If you have questions. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. But opting out of some of these cookies may affect your browsing experience. Where abatement results in shifting costs between various classes of airport tenants and users, the airport sponsor is encouraged to consult with all affected parties. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. 84, Fiduciary Activities. Where do we go from here? If, at the end of any year during the Term, the total amount of monthly installments of MAG and Percentage Fees paid for such year is less than the total amount of annual MAG and Percentage . Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. Project. Option 6: The airport as concession operator. Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). The airport environment is complex and has become even more challenging due to COVID-19. Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. The airport environment is complex and has become even more challenging due to COVID-19. Retail/Gift Shop 11% of Gross Receipts or Minimum Annual Guarantee Terminal Advertising 30% -60% of Gross Receipts or Minimum Annual Guarantee . Where do we go from here? COVID-19 has sent shockwaves throughout the world. 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. The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. 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. However, this still may not be the most effective solution. Concessions covers more than what you think of served at a traditional concession stand. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). Airlines are likely to oppose any PFC increase, and in the absence of any increase, infrastructure spending would likely be funded through additional appropriations to the Airport and Airway Trust Fund. The single factor most tied to concession success is the footfall past the concession locations. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. A MAG, as currently developed, is unsustainable in anything but relatively normal times. View bio. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee . Land . Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . percentage of their annual gross revenues derived from operations at the airport or a minimum annual guaranteed amount, whichever is greater. Duty Free Americas Miami offered a minimum annual guarantee to the airport of $20 million -- topping the $18.5 million offered by Dufry Miami Retail Partnership and about $9 million more than two . These three options do not change the underlying airport-concessionaire relationship. The Trinity model can be considered an extension of the joint venture model. 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. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. Minimum Annual Guarantee ("MAG") Lowest amount of rent to be paid To Be Negotiated . While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Concessions covers more than what you think of served at a traditional concession stand. By way of comparison, in the past two fiscal years (FY19 and FY20), the federal government has appropriated approximately $3.35 billion in regular Air Improvement Program (AIP) spending and an additional $400$500 million in discretionary AIP grants. The Revenue Use Policy document defines permitted and prohibited uses of airport revenue. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. No one is sure how long recovery will take. FBOs may collect the landing fees for GA aircraft or charge them a fuel-flowage fee on behalf of the airport. 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. 87, Leases by a full 18 months, resulting in June 30, 2022 year-ends to be the first to implement the significant new leasing standard. 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. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. Will this have an impact on airline and concession agreements? $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). There are means of counting passengers who pass a concession location, but few airports have installed such technology. Tallahassee International Airport . This document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. 1, their minimum annual guarantee was superior to anybody . This information collection permits FAA to confirm that rent relief is consistent with the requirements of CRRSA and ARPA. There are numerous ways to frame a contract without a MAG. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . The concept is not uncommon. The Federal Aviation Administration (FAA) . Airport sponsors should carefully review the maintenance and operation (M&O) expense allocation methodology in their terminal leases to confirm the method for allocating costs for vacated space. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. 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. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. Concessionaires could avoid minimum annual guarantee payments for a third quarter as the MAC develops a long-term relief plan. 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. New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. Discover our insights for a sustainable, low-emissions future. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. . SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. If the metric for rent resumption is comparing the current period to the same period in the previous year, by the time the world reaches year two of recoveryeven if the improvement is only slight and slowthe contract may reinstate the original MAG. However, MAGs in concession contracts still expect continued growth. Discover the top trends shaping government in 2023. SFO concession tenants pay the greater of a Minimum Annual Guarantee (MAG) or a percentage of Gross Receipts (Concession Fee), along with other cleaning and infrastructure fees. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. The same rules govern the use of CARES Act funds that govern the use of all airport revenues. 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. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. When one partner tries to do too much, it will lessen the benefits of the joint venture. The AICPA State and Local Governments audit guide includes certain accounting guidance that has been cleared by GASB as Category B authoritative guidance. 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. The Trinity model is particularly applicable to duty-free concessions, where it is practical to divide a store into departments wherein vendors (e.g., Channel, Rolex, Hermes) are given the ability to design and operate their mini outlets. Airport concession fees in the era of COVID-19, Airports should carefully consider how they structure deals and their business models, Do Not Sell or Share My Personal Information, Limit the Use of My Sensitive Personal Information. For more insights from Alan Gluck and ICF, please go to https://www.icf.com/insights/transportation, The future of airport concessions in a post-COVID-19 world, https://www.icf.com/insights/transportation. The CFC is a charge based on either the contract value, gross receipts, or per car per day. This website uses cookies to improve your experience while you navigate through the website. 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. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. Rates for each new fiscal year will be posted on this page after Board approval of the rates and fees. Flashcards. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. FBO/SASO: NOTE: Concessions and retail often fill that need. These cookies will be stored in your browser only with your consent. The cost of design and construction for your space is going to be much higher. This site uses Akismet to reduce spam. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. Option 5: The Trinity (or Trinity Plus) model. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. minimum annual guarantee (MAG) obligations to eligible airport concessions. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. 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. . Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all. In either case, history has shown that MAGs are not supportable in the event of severe downturns. Minimum Annual Guarantee listed as MAG. That report and certification should include the number of full-time equivalent employees working at the airport as of March 27, 2020, as the baseline comparison. Terminal Closure and Footprint Reductions. Attention: Finance & Administration Division . 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. To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. CARES Act grant recipients should follow the FAAs Policy and Procedures Concerning the Use of Airport Revenues (Revenue Use Policy), 64 Federal Register 7696 (64 FR 7696), as amended by 78 Federal Register 55330 (78 FR 55330). Match. Save my name, email, and website in this browser for the next time I comment. They often charge more than 10% for water and alcohol, Waguespack said. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. Primarily, in residual agreements, the rates vary based on airport revenue. However, MAGs in concession contracts still expect continued growth. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking Accept, you consent to the use of ALL the cookies. Minimum Annual Guarantee: Each Proposer shall submit its proposal as a minimum annual guarantee (MAG) for each of the first two (2) years of the Concession Agreement. In a 6-to-3 vote on Monday, June 8, the council approved temporarily revising the Minimum Annual Guarantee, which is a fixed amount restaurants guarantee they will pay the city to do business at . That will, in turn, harm the concession program. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. 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 intent of DBE programs is to increase the amount of business done with Minority Business Enterprises (MBE) and Women Business Enterprises (WBE). That report and certification should include the number of full-time equivalent employees working at the airport as of March 27, 2020, as the baseline comparison.
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