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. No one is sure how long recovery will take. We also use third-party cookies that help us analyze and understand how you use this website. Annual fee for the airport to perform snow removal at the Vehicle Ready/Storage Vehicle Parking Area and Service Building/Wash Bay Facility. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. It beat four other finalists. That will, in turn, harm the concession program. 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 They will typically also offer a percentage of their gross receipts to the airport as part of the RFP for the FBO services. Given the current state of the economy, Congress has turned to working on the next comprehensive economic relief package, which is being referred to as CARES 2.0. 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 third party can absorb some of the liability and risk from the airport operator. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? Please read our Privacy Policy for more information on the cookies we use. If FAA does not receive emergency approval, the economic recovery of the nation's air CREDIT UPDATE Prior to the pandemic, Terminal 4 was observing strength in its operational performance with enplanements reaching 10.8 million in 2019, the leader across all terminals at JFK. 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. The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . Most simply, the airport and vendor could agree to a fixed percentage rent. Percentage (privilege) Fees - 10% of gross revenue from airport related car rentals, or a minimum annual guarantee, whichever is greater. ); that is, airport sponsors meeting statutory and policy requirements under this section, as well as those identified in the FAAs current National Plan of Integrated Airports System (NPIAS). In North America, airports tend to look at MAGs as the least amount of acceptable rent. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . Strategic agency for engagement and transformation. MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. There will still be passengers, and the concession industry needs to be ready to serve them. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. Flashcards. No one is sure how long recovery will take. 4.1.1 Minimum Annual Guaranteed Concession Fee. installments during the first year of the Term. 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. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. What this option does do is change the distribution of risk. 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. The single factor most tied to concession success is the footfall past the concession locations. 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. "We've already . 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. Audit. View bio. These cookies do not store any personal information. . 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. 9. 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. 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. leasehold at Washington Dulles International Airport (IAD). An amount of $7.4 billion, which can be distributed to airport sponsors for any purpose for which airport revenues may lawfully be used. The purpose for which airport revenues may lawfully be used is widely viewed as a reference to the FAAs Policy on Permitted and Prohibited Uses of Airport Revenue (Revenue Diversion Policy). Minimum Annual Guarantee. Concessions covers more than what you think of served at a traditional concession stand. San Francisco, CA Mayor London N. Breed has signed an ordinance authorizing the San Francisco International Airport (SFO) to launch a rent relief program for airport concession tenants, in which lease agreements will be modified to waive certain rent and fees.The value of the relief available to be granted under the COVID-19 Emergency Rent Relief Program is estimated at $21.3 million and . In North America, airports tend to look at MAGs as the least amount of acceptable rent. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. Nichols wrote to the County Board of Supervisors that $12.1 million of the money will be used to finalize airport agreements that waive contractual minimum annual guarantee rents for airport . This site uses Akismet to reduce spam. 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. In this model, the airport takes on two roles: landlord and partner in the operation. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . 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). That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. Concessionaires need to understand this new business reality when they ask for relief. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. Products and services both fall into the concessions category. This document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. These MAG clauses in concession contracts should be carefully reviewed. The FAA will use the Office of Management and Budget (OMB) SF-424, Application for Federal Assistance, and provide a simplified grant agreement shortly after it receives an application. 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. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. The cost of design and construction for your space is going to be much higher. This is especially true for leases incorporating a Minimum Annual Guarantee (MAG) mechanism or fixed rent clauses. Concessionaires pay the Airport Authority a percentage of their gross sales each month, which is one-twelfth of a pre-determined minimum annual guarantee (MAG). Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. In North America, airports tend to look at MAGs as the least amount of acceptable rent. With the new economic and industry realities, capital access may be an even greater hurdle. 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. 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. 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. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee . There are numerous ways to frame a contract without a MAG. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. MAG - Minimum Annual Guarantee. - Suite 1 . Learn. The master operator concept typically limits the ACDBE participation goals and may require additional efforts to maintain. Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . By clicking Accept, you consent to the use of ALL the cookies. At least for the immediate future, there will be reduced demand for concession services. This information collection permits FAA to confirm that rent relief is consistent with the requirements of CRRSA and ARPA. Weve compiled the top 10 things that you should know about the CARES Act funding for airports. