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. However, MAGs in concession contracts still expect continued growth. 4.1.3 Percentage Fees. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. SFO gives $21.3 million for airport businesses hurt by coronavirus When one partner tries to do too much, it will lessen the benefits of the joint venture. As a result, airports may wish to consider going a step further. installments during the first year of the Term. The Airport has also experienced a reduction in passengers and operations as a result of . . DOCX Airport Rescue Grants Airport Concession Certification for XYZ 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. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. Project. which guarantees that the tenant will pay the airport a minimum amount annually. The airport operator is always present and has a wealth of knowledge about the airport. Please pay it forward. 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. Were here to help! Milwaukee, Wisconsin General Mitchell International Airport Car Rental These cookies will be stored in your browser only with your consent. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. . Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee . These MAG clauses in concession contracts should be carefully reviewed. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. COVID-19 Considerations for Airports and Airport Sponsors Examples of Minimum Annual Guaranteed Rent in a sentence. Without this expertise, the concession will almost certainly fail to operate at an optimum level. It varies based on the size, capacity, and operations of the airport. Atlanta, GA - Hartsfield-Jackson Atlanta International Airport. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. However, this still may not be the most effective solution. 4.1.1 Minimum Annual Guaranteed Concession Fee. 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. 9. This document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. The future of airport concessions in a post-COVID-19 world - Duty Free President Donald Trump has already tweeted his support for such an infrastructure bill. . 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 funds are coming directly from the U.S. Treasurys General Fund to prevent, prepare for, and respond to the impacts of the COVID-19 public health emergency. A by-location per passenger MAG may be too complicated for widespread implementation at this point. A payment called a Minimum Annual Guarantee will be waived for the months of March, April and May last year. them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG). minimum annual guarantee (MAG) obligations to eligible airport concessions. When passenger traffic does come back, airports should rethink how their concession contracts work. 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. Pandemic Pain For Retail Is Much Higher At Some Airports Than - Forbes Concessionaires could avoid minimum annual guarantee payments for a third quarter as the MAC develops a long-term relief plan. County of Muskegon Muskegon County Airport 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. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. The city may extend the action for an additional 30-day . Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. First, and potentially most important, the FAAs position on rent abatements has gone from NO to: A decision to abate rent (including minimum annual guarantees and encompassing fees) is a local decision. Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. 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. Opinion: Why MAG flexibility is essential for airport advertising 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. See how we help fast-changing industries succeed. While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. If, on the other hand, an airport sponsor decides to enforce the M&O expense allocation in its terminal leases, then the terminal leases should be carefully reviewed to determine the terms of enforcement and what rights the airlines have under those leases. 49 CFR Part 23 requires airports to have a concessions-based DBE program. Bond Covenants and Indenture Pledge of Revenues. We did not review solicitation or award of concession agreements in this audit. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. Learn how your comment data is processed. PDF Appropriations Act, 2021 and the American Rescue Plan Act, 2021 Most simply, the airport and vendor could agree to a fixed percentage rent. FY2021 Rates & Fees | Northwest Florida Beaches International Airport Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. 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. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. "We've already . 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. Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. percentage of their annual gross revenues derived from operations at the airport or a minimum annual guaranteed amount, whichever is greater. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. Airport Actions in Response to the COVID-19 Pandemic 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 . Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. Retailers: Minimum annual guarantee 'rules of engagement' have changed 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. In other parts of the world, MAGs are the airports exact expected rental payments. SFO Launches Emergency Rent Relief Program for Airport Concession Airport concession program in order to maximize non-aviation revenue, increasing sales per enplaned passenger at a rate higher than passenger . While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. In addition, they typically provide the fueling services for the airport. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. 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. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? Test. Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. Audit. The airport environment is complex and has become even more challenging due to COVID-19. This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. Airport Operations. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. Non-Aeronautical Revenues and New Business Models: Topic - ACI Insights Piedmont Triad International Airport in Greensboro gets $10 million in Opinion: Airport concession fee strategies in the coronavirus era However, this still may not be the most effective solution. In either case, history has shown that MAGs are not supportable in the event of severe downturns. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. The competitive landscape may beby necessityaltered. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. 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. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). 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 . The recent COVID-19 pandemic has highlighted the need for an alternative outlook on the way that commercial contracts between airports and concessionaires are structured to reflect the current and future uncertainty around passenger profiles and passenger traffic volumes. Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. 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. White Paper: Airport Concession Agreements - ACI World Store 3300 Capital Circle, S.W. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. 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. Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. While some of these answers require more information from the federal agencies, there are 10 burning questions we can answer now. Because of the drastic reduction in flights and passenger traffic, airlines have been shrinking their staffing, space requirements and gate usage. The entire concessions space is typically leased out to a single company who is responsible for subletting the spaces. With the new economic and industry realities, capital access may be an even greater hurdle. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. 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. C. Concession Fee. The concept is not uncommon. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. The fallacy of Minimum Annual Guarantee (MAG). 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. The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. In this model, the airport takes on two roles: landlord and partner in the operation. 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. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. 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. The key will be ensuring that airline charges remain fair and reasonable. This site uses Akismet to reduce spam. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . 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. Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . Regardless, this shifting of risk may not be acceptable to airports. In times of continued and prolonged growth, airports have learned to depend upon MAGs. At least for the immediate future, there will be reduced demand for concession services. In the concessions arena, they are referred to as Airport Concessions Disadvantaged Business Enterprise (ACDBE). 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 other parts of the world, MAGs are the airport's exact expected rental payments. It is Minimum Annual Guarantee. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. CM Module 1 Questions Flashcards | Quizlet 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. The single factor most tied to concession success is the footfall past the concession locations. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. Percentage Rent - In addition to the MAG, Concessionaires shall pay percentage rent but only to the extent that percentage rent exceeds the monthly installment of MAG, Strategic agency for engagement and transformation. 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. Will this have an impact on airline and concession agreements? As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. 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. Current generally accepted accounting principles suggests that entities should establish a policy that defines operating revenues for enterprise funds and use it consistently. 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 policies and procedures are available for review here. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. 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. You also have the option to opt-out of these cookies. The key will be ensuring that airline charges remain fair and reasonable. Airports provide the passengers, the retailers provide the services. There are a few limitations, however, that make this a less than optimal solution. While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. Airports Authority of India to appoint ground handling agencies for 83 The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. One-twelfth of the MAG shall be due in advance on the first day of each month View bio. BADGES AND SECURITY: . Elsewhere, airports do not expect vendors to exceed their MAGs. 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 . 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. We also use third-party cookies that help us analyze and understand how you use this website. Lets consider six potential options. 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. This simplified agreement includes the requirements under the CARES Act and makes funds immediately available for expenses, other than airport development, including payroll, debt service, utility expenses, service contracts, and supplies. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. That will, in turn, harm the concession program. 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). 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 question that airport managers must ask themselves is which rent strategy is realistic in the current environment. In North America, airports tend to look at MAGs as the least amount of acceptable rent. COVID-19 has sent shockwaves throughout the world. The intent of DBE programs is to increase the amount of business done with Minority Business Enterprises (MBE) and Women Business Enterprises (WBE). Most simply, the airport and vendor could agree to a fixed percentage rent. 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. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. Where abatement results in shifting costs between various classes of airport tenants and users, the airport sponsor is encouraged to consult with all affected parties. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. 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. Find out how our purpose shapes our culture, people, and mission-driven work. PDF DENVER INTERNATIONAL AIRPORT (DEN) - Denvergov.org No one is sure how long recovery will take. To ensure that firms meet the requirements of DBE qualification. Airports are left with four basic responses: do nothing, suspend minimum annual guarantees (MAG), defer rent, or rent abatement. While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. The future of airport concessions in a post-COVID-19 world [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. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). A concessionaire's rent structure in an airport may differ from the traditional model. A third party company could be contracted to handle the leasing and management of concessions on behalf of the airport. The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. Without this expertise, the concession will almost certainly fail to operate at an optimum level. A prepaid monthly "lease" to do business on the property.