The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. 4.1.1 Minimum Annual Guaranteed Concession Fee. 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). This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. The workforce retention requirement doesnt apply to nonhub or nonprimary airports. 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 The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. The FAAs Office of Airports will administer these grant funds to airport sponsors. . Greater of 30% or Minimum Annual Guarantee : Taxi Fees (annual contract fee) Pre-Arranged Transportation (per pickup) $6.00 . Minimum Annual Guarantee. Concessions are typically leased with a percentage type lease so that a specific percentage of gross sales are given to the airport as part of their lease agreement. 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. This document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. 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. a minimum annual guarantee or MAG annually, which more or less translates to rent. Percentage Rent to the Board as set forth in Article 1 based on Concessionaire's Gross Receipts, subject to a Minimum Annual Guarantee (MAG) as set forth in Article 1, and as further provided below. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. Test. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. The competitive landscape may beby necessityaltered. Guarantee: $50,000. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. For years 2, 3, 4, and 5 of the Term of the Agreement, the Minimum Annual Guarantee shall be 85% of the Concessionaire's previous year's concession fees paid to County or the Minimum Annual Guarantee bid for the first Match. Project. Tallahassee, FL 32310 . Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. Kona International Airport at Keahole is located on the western coast of the Island of Hawaii, approximately 10 miles from the town of Kailua Kona. We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. 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. 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. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. - Suite 1 . . Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. 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. Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. 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. 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. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. Weve compiled the top 10 things that you should know about the CARES Act funding for airports. The Trinity model can be considered an extension of the joint venture model. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. Some larger airports take a percentage of every sale. Looking for abbreviations of MAG? You also have the option to opt-out of these cookies. leasehold at Washington Dulles International Airport (IAD). 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. . Test. It was suspended in June, following the severe decline of passenger traffic over those . Using one unnamed airport as an example, with which 3Sixty is in constant dialogue and has a strong relationship Anson said: "The sum total of the $800 million when converted to one airport and to 3Sixty Duty Free would mean around a third of one month's minimum annual guarantee rent. With standard concession management programs, the airport operator assumes all of the risk for leasing the property but stands to profit the most by receiving a larger amount of generated revenues. This . Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. That will, in turn, harm the concession program. 49 CFR Part 23 requires airports to have a concessions-based DBE program. Airports would also have to hire and manage many additional hourly employees. 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. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . The company, which . Minimum Annual Guarantee. If the basis for a MAG is what the airport thought it should be earning, the amount may never be supportable even if a concessionaire signed the contract. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). 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. Option 4: Airport-concessionaire joint ventures. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. In North America, airports tend to look at MAGs as the least amount of acceptable rent. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). 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. Providing a product or service inside the airport environment is one of the key qualifiers for a concessionaire. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. In North America, airports tend to look at MAGs as the least amount of acceptable rent. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. 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. Elsewhere, airports do not expect vendors to exceed their MAGs. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. This category only includes cookies that ensures basic functionalities and security features of the website. One such excerpt from this guide (Paragraph 6.81) indicates nonoperating revenues would generally include, among other things, grants that may be used, at the recipients discretion, for either operating purposes or capital outlay. That being said, while there seems to be a compelling argument that most of the CARES Act funding for airports may be operating, each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. This site uses Akismet to reduce spam. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. These cookies will be stored in your browser only with your consent. A prepaid monthly "lease" to do business on the property. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. I certify that Airport Concessions Inc. has not received a second draw or assistance for a covered loan under section 7(a)(37) of the Small Business Act (15 U.S.C. Were here to help! As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. By clicking Accept, you consent to the use of ALL the cookies. The minimum guaranteed rent for the first year of the lease is the amount proposed by the winning proposal. Minimum Annual Guarantee Process Up to 3 years Or Up to $100,000 per year Direct negotiation with potential concessionaire Over 3 years and up to 5 C. Concession Fee. A MAG, as currently developed, is unsustainable in anything but relatively normal times. A master operator, or sometimes referred to as an institutional operator, serves as a master lessee and either provide or sublease concessionaires for the airport. As a result, airports may wish to consider going a step further. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. However, this still may not be the most effective solution. 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. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . 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. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. Match. The intent of DBE programs is to increase the amount of business done with Minority Business Enterprises (MBE) and Women Business Enterprises (WBE). Necessary cookies are absolutely essential for the website to function properly. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. The price tag is a whopping $440 per square foot. 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. However, MAGs in concession contracts still expect continued growth. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. 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. 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 . The Airport has also experienced a reduction in passengers and operations as a result of . Most simply, the airport and vendor could agree to a fixed percentage rent. MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. If an airport operator closes a concourse or a terminal, it would need to eliminate some concession spaces from its contracts, which may render some deals no longer viable. 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. View bio. 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. Learn how your comment data is processed. The CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. 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.. There will still be passengers, and the concession industry needs to be ready to serve them. To help develop firms that can compete in the marketplace outside of the DBE program. There are several types of concessionaires that lease space to operate at the airport. 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. These MAGs are usually based on some percentage of the prior years revenue and are intended to provide the airport sponsor with a revenue floor from these concession contracts. Lets consider six potential options. In this model, the airport takes on two roles: landlord and partner in the operation. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. The master operator concept typically limits the ACDBE participation goals and may require additional efforts to maintain. If the airport sponsor determines that it is in its best interest to waive the MAG, then these clauses can be replaced with an alternative fee structure, such as a simple percentage of sales or some other agreed-upon metric of performance. 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. Guarantee: 50% of Minimum Annual Guarantee. 9. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. That is no longer possible. 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. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. "No. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. Airports should carefully consider how they structure deals and their business models to ensure more flexibility to respond to potential future shocks. They often charge more than 10% for water and alcohol, Waguespack said. 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. 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. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. That will, in turn, harm the concession program. A. 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. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. 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. Some airports have had huge success in meeting ACDBE goals with the developer model. "We've already . Discover our insights for a sustainable, low-emissions future. Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. By using this site you agree to our use of cookies. Senior Living Development Consulting (Living Forward), Reimagining the future of healthcare systems, National Plan of Integrated Airports System, tax alert comparing COVID-19 employer tax incentives.
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