Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. PDF Concession Policy 1. Overview 1 6 . This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . 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. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. This site uses Akismet to reduce spam. 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. Without this expertise, the concession will almost certainly fail to operate at an optimum level. However, it does reduce the potential benefit to the airport by splitting the proceeds generated. 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. 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 . Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. [1]https://www.law.cornell.edu/cfr/text/49/part-23 jQuery('#footnote_plugin_tooltip_333_1_1').tooltip({ tip: '#footnote_plugin_tooltip_text_333_1_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top center', relative: true, offset: [-7, 0], }); The entire premise of the DBE program is based on: The writers of AirportU do so not for recognition, rather for learning, sharing, and empowering others. 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. A. Regardless, this shifting of risk may not be acceptable to airports. 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. Tax. See how we support our people, protect the planet, and give back to communities. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. The city may extend the action for an additional 30-day . The CFC is a charge based on either the contract value, gross receipts, or per car per day. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. 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. Weve compiled the top 10 things that you should know about the CARES Act funding for airports. For information on the business impacts of COVID-19, please visit ourCOVID-19 Resource Center, which we continue to update as the situation evolves. Guarantee: 50% of Minimum Annual Guarantee. Airport prices are very high and there's little travelers can do about With the new economic and industry realities, capital access may be an even greater hurdle. 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. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . 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 disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. At least for the immediate future, there will be reduced demand for concession services. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. 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. Tenants at airport get break on debts - Arkansasonline.com Regulatory Updates due to Coronavirus - Federal Aviation Administration In other parts of the world, MAGs are the airports exact expected rental payments. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. 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. 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 models to ensure more flexibility to respond to potential future shocks. The company, which . Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. Fitch Assigns 'BBB' Rating to JFK IAT (NY) Special Facility Revenue Concessionaires need to understand this new business reality when they ask for relief. 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. $100,000, 5%, 100% . 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. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. 3300 Capital Circle, S.W. Regulatory Updates Extension of Minimum Slot Usage Requirements. However, MAGs in concession contracts still expect continued growth. 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. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . The FAA released guidance for airport administrators, but questions still linger and issues have gone unaddressed. New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. C. Concession Fee. 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 . 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). While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). Concessions covers more than what you think of served at a traditional concession stand. Elsewhere, airports do not expect vendors to exceed their MAGs. COVID-19: For airport enterprise recovery, it's time to act now October 09, 2020, 11:40 a.m. EDT 4 Min Read. 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. 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. Notably, the GASB has deferred the implementation date of GASB Statement No. 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. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. MAG - Minimum Annual Guarantee. Consulting. SFO Launches Emergency Rent Relief Program for Airport Concession a minimum annual guarantee or MAG annually, which more or less translates to rent. Majority-In-Interest (MII) clauses. The airport operator is always present and has a wealth of knowledge about the airport. Annual fee for the airport to perform snow removal at the Vehicle Ready/Storage Vehicle Parking Area and Service Building/Wash Bay Facility. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. 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. Concessions FAQs - Raleigh-Durham International Airport It beat four other finalists. Milwaukee, Wisconsin General Mitchell International Airport Car Rental PDF Request for Proposals (Rfp) Non-exclusive On-airport Rental Car Some airports have had huge success in meeting ACDBE goals with the developer model. 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 joint venture lease must be similar to those given to other concessionaires, and enforcement of the airports rules and performance requirements must be uniform. 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 . There are a few limitations, however, that make this a less than optimal solution. Commission Offers New Financial Relief for Airport Dining and Retail $82M Google Airport Terminal Set - ABC News 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. which guarantees that the tenant will pay the airport a minimum amount annually. AAAE CM Exam Module 1 Own Verison Flashcards | Quizlet Flashcards. 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. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. Receive perspectives on the industries and issues that matter. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. A MAG, as currently developed, is unsustainable in anything but relatively normal times. The price tag is a whopping $440 per square foot. Minimum Annual Guarantee. The question that airport managers must ask themselves is which rent strategy is realistic in the current environment. 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. A by-location per passenger MAG may be too complicated for widespread implementation at this point. 