Bid. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). Here are some others. 1, their minimum annual guarantee was superior to anybody . Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. 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. For information on the business impacts of COVID-19, please visit ourCOVID-19 Resource Center, which we continue to update as the situation evolves. 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 . As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. This website uses cookies to improve your experience while you navigate through the website. The repayment will occur over time, with 50% of the deferral being due by Dec. 31, 3021, and the remaining due by Dec. 31, 2022. That is no longer possible. 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. The airport operator is always present and has a wealth of knowledge about the airport. 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. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. The company, which . Notably, the GASB has deferred the implementation date of GASB Statement No. These three options do not change the underlying airport-concessionaire relationship. Audit. MAC details long-term relief proposal for airport bars, restaurants and Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. When passenger traffic does come back, airports should rethink how their concession contracts work. Opinion: Why MAG flexibility is essential for airport advertising An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . A third party can absorb some of the liability and risk from the airport operator. (By comparison, the competing House of Representatives version of the bill contained no such restriction.) 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. 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. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. See how we help fast-changing industries succeed. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. Without this expertise, the concession will almost certainly fail to operate at an optimum level. Match. 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. Below are some considerations for airport sponsors to keep in mind. 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. There are numerous ways to frame a contract without a MAG. This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. While the bulk of the $10 billion appropriated for airport sponsors can be used to make bond principal and interest payments if necessary, airport sponsors may be faced with difficult decisions about how to prioritize needs while under financial stress. . A concessionaire's rent structure in an airport may differ from the traditional model. Page 3 of 61 - Non-exclusive On-airport Rental Car Concession - Proposal documents 3. The key will be ensuring that airline charges remain fair and reasonable. Test. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. Guarantee: $50,000. They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. 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. 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. To promote the use of DBEs for federally funded projects. By using this site you agree to our use of cookies. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee . The concept is not uncommon. COVID-19 has sent shockwaves throughout the world. 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. 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. Minimum Annual Guarantee Process Up to 3 years Or Up to $100,000 per year Direct negotiation with potential concessionaire Over 3 years and up to 5 . Some larger airports take a percentage of every sale. 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, this still may not be the most effective solution. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. 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. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. The CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. County of Muskegon Muskegon County Airport Non-Aeronautical Revenues and New Business Models: Topic - ACI Insights In either case, history has shown that MAGs are not supportable in the event of severe downturns. Kansas City names company to run concessions at new KCI Airport - KMBC Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? PDF SCHEDULE OF RATES AND CHARGES - Talgov The workforce retention requirement doesnt apply to nonhub or nonprimary airports. While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. $82M Google Airport Terminal Set - ABC News 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. Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . Additionally, nonoperating revenues would generally include grants, among other things. Some airports have had huge success in meeting ACDBE goals with the developer model. There are means of counting passengers who pass a concession location, but few airports have installed such technology. Test. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. If the airport sponsor determines that its in its best interest to defer the MAG, the revenue should still be recorded in the period earned, and the receivable should be considered for treatment as noncurrent depending on the new repayment terms. The competitive landscape may beby necessityaltered. Terms in this set (15) What is MAG and what does it stand for? Primarily, in residual agreements, the rates vary based on airport revenue. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. The price tag is a whopping $440 per square foot. Retail/Gift Shop 11% of Gross Receipts or Minimum Annual Guarantee Terminal Advertising 30% -60% of Gross Receipts or Minimum Annual Guarantee . 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. 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. Minimum Annual Guarantees. Phoenix airport restaurants get rent relief during coronavirus When one partner tries to do too much, it will lessen the benefits of the joint venture. The fallacy of Minimum Annual Guarantee (MAG). The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. Airports Authority of India to appoint ground handling agencies for 83 Consulting. Necessary cookies are absolutely essential for the website to function properly. Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. installments during the first year of the Term. Match. Examples of Minimum Annual Guaranteed Rent in a sentence. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. SFO gives $21.3 million for airport businesses hurt by coronavirus Relief for US airport operators deemed insufficient despite US$800m While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. "We've already . 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 . Where do we go from here? 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. The entire concessions space is typically leased out to a single company who is responsible for subletting the spaces. Hawaii Aviation | Kona International Airport at Keahole Atlanta, GA - Hartsfield-Jackson Atlanta International Airport. The FAAs Office of Airports will administer these grant funds to airport sponsors. Piedmont Triad International Airport in Greensboro gets $10 million in If the airport sponsor determines that it is in its best interest to waive the MAG, then these clauses can be replaced with an alternative fee structure, such as a simple percentage of sales or some other agreed-upon metric of performance. Concessionaires need to understand this new business reality when they ask for relief. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. 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 . The policies and procedures are available for review here. In other parts of the world, MAGs are the airports exact expected rental payments. 3300 Capital Circle, S.W. 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. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . Elsewhere, airports do not expect vendors to exceed their MAGs. 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. 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. 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. Manchester Airport Group in the U.K. had started to operate a restaurant in their home airport before the pandemic, so there is precedent for this strategy. Weve compiled the top 10 things that you should know about the CARES Act funding for airports. SFO Launches Emergency Rent Relief Program for Airport Concession The develop pays the amount due to the airport through the lease agreement and pockets the rest. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. 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. The minimum guaranteed rent for the first year of the lease is the amount proposed by the winning proposal. PDF Department of Aviation Concessions Management The FBOs lease space from the airport sponsor to be able to provide those services. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. As a result, airports may wish to consider going a step further. Paid parking went into effect at . Project. Percentage (privilege) Fees - 10% of gross revenue from airport related car rentals, or a minimum annual guarantee, whichever is greater. 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. Most experts agree that there will be no quick snapback of passengers, so airports face the issue of having too many concessions locations or even too many operators. A MAG, as currently developed, is unsustainable in anything but relatively normal times. Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. When passenger traffic does come back, airports should rethink how their concession contracts work. 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. Concessionaires need to understand this new business reality when they ask for relief. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. Find out how our purpose shapes our culture, people, and mission-driven work. While some of these answers require more information from the federal agencies, there are 10 burning questions we can answer now. Denver International Airport refundings to ease debt-service schedule 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. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. Airport concession fees in the era of COVID-19 | ICF An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. Save my name, email, and website in this browser for the next time I comment. Fitch Assigns 'BBB' Rating to JFK IAT (NY) Special Facility Revenue In this model, the airport takes on two roles: landlord and partner in the operation. Option 6: The airport as concession operator. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. 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. 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. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. In times of continued and prolonged growth, airports have learned to depend upon MAGs. Pandemic Pain For Retail Is Much Higher At Some Airports Than - Forbes The Trinity model can be considered an extension of the joint venture model. Lets consider six potential options. 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. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . These MAG clauses in concession contracts should be carefully reviewed. "This is to offset rent and minimum annual guarantee requirements of those tenants in the face of a severe decline in their customers (passengers) during the continuing COVID issue." Airport . Budapest Airport. Strategic agency for engagement and transformation. 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. Where do we go from here? The airport environment is complex and has become even more challenging due to COVID-19. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. Tallahassee, FL 32310 . Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. PDF Request for Proposals (Rfp) Non-exclusive On-airport Rental Car 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. 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. The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. Food worker shortage at Sacramento airport prompts closures | The 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. The airport environment is complex and has become even more challenging due to COVID-19.