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. 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 . One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. 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. installments during the first year of the Term. Tallahassee, FL 32310 . In the concessions arena, they are referred to as Airport Concessions Disadvantaged Business Enterprise (ACDBE). 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. . 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. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? The FAA released guidance for airport administrators, but questions still linger and issues have gone unaddressed. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. 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. Phoenix airport restaurants get rent relief during coronavirus The Federal Aviation Administration (FAA) . If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. Created by. Passengers have needs while at airports. FBO/SASO: NOTE: 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). 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. Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. which guarantees that the tenant will pay the airport a minimum amount annually. 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 . Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. In other parts of the world, MAGs are the airport's exact expected rental payments. Guarantee: $50,000. However, this still may not be the most effective solution. Please read our Privacy Policy for more information on the cookies we use. Additionally, airports required to pay sick leave wages or family leave wages under Section 7001(e)(4) and 7003(e)(4) of the Families First Coronavirus Response Act are relieved of paying the employers 6.2% portion of FICA taxes associated with those wages. When passenger traffic does come back, airports should rethink how their concession contracts work. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. Concessions and retail often fill that need. The price tag is a whopping $440 per square foot. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. PDF Federal Aviation Administration Minimum Annual Guarantee (MAG). AAAE CM Exam Module 1 Own Verison Flashcards | Quizlet 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. The FAA has published a map showing airports that are receiving the funds and the allocations made to them. 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. To remove barriers in participation of DBEs. The cost of design and construction for your space is going to be much higher. However, MAGs in concession contracts still expect continued growth. However, it does reduce the potential benefit to the airport by splitting the proceeds generated. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. In either case, history has shown that MAGs are not supportable in the event of severe downturns. October 09, 2020, 11:40 a.m. EDT 4 Min Read. It beat four other finalists. Concessions are typically leased with a percentage type lease so that a specific percentage of gross sales are given to the airport as part of their lease agreement. 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. Airport Actions in Response to the COVID-19 Pandemic Airports would also have to establish supply lines for products that they have not procured in the past. Minimum Annual Guarantee. The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. There are numerous ways to frame a contract without a MAG. Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . Annual fee for the airport to perform snow removal at the Vehicle Ready/Storage Vehicle Parking Area and Service Building/Wash Bay Facility. COVID-19 has sent shockwaves throughout the world. 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. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. Elsewhere, airports do not expect vendors to exceed their MAGs. The competitive landscape may beby necessityaltered. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. However, this still may not be the most effective solution. Airports should carefully consider how they structure deals and their business models to ensure more flexibility to respond to potential future shocks. 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 single factor most tied to concession success is the footfall past the concession locations. 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. New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. Where do we go from here? The FBOs lease space from the airport sponsor to be able to provide those services. 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. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. Find more information in a tax alert comparing COVID-19 employer tax incentives, issued by our National Tax Office. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. Minimum Annual Guarantee Definition | Law Insider The Revenue Use Policy document defines permitted and prohibited uses of airport revenue. . . SFO gives $21.3 million for airport businesses hurt by coronavirus FY2021 Rates & Fees | Northwest Florida Beaches International Airport 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. 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. 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. A by-location per passenger MAG may be too complicated for widespread implementation at this point. Non-aeronautical revenueairport revenue from sources other than airlinestypically includes retail concessions, 1 car parking, and property and real estate. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. COVID-19: For airport enterprise recovery, it's time to act now While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. With the new economic and industry realities, capital access may be an even greater hurdle. There will still be passengers, and the concession industry needs to be ready to serve them. 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. No one is sure how long recovery will take. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. Kansas City names company to run concessions at new KCI Airport - KMBC Paid parking went into effect at . Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. (By comparison, the competing House of Representatives version of the bill contained no such restriction.) See how we support our people, protect the planet, and give back to communities. 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. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. Concessionaires could avoid minimum annual guarantee payments for a third quarter as the MAC develops a long-term relief plan. Airport concession fees in the era of COVID-19, Airports should carefully consider how they structure deals and their business models, Do Not Sell or Share My Personal Information, Limit the Use of My Sensitive Personal Information. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. 