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. Wealth Management. . Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. 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. The airport environment is complex and has become even more challenging due to COVID-19. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. Will this have an impact on airline and concession agreements? The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. The airport operator is always present and has a wealth of knowledge about the airport. PFCs have been set at $4.50/passenger since 2000, and increasing the PFC maximum has been a priority of the airport industry for some time. They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the 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. 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. 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. A concessionaire's rent structure in an airport may differ from the traditional model. 47114 (as modified by the CARES Act), then the remainder is distributed in the same manner as the $7.4 billionbased on a mixture of enplanements and debt service. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. One-twelfth of the MAG shall be due in advance on the first day of each month While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. It varies based on the size, capacity, and operations of the airport. Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all. Match. Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. Learn. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. In times of continued and prolonged growth, airports have learned to depend upon MAGs. The competitive landscape may beby necessityaltered. Sea-Tac airport may allow Uber, Lyft and Sidecar to start picking up passengers if new rules are passed. Regulatory Updates Extension of Minimum Slot Usage Requirements. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. . President Donald Trump has already tweeted his support for such an infrastructure bill. (1) On-Airport (% of Gross Receipts). Non-aeronautical revenueairport revenue from sources other than airlinestypically includes retail concessions, 1 car parking, and property and real estate. 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. When passenger traffic does come back, airports should rethink how their concession contracts work. Very hands off for the airport sponsor. 84, Fiduciary Activities. Test. 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 . Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. 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. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). In either case, history has shown that MAGs are not supportable in the event of severe downturns. 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 Guarantees. However, sponsors dont need to apply for the increased federal share of FY20 AIP or FY 2020 Supplemental Discretionary grants. The key will be ensuring that airline charges remain fair and reasonable. If youre far enough along in the implementation process, you may want to move forward with adopting these standards. 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. Notably, the GASB has deferred the implementation date of GASB Statement No. Regardless, this shifting of risk may not be acceptable to airports. A. Minimum Annual Guarantee means the minimum amount of money that is due annually and payable monthly to Authority from Concessionaire, as provided in Article 5 of this Agreement. There are a few limitations, however, that make this a less than optimal solution. For aviation, global recovery to 2019 levels is projected to take several years, into 2023 for markets with significant domestic air . Airlines value an attractive commercial program because it makes a better background for the expression of their brand. However, MAGs in concession contracts still expect continued growth. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. Examples of Minimum Annual Guaranteed Rent in a sentence. This is only for the passenger traffic, while for . Discover the top trends shaping government in 2023. 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. There are several types of concessionaires that lease space to operate at the airport. 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. The question that airport managers must ask themselves is which rent strategy is realistic in the current environment. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. 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 . A MAG, as currently developed, is unsustainable in anything but relatively normal times. When one partner tries to do too much, it will lessen the benefits of the joint venture. 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 Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter. (The catch: Potential renters must submit a formal proposal to the Airport Commission and are subject . This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . Performance. All rights reserved. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. 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. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. 3300 Capital Circle, S.W. Lets consider six potential options. percentage of their annual gross revenues derived from operations at the airport or a minimum annual guaranteed amount, whichever is greater. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). Without this expertise, the concession will almost certainly fail to operate at an optimum level. The federal share for FY 2018 and 2019 Supplemental Discretionary grants wont increase. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. Airports would also have to hire and manage many additional hourly employees. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. This suggests that the best way to ensure an outstanding customer experience would be for this Trinity (or Trinity Plus, including the supplier) to work together. COVID-19 has sent shockwaves throughout the world. Here are some others. That is no longer possible. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. $100,000, 5%, 100% . 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. These cookies will be stored in your browser only with your consent. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. February 2, 2021January 28, 2021 | AirportU. The airport operator is always present and has a wealth of knowledge about the airport. How does the Airport Authority charge rent? 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. Under the current process, minimum annual guarantee for the first year is the financial bid parameter for selection of bidder and the period of concession is 10 years from the commercial operations date. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue.