. Concessions covers more than what you think of served at a traditional concession stand. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. 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. Fitch Assigns 'BBB' Rating to JFK IAT (NY) Special Facility Revenue Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. 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. June 9: Extending the leases of current airport, dining, and retail (ADR) tenants by up to three years, including a temporary suspension of the Minimum Annual Guarantee (MAG) for ADR tenants through the end of 2020, and possibly extending this policy into 2021. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. Learn how your comment data is processed. That report and certification should include the number of full-time equivalent employees working at the airport as of March 27, 2020, as the baseline comparison. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. Concessions Dev - San Diego International Airport 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. 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. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. 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. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. These three options do not change the underlying airport-concessionaire relationship. Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. 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. 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. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. 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 (MAG). Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. 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). New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. 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. 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. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. A payment called a Minimum Annual Guarantee will be waived for the months of March, April and May last year. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. Minimum Annual Guarantee. Airports would also have to establish supply lines for products that they have not procured in the past. They will typically also offer a percentage of their gross receipts to the airport as part of the RFP for the FBO services. By using this site you agree to our use of cookies. A by-location per passenger MAG may be too complicated for widespread implementation at this point. Airport Boards approve financial relief plans for concessionaires and The airport operator is always present and has a wealth of knowledge about the airport. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. 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. 2023 Plante & Moran, PLLC. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. This Minimum Annual Guarantee must exceed $100,000. It is mandatory to procure user consent prior to running these cookies on your website. Airports would also have to hire and manage many additional hourly employees. 84, Fiduciary Activities. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. The Struggle and Payoff of Setting Up Shop in an Airport Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). 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. 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. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. View bio. 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. MAG - Minimum Annual Guarantee. In addition, they typically provide the fueling services for the airport. Find out how our purpose shapes our culture, people, and mission-driven work. Performance. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. Minimum Annual Guarantee listed as MAG. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. President Donald Trump has already tweeted his support for such an infrastructure bill. This information collection permits FAA to confirm that rent relief is consistent with the requirements of CRRSA and ARPA. leasehold at Washington Dulles International Airport (IAD). 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. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. What this option does do is change the distribution of risk. 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 . As MSP airport develops long-term relief plan for shops and restaurants Most simply, the airport and vendor could agree to a fixed percentage rent. Regardless, this shifting of risk may not be acceptable to airports. Atlanta, GA - Hartsfield-Jackson Atlanta International Airport. The actual process is the easiest for the airport sponsor since there are minimal contracts. . Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . 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 need to understand this new business reality when they ask for relief. Tallahassee International Airport . . The future of airport concessions in a post-COVID-19 world, COVID-19's impact on commercial aviation: Customer survey findings, Why sustainable aviation is more than a flight of fancy, Sustainable aviation: A guide for aviation professionals. With the new economic and industry realities, capital access may be an even greater hurdle. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. Additionally, airports required to pay sick leave wages or family leave wages under Section 7001(e)(4) and 7003(e)(4) of the Families First Coronavirus Response Act are relieved of paying the employers 6.2% portion of FICA taxes associated with those wages. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. At least for the immediate future, there will be reduced demand for concession services. Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. 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 . To meet aggressive congressional deadlines for request submissions, a new airport industry request is being made with three potential components: $13 billion in additional emergency assistance, a gap financing program for airports, and a touchless journey through security. Regulatory Updates due to Coronavirus - Federal Aviation Administration The MAC has already waived minimum annual guarantees three . With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. 116-94). 1, their minimum annual guarantee was superior to anybody . In airports with residual airline agreements, the airlines will be required to make up the difference between revenue to the airport and required revenue to pay for airport development and other expenses. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. 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. Airport Retailer Dufry's Sales Rise By Over 50% In 2021, But - Forbes As a result, the collectability of this revenue may need to be reviewed and an allowance for estimated uncollectable amounts may need to be recorded. 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 . Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. Terms in this set (15) What is MAG and what does it stand for? In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. PDF Agreement for Operation of Valet Parking Services Concession San The single factor most tied to concession success is the footfall past the concession locations. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . In the event that the concessionaire is unsuccessful, the airport absorbs the losses. 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. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. Piedmont Triad International Airport in Greensboro gets $10 million in The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts.