The price tag is a whopping $440 per square foot. Rates and Fees are adjusted annually based on the Airport's fiscal year, from October 1st through September 30th. To help develop firms that can compete in the marketplace outside of the DBE program. While many contracts include a "force majeure" clause, this does not necessarily cover pandemic scenarios and in many instances, there is no formal agreement in place to review commercial terms in the event of such a . 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 . Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. 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. With the new economic and industry realities, capital access may be an even greater hurdle. The FAA will use the Office of Management and Budget (OMB) SF-424, Application for Federal Assistance, and provide a simplified grant agreement shortly after it receives an application. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. 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. Retail/Gift Shop 11% of Gross Receipts or Minimum Annual Guarantee Terminal Advertising 30% -60% of Gross Receipts or Minimum Annual Guarantee . Tallahassee, FL 32310 . Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . 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. How does the Airport Authority charge rent? At least for the immediate future, there will be reduced demand for concession services. Very hands off for the airport sponsor. "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 . Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. 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. Consulting. The Trinity model can be considered an extension of the joint venture model. Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? 116-94). 3300 Capital Circle, S.W. Additionally, nonoperating revenues would generally include grants, among other things. An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. What this option does do is change the distribution of risk. The concept is not uncommon. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. FBOs may collect the landing fees for GA aircraft or charge them a fuel-flowage fee on behalf of the airport. Airport Operations. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). To remove barriers in participation of DBEs. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. 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. Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator. Rates for each new fiscal year will be posted on this page after Board approval of the rates and fees. Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. 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. Minimum Annual Guarantee (MAG) waived for concessionaires and rental cars -Targeted Operations & Maintenance reductions Implemented a hiring freeze and 8 furlough days Offered early retirement Focused on essential expenditures Current generally accepted accounting principles suggests that entities should establish a policy that defines operating revenues for enterprise funds and use it consistently. . A third party can absorb some of the liability and risk from the airport operator. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. 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. That will, in turn, harm the concession program. Find out how our purpose shapes our culture, people, and mission-driven work. 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. 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. Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. It beat four other finalists. 87, Leases by a full 18 months, resulting in June 30, 2022 year-ends to be the first to implement the significant new leasing standard. A third party company could be contracted to handle the leasing and management of concessions on behalf of the airport. 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. 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. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. However, MAGs in concession contracts still expect continued growth. The CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. When one partner tries to do too much, it will lessen the benefits of the joint venture. February 2, 2021January 28, 2021 | AirportU. 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 . By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. 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). COVID-19 has sent shockwaves throughout the world. 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. 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 . See how we help fast-changing industries succeed. In other parts of the world, MAGs are the airport's exact expected rental payments. It is mandatory to procure user consent prior to running these cookies on your website. The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. They will typically also offer a percentage of their gross receipts to the airport as part of the RFP for the FBO services. 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. 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. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . This site uses Akismet to reduce spam. Option 4: Airport-concessionaire joint ventures. 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. The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. 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 . In this model, the airport takes on two roles: landlord and partner in the operation. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. 84, Fiduciary Activities. With the announcement by the GASB of a delay in the required implementation of these new standards, your organization will need to decide how to respond. percentage of their annual gross revenues derived from operations at the airport or a minimum annual guaranteed amount, whichever is greater. Concessions covers more than what you think of served at a traditional concession stand. ); that is, airport sponsors meeting statutory and policy requirements under this section, as well as those identified in the FAAs current National Plan of Integrated Airports System (NPIAS). The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. Match. Receive perspectives on the industries and issues that matter. Meanwhile, Aena is forecasting that in the period to 2023, the minimum annual guaranteed rents and fixed rents, corresponding to contracts in force at 30 June 2020, will decrease. We did not review solicitation or award of concession agreements in this audit. 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. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. 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. 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. Passengers have needs while at airports. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. 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 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 adjustment in Guaranteed Annual Rent may not, in any event, result in a decrease in the current amount of Minimum Annual Guaranteed Rent.. Any increase in Minimum Annual Guaranteed Rent shall be based upon an average increase in the index calculated over a period of 90 days prior to the end of the current five year term. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. View bio. 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. Audit. This financial shock has created a number of legal and financial issues. The workforce retention requirement doesnt apply to nonhub or nonprimary airports. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. By using this site you agree to our use of cookies. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. Sea-Tac airport may allow Uber, Lyft and Sidecar to start picking up passengers if new rules are passed. 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 For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. 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. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. Strategic agency for engagement and transformation. In either case, history has shown that MAGs are not supportable in the event of severe downturns. Senior Living Development Consulting (Living Forward), Reimagining the future of healthcare systems, National Plan of Integrated Airports System, tax alert comparing COVID-19 employer tax incentives. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . Concessionaires pay the Airport Authority a percentage of their gross sales each month, which is one-twelfth of a pre-determined minimum annual guarantee (MAG). 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. Airports would also have to establish supply lines for products that they have not procured in the past. In the event that the concessionaire is unsuccessful, the airport absorbs the losses. A payment called a Minimum Annual Guarantee will be waived for the months of March, April and May last year. 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. 1, their minimum annual guarantee was superior to anybody . MAG - Minimum Annual Guarantee. . (By comparison, the competing House of Representatives version of the bill contained no such restriction.) Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. 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 AICPA State and Local Governments audit guide includes certain accounting guidance that has been cleared by GASB as Category B authoritative guidance. "No. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. Bid. The Trinity model can be considered an extension of the joint venture model. An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). 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. 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. Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. 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. 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. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee . Where do we go from here? 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. a minimum annual guarantee or MAG annually, which more or less translates to rent. 49 CFR Part 23 requires airports to have a concessions-based DBE program. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. Concessionaires need to understand this new business reality when they ask for relief. Atlanta, GA - Hartsfield-Jackson Atlanta International Airport. 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 . If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. The key will be ensuring that airline charges remain fair and reasonable. This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. The Airport has also experienced a reduction in passengers and operations as a result of . These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. 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. When one partner tries to do too much, it will lessen the benefits of the joint venture. . However, this still may not be the most effective solution. Attention: Finance & Administration Division . 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. In times of continued and prolonged growth, airports have learned to depend upon MAGs. Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all. 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.. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. Regardless, this shifting of risk may not be acceptable to airports. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. HMS Host, the food and beverage concessionaire at Clinton National, is required to pay a minimum annual guarantee of $594,000, which works out to $49,500 monthly under the terms of its contract. There will still be passengers, and the concession industry needs to be ready to serve them. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. A concessionaire's rent structure in an airport may differ from the traditional model. which guarantees that the tenant will pay the airport a minimum amount annually. The FAA issued an extension of limited waiver (PDF) through October 29, 2022 of the minimum-slot-usage requirement for international operations at John F. Kennedy International Airport (JFK), LaGuardia Airport (LGA), and Ronald Reagan Washington National Airport (DCA).Additionally, the FAA extended through October 29, 2022, our . Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. Option 5: The Trinity (or Trinity Plus) model. Most simply, the airport and vendor could agree to a fixed percentage rent. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. One such excerpt from this guide (Paragraph 6.81) indicates nonoperating revenues would generally include, among other things, grants that may be used, at the recipients discretion, for either operating purposes or capital outlay. That being said, while there seems to be a compelling argument that most of the CARES Act funding for airports may be operating, each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. 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. 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. Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. However, it does reduce the potential benefit to the airport by splitting the proceeds generated. Page 3 of 61 - Non-exclusive On-airport Rental Car Concession - Proposal documents 3. 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. The Federal Aviation Administration (FAA) . Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. This information collection permits FAA to confirm that rent relief is consistent with the requirements of CRRSA and ARPA. The company, which . Percentage (privilege) Fees - 10% of gross revenue from airport related car rentals, or a minimum annual guarantee, whichever is greater. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. Will this have an impact on airline and concession agreements? Without this expertise, the concession will almost certainly fail to operate at an optimum level. 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. Please read our Privacy Policy for more information on the cookies we use. In either case, history has shown that MAGs are not supportable in the event of severe downturns. 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.
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