impacts of the COVID-19 public health emergency. Normally, airport concessionaires pay the city a percentage of sales or a "minimum annual guarantee" based on sales the previous year, whichever is greater. To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. COVID-19 Considerations for Airports and Airport Sponsors HMS Host, the food and beverage concessionaire at Clinton National, is required to pay a minimum annual guarantee of $594,000, which works out to $49,500 monthly under the terms of its contract. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. The Trinity model can be considered an extension of the joint venture model. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. By using this site you agree to our use of cookies. At least for the immediate future, there will be reduced demand for concession services. MAG - Minimum Annual Guarantee. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. See how we help fast-changing industries succeed. The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. If, on the other hand, the airport sponsor decides to enforce the terms of a MAG, then it should carefully review the concession contract to determine the terms of enforcement and whether the concessionaire has any basis to refuse to pay the MAG. 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. PDF Appropriations Act, 2021 and the American Rescue Plan Act, 2021 That is no longer possible. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. Created by. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. To promote the use of DBEs for federally funded projects. To ensure that the program is performed in accordance with law. https://www.law.cornell.edu/cfr/text/49/part-23, Airport Concessions Disadvantaged Business Enterprises, Developing An Operating Budget - Airport University, Disadvantaged Business Enterprises - Airport University. Airports provide the passengers, the retailers provide the services. $100,000, 5%, 100% . FBO/SASO: NOTE: These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. 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. C. Concession Fee. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. A by-location per passenger MAG may be too complicated for widespread implementation at this point. Minimum Annual Guarantee listed as MAG. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. Regulatory Updates due to Coronavirus - Federal Aviation Administration While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. The FAA has published a map showing airports that are receiving the funds and the allocations made to them. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. In addition, they typically provide the fueling services for the airport. In other parts of the world, MAGs are the airport's exact expected rental payments. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. This category only includes cookies that ensures basic functionalities and security features of the website. New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. Two ground handling service providers selected for Chennai airport's Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. The Board of Airport Commissioners at Los Angeles World Airports has recently approved a recommendation by management to permit concessionaire relief measures, including moving all concessionaires with contracts based on Minimum Annual Guarantee fee payments to percentage rent-based agreements Kansas City names company to run concessions at new KCI Airport - KMBC 116-94). 47114, with minimum apportionments for smaller airports that serve between 8,000 and 10,000 passengers annually. Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . There are numerous ways to frame a contract without a MAG. Airport sponsors must certify compliance with the CARES Act employment requirements at the time of grant execution and report employment totals quarterly on June 30, Sept. 30, and Dec. 31, 2020. Elsewhere, airports do not expect vendors to exceed their MAGs. From layoffs to business closings, social distancing to shopping only on days that correspond to the first letter of your last name, we have all seen and felt the impact. The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. Tenants at airport get break on debts - Arkansasonline.com These supplier relationships are unlikely to have the same economies of scale as those of national concessionaires, which means the costs of operation may be higher. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. Airport prices are very high and there's little travelers can do about Percentage Rent - In addition to the MAG, Concessionaires shall pay percentage rent but only to the extent that percentage rent exceeds the monthly installment of MAG, Most simply, the airport and vendor could agree to a fixed percentage rent. (The catch: Potential renters must submit a formal proposal to the Airport Commission and are subject . Concessions Dev - San Diego International Airport The develop pays the amount due to the airport through the lease agreement and pockets the rest. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. These three options do not change the underlying airport-concessionaire relationship. However, this still may not be the most effective solution. NOTICE OF INTENTION TO ENTER INTO FOUR SEPARATE CONCESSION LEASE AGREEMENTS WITH THE DAY ONE GROUP LLC NOTICE IS HEREBY GIVEN, to all interested parties, that the Clark County Board of Commissioners intends to enter into four separate Concession Lease Agreements (Agreements) for the operation of 5 specialty retail concessions with The Day One Group LLC (Company) serving Harry Reid . FY2021 Rates & Fees | Northwest Florida Beaches International Airport Weve compiled the top 10 things that you should know about the CARES Act funding for airports. DOCX Airport Rescue Grants Airport Concession Certification for XYZ Airport Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator. The April 4th FAA guidance permits this: In coordination with airport sponsors, airlines, the Transportation Security Administration (TSA), and other entities, closing gates or sections of terminals is likely to be acceptable if the closure is executed in response to reduced passenger volumes and operations, is not discriminatory, and does not provide an unfair competitive advantage to one operator. 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. In addition to the detailed guidance in the Revenue Use Policy, the CARES Act makes clear that the funds may not be used for any purpose unrelated to the airport. 5-16-C001: Rental Car Concessions, National Airport Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. Pandemic Pain For Retail Is Much Higher At Some Airports Than - Forbes In this model, the airport takes on two roles: landlord and partner in the operation. SFO to launch rent relief programme for airport concession tenants One-twelfth of the MAG shall be due in advance on the first day of each month leasehold at Washington Dulles International Airport (IAD). The FAA issued an extension of limited waiver (PDF) through October 29, 2022 of the minimum-slot-usage requirement for international operations at John F. Kennedy International Airport (JFK), LaGuardia Airport (LGA), and Ronald Reagan Washington National Airport (DCA).Additionally, the FAA extended through October 29, 2022, our . This strategy is particularly applicable for a hub airport where the hub airlines brand expression is likely already an important part of the airports perceived brand. However, MAGs in concession contracts still expect continued growth. However, this still may not be the most effective solution. If you have questions. At least $500 million is available to increase the federal share to 100% for grants awarded under the fiscal year 2020 appropriations cycle for FY20 Airport Improvement Program (AIP) and FY20 Supplemental Discretionary grants. PDF Agreement for Operation of Valet Parking Services Concession San Through Dec. 31, 2020, the airport sponsor must continue to employ at least 90% of the number of individuals employed (after adjusting for retirements or voluntary employee separations) as of March 27, 2020. Greater of 30% or Minimum Annual Guarantee : Taxi Fees (annual contract fee) Pre-Arranged Transportation (per pickup) $6.00 . Find out how our purpose shapes our culture, people, and mission-driven work. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. 3300 Capital Circle, S.W. The Federal Aviation Administration (FAA) . 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. Airports are left with four basic responses: do nothing, suspend minimum annual guarantees (MAG), defer rent, or rent abatement. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). White Paper: Airport Concession Agreements - ACI World Store This website uses cookies to improve your experience while you navigate through the website. We also use third-party cookies that help us analyze and understand how you use this website. 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. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. There are numerous ways to frame a contract without a MAG. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). Examples of Minimum Annual Guaranteed Rent in a sentence. You also have the option to opt-out of these cookies. Normally, operating classification on the statement of revenues, expenses, and changes in net position will typically follow the classification of operating activities in the statement of cash flows. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. Learn. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. Passengers have needs while at airports. The MAC has already waived minimum annual guarantees three . The CFC is a charge based on either the contract value, gross receipts, or per car per day. No one is sure how long recovery will take. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. Opinion: Airport concession fee strategies in the coronavirus era 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.