Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator. The single factor most tied to concession success is the footfall past the concession locations.
Denver International Airport refundings to ease debt-service schedule Non-airport retail leases typically charge rent on a per square foot (PSF) basis. Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. Page 3 of 61 - Non-exclusive On-airport Rental Car Concession - Proposal documents 3. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals.
That is no longer possible. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). The FBOs lease space from the airport sponsor to be able to provide those services. 1, their minimum annual guarantee was superior to anybody .
MAC details long-term relief proposal for airport bars, restaurants and 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. They will typically lease space for counter and office space and additional space for the vehicle storage. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. 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 . A prepaid monthly "lease" to do business on the property. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. The key will be ensuring that airline charges remain fair and reasonable. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. Receive perspectives on the industries and issues that matter. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. 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. Airports provide the passengers, the retailers provide the services. Will this have an impact on airline and concession agreements?
Relief for US airport operators deemed insufficient despite US$800m 47114, with minimum apportionments for smaller airports that serve between 8,000 and 10,000 passengers annually. A. What this option does do is change the distribution of risk.
Duty Free Americas Receives Recommendation for Miami Airport Deal Because this rate base is not related to passenger numbers, it is equally as inflexible as a MAG set by any other means in the event of significant changes in enplanements. We did not review solicitation or award of concession agreements in this audit. Regardless, this shifting of risk may not be acceptable to airports. There are means of counting passengers who pass a concession location, but few airports have installed such technology. 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. Concessions covers more than what you think of served at a traditional concession stand. Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . which guarantees that the tenant will pay the airport a minimum amount annually. However, this still may not be the most effective solution. 4.1.3 Percentage Fees. The same rules govern the use of CARES Act funds that govern the use of all airport revenues. 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. 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. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. These cookies do not store any personal information. (1) On-Airport (% of Gross Receipts). The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . It beat four other finalists. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. Audit. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. They often charge more than 10% for water and alcohol, Waguespack said. 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. New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers.
With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. The develop pays the amount due to the airport through the lease agreement and pockets the rest. 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. 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). These cookies will be stored in your browser only with your consent. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. Non-aeronautical revenueairport revenue from sources other than airlinestypically includes retail concessions, 1 car parking, and property and real estate. Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. The fallacy of Minimum Annual Guarantee (MAG). Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. If you have questions. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. The Airport has also experienced a reduction in passengers and operations as a result of . 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. Where do we go from here? 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. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options.
Commission Offers New Financial Relief for Airport Dining and Retail In North America, airports tend to look at MAGs as the least amount of acceptable rent. 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. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. Test. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). Learn how your comment data is processed. SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. The company, which . 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. The city may extend the action for an additional 30-day . 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.
Two ground handling service providers selected for Chennai airport's COVID-19: For airport enterprise recovery, it's time to act now The Trinity model can be considered an extension of the joint venture model.
SFO gives $21.3 million for airport businesses hurt by coronavirus 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. Meanwhile the company maintained a resilient retail margin of above 60%, helped by minimum annual guarantee waivers to airport landlords of $1.2 billion. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. Some airports have just a single FBO while others have multiple. $100,000, 5%, 100% . An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used.
City of Philadelphia Procurement Department - Bid Solicitation The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. Please pay it forward. 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. Airports would also have to establish supply lines for products that they have not procured in the past. Created by.
Airport Operations Flashcards | Quizlet The actual process is the easiest for the airport sponsor since there are minimal contracts. The MAC has already waived minimum annual guarantees three . Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee . .
PDF Request for Proposal - Dallas/Fort Worth International Airport Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. 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 will still be passengers, and the concession industry needs to be ready to serve them. Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. That will, in turn, harm the concession program. Current generally accepted accounting principles suggests that entities should establish a policy that defines operating revenues for enterprise funds and use it consistently. There are means of counting passengers who pass a concession location, but few airports have installed such technology. Elsewhere, airports do not expect vendors to exceed their MAGs. 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. 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). 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. [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. This category only includes cookies that ensures basic functionalities and security features of the website. One of the components of the CARES Act provides the opportunity for employers to defer payment of the 6.2% FICA portion of the employers portion of employment taxes, effective immediately through Dec. 31, 2020. When passenger traffic does come back, airports should rethink how their concession contracts work. 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 . Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. 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. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs.
They will typically also offer a percentage of their gross receipts to the airport as part of the RFP for the FBO services. 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. February 2, 2021January 28, 2021 | AirportU.
Hawaii Aviation | Kona International Airport at Keahole In the concessions arena, they are referred to as Airport Concessions Disadvantaged Business Enterprise (ACDBE). No one is sure how long recovery will take. 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. FBO/SASO: NOTE: Match. Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. 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. 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. Save my name, email, and website in this browser for the next time I comment. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. As a result, airports may wish to consider going a step further. 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.
The future of airport concessions in a post-COVID-19 world Concessionaires are, in general, seeking some manner of rent relief from their airport partners. The airport operator is always present and has a wealth of knowledge about the airport.
The future of airport concessions in a post-COVID-19 world - Duty Free 84, Fiduciary Activities. If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. 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. Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. Tax.
PDF Department of Aviation Concessions Management 6 . 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. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. The price tag is a whopping $440 per square foot. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. 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. The FAA regional office must approve if the airport receives federal funding and is a primary airport with commercial service and the revenue generated by concessions exceeds $200,000. 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. Creation of the lounge would require around a $4-million investment from whichever group decides to take over the space, which is 9,100 square feet -- on the small side for most airport lounges.
Minimum Annual Guaranteed Rent Definition | Law Insider MAG - Minimum Annual Guarantee.
Airport Boards approve financial relief plans for concessionaires and 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). . 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. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. 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. In North America, airports tend to look at MAGs as the least amount of acceptable rent. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. 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. Minimum Annual Guarantee (MAG).
Without this expertise, the concession will almost certainly fail to operate at an optimum level. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . This is only for the passenger traffic, while for . The CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. Were here to help! 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 . COVID-19 has sent shockwaves throughout the world. 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. 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.
Regulatory Updates due to Coronavirus - Federal Aviation Administration Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only.
As MSP airport develops long-term relief plan for shops and restaurants