The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. "No. These three options do not change the underlying airport-concessionaire relationship. 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 . This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. BADGES AND SECURITY: . Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. Regardless, this shifting of risk may not be acceptable to airports. It is Minimum Annual Guarantee. There are a few limitations, however, that make this a less than optimal solution. The Airport has also experienced a reduction in passengers and operations as a result of . percentage of their annual gross revenues derived from operations at the airport or a minimum annual guaranteed amount, whichever is greater. Airport Operations. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. Guarantee: $50,000. Car rental companies are concessionaires at the airport. Option 5: The Trinity (or Trinity Plus) model. 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. In times of continued and prolonged growth, airports have learned to depend upon MAGs. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). 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 FAAs Office of Airports will administer these grant funds to airport sponsors. 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. Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all. 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. The $10 billion in funding is divided into four main categories: For airport grants, after the Secretary of Transportation announces awards under the CARES Act, each airport sponsor must submit a grant application to access those funds. If FAA does not receive emergency approval, the economic recovery of the nation's air 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. There are means of counting passengers who pass a concession location, but few airports have installed such technology. How does the Airport Authority charge rent? 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. Primarily, in residual agreements, the rates vary based on airport revenue. The airport environment is complex and has become even more challenging due to COVID-19. 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. Flashcards. Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. Kona International Airport at Keahole is located on the western coast of the Island of Hawaii, approximately 10 miles from the town of Kailua Kona. In either case, history has shown that MAGs are not supportable in the event of severe downturns. 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. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. 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 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 For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. Some airports have had huge success in meeting ACDBE goals with the developer model. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. 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. Without this expertise, the concession will almost certainly fail to operate at an optimum level. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. With the new economic and industry realities, capital access may be an even greater hurdle. 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. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. All rights reserved. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. At least for the immediate future, there will be reduced demand for concession services. See how we support our people, protect the planet, and give back to communities. With the new economic and industry realities, capital access may be an even greater hurdle. 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. Learn. Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. This category only includes cookies that ensures basic functionalities and security features of the website. Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator. However, sponsors dont need to apply for the increased federal share of FY20 AIP or FY 2020 Supplemental Discretionary grants. 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. 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. In this model, the airport takes on two roles: landlord and partner in the operation. The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. Primarily, in residual agreements, the rates vary based on airport revenue. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. 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. However, MAGs in concession contracts still expect continued growth. Rates for each new fiscal year will be posted on this page after Board approval of the rates and fees. By using this site you agree to our use of cookies. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. Retail/Gift Shop 11% of Gross Receipts or Minimum Annual Guarantee Terminal Advertising 30% -60% of Gross Receipts or Minimum Annual Guarantee . . First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. 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 passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. Where do we go from here? The FAA has published a map showing airports that are receiving the funds and the allocations made to them. Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. While some of these answers require more information from the federal agencies, there are 10 burning questions we can answer now. 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. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. This is especially true for leases incorporating a Minimum Annual Guarantee (MAG) mechanism or fixed rent clauses. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. Bond Covenants and Indenture Pledge of Revenues. Passengers have needs while at airports. Airports would also have to establish supply lines for products that they have not procured in the past. The CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. 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. Learn how your comment data is processed. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. 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. 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. "We've already . While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. The single factor most tied to concession success is the footfall past the concession locations. SFO concession tenants pay the greater of a Minimum Annual Guarantee (MAG) or a percentage of Gross Receipts (Concession Fee), along with other cleaning and infrastructure fees. Test. The airport environment is complex and has become even more challenging due to COVID-19. When passenger traffic does come back, airports should rethink how their concession contracts work. Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. The price tag is a whopping $440 per square foot. 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. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. 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. 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. Elsewhere, airports do not expect vendors to exceed their MAGs. 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. 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. The CFC is a charge based on either the contract value, gross receipts, or per car per day. 9. For information on the business impacts of COVID-19, please visit ourCOVID-19 Resource Center, which we continue to update as the situation evolves. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. 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. Given the focus on bottom line profits, the investment in variable costssuch as employees, training, maintenance, and product developmentrequired to earn additional sales may no longer make economic sense. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. 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. New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. 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. For years 2, 3, 4, and 5 of the Term of the Agreement, the Minimum Annual Guarantee shall be 85% of the Concessionaire's previous year's concession fees paid to County or the Minimum Annual Guarantee bid for the first Normally, operating classification on the statement of revenues, expenses, and changes in net position will typically follow the classification of operating activities in the statement of cash flows. At least $500 million is available to increase the federal share to 100% for grants awarded under the fiscal year 2020 appropriations cycle for FY20 Airport Improvement Program (AIP) and FY20 Supplemental Discretionary grants. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to 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 airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. We also use third-party cookies that help us analyze and understand how you use this website. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. C. Concession Fee. The develop pays the amount due to the airport through the lease agreement and pockets the rest. Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. Receive perspectives on the industries and issues that matter. 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. A by-location per passenger MAG may be too complicated for widespread implementation at this point. 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 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. Annual fee for the airport to perform snow removal at the Vehicle Ready/Storage Vehicle Parking Area and Service Building/Wash Bay Facility. In a 6-to-3 vote on Monday, June 8, the council approved temporarily revising the Minimum Annual Guarantee, which is a fixed amount restaurants guarantee they will pay the city to do business at . There are means of counting passengers who pass a concession location, but few airports have installed such technology. 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. 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. No one is sure how long recovery will take. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. Tallahassee International Airport . The fallacy of Minimum Annual Guarantee (MAG). The entire concessions space is typically leased out to a single company who is responsible for subletting the spaces. As a result, airports may wish to consider going a step further. 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. This site uses Akismet to reduce spam. 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. minimum annual guarantee (MAG) obligations to eligible airport concessions. Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . 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. The workforce retention requirement doesnt apply to nonhub or nonprimary airports. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. The Trinity model can be considered an extension of the joint venture model. We did not review solicitation or award of concession agreements in this audit. 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. . To ensure that the program is performed in accordance with law. President Donald Trump has already tweeted his support for such an infrastructure bill. However, it does reduce the potential benefit to the airport by splitting the proceeds generated. "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 . 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. 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 . At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. Weve compiled the top 10 things that you should know about the CARES Act funding for airports. Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . They often charge more than 10% for water and alcohol, Waguespack said. 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. An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . The airport operator is always present and has a wealth of knowledge about the airport. Duty Free Americas Miami offered a minimum annual guarantee to the airport of $20 million -- topping the $18.5 million offered by Dufry Miami Retail Partnership and about $9 million more than two . Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. (1) On-Airport (% of Gross Receipts). Concessionaires are, in general, seeking some manner of rent relief from their airport partners. A concessionaire's rent structure in an airport may differ from the traditional model. The key will be ensuring that airline charges remain fair and reasonable. Concessions covers more than what you think of served at a traditional concession stand.