. Providing a product or service inside the airport environment is one of the key qualifiers for a concessionaire. 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 cost of design and construction for your space is going to be much higher. 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. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. 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). Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. 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. 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. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. However, sponsors dont need to apply for the increased federal share of FY20 AIP or FY 2020 Supplemental Discretionary grants. Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. 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 . They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. Airports would also have to establish supply lines for products that they have not procured in the past. Examples of Minimum Annual Guaranteed Rent in a sentence. Paid parking went into effect at . C. Concession Fee. This Minimum Annual Guarantee must exceed $100,000. Regardless, this shifting of risk may not be acceptable to airports. Concessionaires need to understand this new business reality when they ask for relief. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. This financial shock has created a number of legal and financial issues. . In this model, the airport takes on two roles: landlord and partner in the operation. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. However, there is no relief of the obligation to withhold and remit the corresponding employee share. Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. - Suite 1 . This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. 4.1.1 Minimum Annual Guaranteed Concession Fee. 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. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. Performance. To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. Learn. The airport environment is complex and has become even more challenging due to COVID-19. 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. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. The airport operator is always present and has a wealth of knowledge about the airport. . leasehold at Washington Dulles International Airport (IAD). (a) Annual Reconciliation. 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. A. 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. A MAG, as currently developed, is unsustainable in anything but relatively normal times. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. There will still be passengers, and the concession industry needs to be ready to serve them. 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. The $10 billion in funding is divided into four main categories: For airport grants, after the Secretary of Transportation announces awards under the CARES Act, each airport sponsor must submit a grant application to access those funds. [1]https://www.law.cornell.edu/cfr/text/49/part-23 jQuery('#footnote_plugin_tooltip_333_1_1').tooltip({ tip: '#footnote_plugin_tooltip_text_333_1_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top center', relative: true, offset: [-7, 0], }); The entire premise of the DBE program is based on: The writers of AirportU do so not for recognition, rather for learning, sharing, and empowering others. 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. With the new economic and industry realities, capital access may be an even greater hurdle. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. Learn. However, MAGs in concession contracts still expect continued growth. Until a few weeks ago, your organization has likely been focused on implementing several new GASB standards, including GASB Statement No. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. 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. 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 It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. 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. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. All rights reserved. The FBOs lease space from the airport sponsor to be able to provide those services. If you are a sponsor who controls multiple airports the FAA has stated in its CARES Act FAQ, an airport sponsor may use funds at any airport under its control. Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . 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. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. . 49 CFR Part 23 requires airports to have a concessions-based DBE program. Necessary cookies are absolutely essential for the website to function properly. 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. Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. What this option does do is change the distribution of risk. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. 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. The single factor most tied to concession success is the footfall past the concession locations. The question that airport managers must ask themselves is which rent strategy is realistic in the current environment. Test. The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. Products and services both fall into the concessions category. The federal share for FY 2018 and 2019 Supplemental Discretionary grants wont increase. In North America, airports tend to look at MAGs as the least amount of acceptable rent. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. 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 . In either case, history has shown that MAGs are not supportable in the event of severe downturns. 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. Airport concession program in order to maximize non-aviation revenue, increasing sales per enplaned passenger at a rate higher than passenger . For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. Atlanta, GA - Hartsfield-Jackson Atlanta International Airport. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. 84, Fiduciary Activities. While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. 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 . 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. How does the Airport Authority charge rent? Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. . In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. 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. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. If youre far enough along in the implementation process, you may want to move forward with adopting these standards. 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. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. . There will still be passengers, and the concession industry needs to be ready to serve them. Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. 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. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. Jacksonville International Airport's split is 70 percent nonaeronautical revenue, which brought in $52 million in 2015, driven by parking, rental car and concessions, he said. Below are some considerations for airport sponsors to keep in mind. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. 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. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee (MAG). No one is sure how long recovery will take. Sea-Tac airport may allow Uber, Lyft and Sidecar to start picking up passengers if new rules are passed. Option 4: Airport-concessionaire joint ventures. 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. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. 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 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. It was suspended in June, following the severe decline of passenger traffic over those . Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. 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. Concessions covers more than what you think of served at a traditional concession stand. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. softballrizer. Greater of 30% or Minimum Annual Guarantee : Taxi Fees (annual contract fee) Pre-Arranged Transportation (per pickup) $6.00 . A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. 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.. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. 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. 116-94). Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. It varies based on the size, capacity, and operations of the airport. These MAGs are usually based on some percentage of the prior year's revenue and are intended to provide the airport sponsor with a revenue floor from these . FBO/SASO: NOTE: MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. . The Secretary of Transportation may waive this workforce retention requirement if they determine that the sponsor is experiencing economic hardship as a direct result of the requirement, or that the requirement reduces aviation safety or security. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. While the bulk of the $10 billion appropriated for airport sponsors can be used, if necessary, to make bond principal and interest payments, airport sponsors may be faced with difficult decisions about how to prioritize needs during the financial stress. 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 . Here are some others. a minimum annual guarantee or MAG annually, which more or less translates to rent. Retail/Gift Shop 11% of Gross Receipts or Minimum Annual Guarantee Terminal Advertising 30% -60% of Gross Receipts or Minimum Annual Guarantee . Some larger airports take a percentage of every sale. Each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. Airports maintain goals of working with Disadvantaged Business Enterprises or more commonly referred to as DBEs. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. The entire concessions space is typically leased out to a single company who is responsible for subletting the spaces. Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). 6 . 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. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. 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. Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. . The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. The city may extend the action for an additional 30-day . FBOs may collect the landing fees for GA aircraft or charge them a fuel-flowage fee on behalf of the airport. 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. Very hands off for the airport sponsor. 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. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities.
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