Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. Save my name, email, and website in this browser for the next time I comment. Guarantee: 50% of Minimum Annual Guarantee. No one is sure how long recovery will take. 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. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. The Board of Airport Commissioners at Los Angeles World Airports has recently approved a recommendation by management to permit concessionaire relief measures, including moving all concessionaires with contracts based on Minimum Annual Guarantee fee payments to percentage rent-based agreements Find out how our purpose shapes our culture, people, and mission-driven work. 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 repayment will occur over time, with 50% of the deferral being due by Dec. 31, 3021, and the remaining due by Dec. 31, 2022. The key will be ensuring that airline charges remain fair and reasonable. That will, in turn, harm the concession program. 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. When one partner tries to do too much, it will lessen the benefits of the joint venture. Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). But opting out of some of these cookies may affect your browsing experience. 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. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. 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. In North America, airports tend to look at MAGs as the least amount of acceptable rent. 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). Here are some others. Where do we go from here? Passengers have needs while at airports. - Suite 1 . To remove barriers in participation of DBEs. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. That is no longer possible. COVID-19 has sent shockwaves throughout the world. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). The Trinity model can be considered an extension of the joint venture model. 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). Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. In North America, airports tend to look at MAGs as the least amount of acceptable rent. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. There are a few limitations, however, that make this a less than optimal solution. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). A third party can absorb some of the liability and risk from the airport operator. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). 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. 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. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. A prepaid monthly "lease" to do business on the property. Providing a product or service inside the airport environment is one of the key qualifiers for a concessionaire. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. Tallahassee, FL 32310 . SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? Notably, the GASB has deferred the implementation date of GASB Statement No. At least for the immediate future, there will be reduced demand for concession services. 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 . 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 airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. Option 5: The Trinity (or Trinity Plus) model. 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.. 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. This information collection permits FAA to confirm that rent relief is consistent with the requirements of CRRSA and ARPA. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. In this model, the airport takes on two roles: landlord and partner in the operation. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. Discover our insights for a sustainable, low-emissions future. The Revenue Use Policy document defines permitted and prohibited uses of airport revenue. Lets consider six potential options. 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. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. 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. Some larger airports take a percentage of every sale. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. BADGES AND SECURITY: . Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. There are means of counting passengers who pass a concession location, but few airports have installed such technology. This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. 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. The minimum guaranteed rent for the first year of the lease is the amount proposed by the winning proposal. While some of these answers require more information from the federal agencies, there are 10 burning questions we can answer now. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. 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. A concessionaire's rent structure in an airport may differ from the traditional model. 3300 Capital Circle, S.W. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. In other parts of the world, MAGs are the airport's exact expected rental payments. 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. 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. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. The master operator concept typically limits the ACDBE participation goals and may require additional efforts to maintain. Elsewhere, airports do not expect vendors to exceed their MAGs. which guarantees that the tenant will pay the airport a minimum amount annually. We also use third-party cookies that help us analyze and understand how you use this website. Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . 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. At SAN, rent is calculated as a percentage of the gross revenues supported by a minimum annual guarantee, or MAG, that is a part of the leasing requirements. Normally, airport concessionaires pay the city a percentage of sales or a "minimum annual guarantee" based on sales the previous year, whichever is greater. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. Because of the drastic reduction in flights and passenger traffic, airlines have been shrinking their staffing, space requirements and gate usage. Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all.
Extreme Makeover: Home Edition The Byers Family,
Business For Sale Columbus, Ohio,
William Shue Obituary,
To The Lake Anya Death,
Articles M