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. 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. 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. 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. . Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. FBOs may collect the landing fees for GA aircraft or charge them a fuel-flowage fee on behalf of the airport. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . This information collection permits FAA to confirm that rent relief is consistent with the requirements of CRRSA and ARPA. Match. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. 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 . Each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. There will still be passengers, and the concession industry needs to be ready to serve them. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. The FBOs lease space from the airport sponsor to be able to provide those services. Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. By clicking Accept, you consent to the use of ALL the cookies. . 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). These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. Airports are left with four basic responses: do nothing, suspend minimum annual guarantees (MAG), defer rent, or rent abatement. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. 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 . However, there is no relief of the obligation to withhold and remit the corresponding employee share. Necessary cookies are absolutely essential for the website to function properly. County of Muskegon Muskegon County Airport This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. mwaa.com - RFP-21-26914: Fixed Base Operator, IAD That is no longer possible. Below are some considerations for airport sponsors to keep in mind. The future of airport concessions in a post-COVID-19 world However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. Discover our insights for a sustainable, low-emissions future. 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. If youre far enough along in the implementation process, you may want to move forward with adopting these standards. 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. How Airports Handle Non-Aeronautical Revenue | Aviation Pros MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. In North America, airports tend to look at MAGs as the least amount of acceptable rent. It is mandatory to procure user consent prior to running these cookies on your website. 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. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. 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. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. This is especially true for leases incorporating a Minimum Annual Guarantee (MAG) mechanism or fixed rent clauses. PDF SCHEDULE OF RATES AND CHARGES - Talgov Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. Manchester Airport Group in the U.K. had started to operate a restaurant in their home airport before the pandemic, so there is precedent for this strategy. Airport Boards approve financial relief plans for concessionaires and Retailers: Minimum annual guarantee 'rules of engagement' have changed Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. In other parts of the world, MAGs are the airport's exact expected rental payments. Very hands off for the airport sponsor. Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. 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. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. A by-location per passenger MAG may be too complicated for widespread implementation at this point. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? 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. 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. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. The intent of DBE programs is to increase the amount of business done with Minority Business Enterprises (MBE) and Women Business Enterprises (WBE). A third party can absorb some of the liability and risk from the airport operator. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. We did not review solicitation or award of concession agreements in this audit. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. 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. As a result, airports may wish to consider going a step further. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. Airport Retailer Dufry's Sales Rise By Over 50% In 2021, But - Forbes O'Hare and Midway concessionaires to get rent relief - Chicago Sun-Times . No one is sure how long recovery will take. Hawaii Aviation | Kona International Airport at Keahole $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. Discover how we help clients achieve success. "No. The FAA has published a map showing airports that are receiving the funds and the allocations made to them. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. 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. 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 A concessionaire's rent structure in an airport may differ from the traditional model. Tallahassee, FL 32310 . 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. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. Airports would also have to establish supply lines for products that they have not procured in the past. However, MAGs in concession contracts still expect continued growth. All rights reserved. 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. 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). However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. City of Philadelphia Procurement Department - Bid Solicitation Looking for abbreviations of MAG? Airports would also have to hire and manage many additional hourly employees. In this model, the airport takes on two roles: landlord and partner in the operation. 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. Lets consider six potential options. In either case, history has shown that MAGs are not supportable in the event of severe downturns. Airport concession fees in the era of COVID-19 | ICF 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. A prepaid monthly "lease" to do business on the property. The federal share for FY 2018 and 2019 Supplemental Discretionary grants wont increase. Why is airport food so expensive? - Policygenius COVID-19 has sent shockwaves throughout the world. Additionally, nonoperating revenues would generally include grants, among other things. In the concessions arena, they are referred to as Airport Concessions Disadvantaged Business Enterprise (ACDBE). There are means of counting passengers who pass a concession location, but few airports have installed such technology.