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. If you have questions. Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . 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. PDF DENVER INTERNATIONAL AIRPORT (DEN) - Denvergov.org These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. Airport Retailer Dufry's Sales Rise By Over 50% In 2021, But - Forbes In times of continued and prolonged growth, airports have learned to depend upon MAGs. White Paper: Airport Concession Agreements - ACI World Store View bio. Hawaii Aviation | Kona International Airport at Keahole Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). 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. In addition, they typically provide the fueling services for the airport. When one partner tries to do too much, it will lessen the benefits of the joint venture. 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 . AAAE CM Exam Module 1 Own Verison Flashcards | Quizlet Bond Covenants and Indenture Pledge of Revenues. Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. 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. Airlines are likely to oppose any PFC increase, and in the absence of any increase, infrastructure spending would likely be funded through additional appropriations to the Airport and Airway Trust Fund. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. 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. 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. 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. A. The master operator concept typically limits the ACDBE participation goals and may require additional efforts to maintain. 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. DOCX Airport Rescue Grants Airport Concession Certification for XYZ Airport Concessions Dev - San Diego International Airport . Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. 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. The question that airport managers must ask themselves is which rent strategy is realistic in the current environment. Without this expertise, the concession will almost certainly fail to operate at an optimum level. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. This site uses Akismet to reduce spam. Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. PDF Department of Aviation Concessions Management Airport sponsors should carefully review the maintenance and operation (M&O) expense allocation methodology in their terminal leases to confirm the method for allocating costs for vacated space. Airport concession program in order to maximize non-aviation revenue, increasing sales per enplaned passenger at a rate higher than passenger . These cookies will be stored in your browser only with your consent. Concessionaires need to understand this new business reality when they ask for relief. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. PDF Agreement for Operation of Valet Parking Services Concession San 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. 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 . Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. (a) Annual Reconciliation. One of the components of the CARES Act provides the opportunity for employers to defer payment of the 6.2% FICA portion of the employers portion of employment taxes, effective immediately through Dec. 31, 2020. - Suite 1 . Find out how our purpose shapes our culture, people, and mission-driven work. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. These cookies do not store any personal information. We also use third-party cookies that help us analyze and understand how you use this website. 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. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. One-twelfth of the MAG shall be due in advance on the first day of each month Majority-In-Interest (MII) clauses. CM Module 1 Questions Flashcards | Quizlet Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. With the new economic and industry realities, capital access may be an even greater hurdle. The MAC has already waived minimum annual guarantees three . The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. Primarily, in residual agreements, the rates vary based on airport revenue. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. This category only includes cookies that ensures basic functionalities and security features of the website. To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. In North America, airports tend to look at MAGs as the least amount of acceptable rent. Commission Offers New Financial Relief for Airport Dining and Retail The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. 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. 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. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. Sea-Tac airport may allow Uber, Lyft and Sidecar to start picking up passengers if new rules are passed. 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. Find more information in a tax alert comparing COVID-19 employer tax incentives, issued by our National Tax Office. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. 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 By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. There are means of counting passengers who pass a concession location, but few airports have installed such technology. The FAA regional office must approve if the airport receives federal funding and is a primary airport with commercial service and the revenue generated by concessions exceeds $200,000. Airport Actions in Response to the COVID-19 Pandemic Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. 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. A third party can absorb some of the liability and risk from the airport operator. To ensure that firms meet the requirements of DBE qualification. 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. This document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. For information on the business impacts of COVID-19, please visit ourCOVID-19 Resource Center, which we continue to update as the situation evolves. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Two ground handling service providers selected for Chennai airport's High-profile restaurateurs battle for Orlando International eatery C. Concession Fee. 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. However, MAGs in concession contracts still expect continued growth. Tallahassee, FL 32310 . a minimum annual guarantee or MAG annually, which more or less translates to rent. 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, 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. Concessions Development - Airport University New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. Below are some considerations for airport sponsors to keep in mind. 9. 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 . The same rules govern the use of CARES Act funds that govern the use of all airport revenues. An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. Please pay it forward. A Guide to Transportation Funding Options - Texas A&M University . Airport Operations Flashcards | Quizlet 3300 Capital Circle, S.W. 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. As MSP airport develops long-term relief plan for shops and restaurants 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. The CFC is a charge based on either the contract value, gross receipts, or per car per day. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. There are several types of concessionaires that lease space to operate at the airport. mwaa.com - RFP-21-26914: Fixed Base Operator, IAD Will this have an impact on airline and concession agreements? Test. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. 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. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. MAG - Minimum Annual Guarantee. SFO to launch rent relief programme for airport concession tenants 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 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 single factor most tied to concession success is the footfall past the concession locations. Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. 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. COVID-19: For airport enterprise recovery, it's time to act now 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. The policies and procedures are available for review here. The federal share for FY 2018 and 2019 Supplemental Discretionary grants wont increase. Concessions covers more than what you think of served at a traditional concession stand. Discover the top trends shaping government in 2023. $100,000, 5%, 100% . . The key will be ensuring that airline charges remain fair and reasonable. Budapest Airport. Fuelling Airport Recovery Via Non-Aeronautical Revenue | WSP - WSPglobal To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. Annual fee for the airport to perform snow removal at the Vehicle Ready/Storage Vehicle Parking Area and Service Building/Wash Bay Facility. Passengers have needs while at airports. 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. While some of these answers require more information from the federal agencies, there are 10 burning questions we can answer now. 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. Regulatory Updates due to Coronavirus - Federal Aviation Administration See how we support our people, protect the planet, and give back to communities. The workforce retention requirement doesnt apply to nonhub or nonprimary airports. It is mandatory to procure user consent prior to running these cookies on your website. Where do we go from here? 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. 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. CARES Act funding: Ten things airports need to know In the concessions arena, they are referred to as Airport Concessions Disadvantaged Business Enterprise (ACDBE). Minimum Annual Guarantee. However, this still may not be the most effective solution. Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . "No. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. 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. Test. The FAA has published a map showing airports that are receiving the funds and the allocations made to them. softballrizer. Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. But opting out of some of these cookies may affect your browsing experience. 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. 5-16-C001: Rental Car Concessions, National Airport As someone who's sat on all four corners of the airport advertising negotiating table - media owner, airport operator, media agency and client - I have a degree of sympathy with all parties. Opinion: Airport concession fee strategies in the coronavirus era Airports maintain goals of working with Disadvantaged Business Enterprises or more commonly referred to as DBEs. There are numerous ways to frame a contract without a MAG. Airports should carefully consider how they structure deals and their business models to ensure more flexibility to respond to potential future shocks. Terminal Closure and Footprint Reductions. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. 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. Regulatory Updates Extension of Minimum Slot Usage Requirements. However, it does reduce the potential benefit to the airport by splitting the proceeds generated. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. Without this expertise, the concession will almost certainly fail to operate at an optimum level. Where do we go from here? The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. It beat four other finalists. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . There will still be passengers, and the concession industry needs to be ready to serve them. How Airports Handle Non-Aeronautical Revenue | Aviation Pros If youre far enough along in the implementation process, you may want to move forward with adopting these standards. We did not review solicitation or award of concession agreements in this audit. 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. 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. . Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays.
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