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. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. . Airport Operations. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. 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. minimum annual guarantee (MAG) obligations to eligible airport concessions. 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. 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. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. You also have the option to opt-out of these cookies. 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. There are means of counting passengers who pass a concession location, but few airports have installed such technology. President Donald Trump has already tweeted his support for such an infrastructure bill. See how we support our people, protect the planet, and give back to communities. Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. COVID-19 has sent shockwaves throughout the world. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. 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). Flashcards. Necessary cookies are absolutely essential for the website to function properly. The Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. There are several types of concessionaires that lease space to operate at the airport. Weve compiled the top 10 things that you should know about the CARES Act funding for airports. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. When passenger traffic does come back, airports should rethink how their concession contracts work. Tallahassee International Airport . At least for the immediate future, there will be reduced demand for concession services. 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. These cookies will be stored in your browser only with your consent. MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. 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. This category only includes cookies that ensures basic functionalities and security features of the website. The workforce retention requirement doesnt apply to nonhub or nonprimary airports. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. Concessionaires need to understand this new business reality when they ask for relief. Airport concession fees in the era of COVID-19, Airports should carefully consider how they structure deals and their business models, Do Not Sell or Share My Personal Information, Limit the Use of My Sensitive Personal Information. 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. 4.1.1 Minimum Annual Guaranteed Concession Fee. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. There are a few limitations, however, that make this a less than optimal solution. By clicking Accept, you consent to the use of ALL the cookies. . 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 . Car rental companies are concessionaires at the airport. Discover our insights for a sustainable, low-emissions future. New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. Learn. The airport operator is always present and has a wealth of knowledge about the airport. Minimum Annual Guarantee: Each Proposer shall submit its proposal as a minimum annual guarantee (MAG) for each of the first two (2) years of the Concession Agreement. Learn. 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. 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. The federal share for FY 2018 and 2019 Supplemental Discretionary grants wont increase. Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. 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 Airport has also experienced a reduction in passengers and operations as a result of . This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. The master operator concept typically limits the ACDBE participation goals and may require additional efforts to maintain. That will, in turn, harm the concession program. 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. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. By using this site you agree to our use of cookies. a minimum annual guarantee or MAG annually, which more or less translates to rent. In other parts of the world, MAGs are the airport's exact expected rental payments. Meet the Woman Stockpiling Cash to Sue San Francisco Over Housing Deadlock, Loeb Secures Defense Victory for the State of California and the California State Lands Commission, Loeb Lawyers Recognized in 2023 Edition of Best Lawyers in America, American Conference Institutes (ACI) 37th International Conference on the Foreign Corrupt Practices Act, $500 million, which can be used to fund any grant made under the FY20 Appropriations Act (P.L. "We've already . The key will be ensuring that airline charges remain fair and reasonable. 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. 1, their minimum annual guarantee was superior to anybody . It beat four other finalists. Consulting. Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. 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.. 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. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. Without this expertise, the concession will almost certainly fail to operate at an optimum level. . Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). Greater of 30% or Minimum Annual Guarantee : Taxi Fees (annual contract fee) Pre-Arranged Transportation (per pickup) $6.00 . Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. The CFC is a charge based on either the contract value, gross receipts, or per car per day. Airlines, while they may be able to reduce some operating costs associated with vacated premises, must still cover all their fixed and operating costs associated with the vacated space. 49 CFR Part 23 requires airports to have a concessions-based DBE 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). First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. Regardless, this shifting of risk may not be acceptable to airports. Please read our Privacy Policy for more information on the cookies we use. 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 . The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. There are means of counting passengers who pass a concession location, but few airports have installed such technology. This is only for the passenger traffic, while for . 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. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. Some airports have just a single FBO while others have multiple. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. In the event that the concessionaire is unsuccessful, the airport absorbs the losses. Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. 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. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. Meanwhile the company maintained a resilient retail margin of above 60%, helped by minimum annual guarantee waivers to airport landlords of $1.2 billion. Airports should carefully consider how they structure deals and their business models to ensure more flexibility to respond to potential future shocks. In addition, they typically provide the fueling services for the airport. Terminal Closure and Footprint Reductions. 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.