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. The intent of DBE programs is to increase the amount of business done with Minority Business Enterprises (MBE) and Women Business Enterprises (WBE). This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. The minimum guaranteed rent for the first year of the lease is the amount proposed by the winning proposal. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. Rent abatement / minimum annual guarantee: A decision to abate rent (including "minimum annual guarantees" and also encompassing fees) is a local . With the new economic and industry realities, capital access may be an even greater hurdle. It varies based on the size, capacity, and operations of the airport. If you have questions about COVID-19s impact on your business, please reach out to your Loeb relationship partner or email us directly atCOVID19@loeb.com. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. The workforce retention requirement doesnt apply to nonhub or nonprimary airports. The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. 49 CFR Part 23 requires airports to have a concessions-based DBE program. We did not review solicitation or award of concession agreements in this audit. Below are some considerations for airport sponsors to keep in mind. 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 . Learn. Airport Operations Flashcards | Quizlet These MAGs are usually based on some percentage of the prior year's revenue and are intended to provide the airport sponsor with a revenue floor from these . The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. . Piedmont Triad International Airport in Greensboro gets $10 million in Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee . In North America, airports tend to look at MAGs as the least amount of acceptable rent. That will, in turn, harm the concession program. Some airports have just a single FBO while others have multiple. Proposed laws would allow Uber, Lyft pickups at Seattle airport and Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. Opinion: Airport concession fee strategies in the coronavirus era 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. Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? 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. Discover the top trends shaping government in 2023. To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. 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. 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. Save my name, email, and website in this browser for the next time I comment. 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. Majority-In-Interest (MII) clauses. ); 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). Wealth Management. Strategic agency for engagement and transformation. 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. "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 . The FAAs Office of Airports will administer these grant funds to airport sponsors. 5-16-C001: Rental Car Concessions, National 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 would also have to hire and manage many additional hourly employees. 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. Why is airport food so expensive? - Policygenius Concessionaires need to understand this new business reality when they ask for relief. For aviation, global recovery to 2019 levels is projected to take several years, into 2023 for markets with significant domestic air . Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. A MAG, as currently developed, is unsustainable in anything but relatively normal times. With standard concession management programs, the airport operator assumes all of the risk for leasing the property but stands to profit the most by receiving a larger amount of generated revenues. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. softballrizer. Additionally, nonoperating revenues would generally include grants, among other things. Airport Retailer Dufry's Sales Rise By Over 50% In 2021, But - Forbes The master operator concept typically limits the ACDBE participation goals and may require additional efforts to maintain. $82M Google Airport Terminal Set - ABC News 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 are numerous ways to frame a contract without a MAG. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. 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. "No. Where do we go from here? For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. Terminal Closure and Footprint Reductions. Tax. These cookies do not store any personal information. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. Most simply, the airport and vendor could agree to a fixed percentage rent. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. At least for the immediate future, there will be reduced demand for concession services. In North America, airports tend to look at MAGs as the least amount of acceptable rent. Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. The question that airport managers must ask themselves is which rent strategy is realistic in the current environment. Opinion: Why MAG flexibility is essential for airport advertising Discover our insights for a sustainable, low-emissions future. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. . 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. 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, Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. By clicking Accept, you consent to the use of ALL the cookies. San Francisco, CA Mayor London N. Breed has signed an ordinance authorizing the San Francisco International Airport (SFO) to launch a rent relief program for airport concession tenants, in which lease agreements will be modified to waive certain rent and fees.The value of the relief available to be granted under the COVID-19 Emergency Rent Relief Program is estimated at $21.3 million and . 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. 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. CARES Act funding: Ten things airports need to know Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . This category only includes cookies that ensures basic functionalities and security features of the website. Pandemic Pain For Retail Is Much Higher At Some Airports Than - Forbes New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. . Minimum Annual Guarantees. 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. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . PDF SCHEDULE OF RATES AND CHARGES - Talgov While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. The company, which . PDF Concession Policy 1. Overview 1 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. 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. That will, in turn, harm the concession program. As a result, airports may wish to consider going a step further. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. Airport Boards approve financial relief plans for concessionaires and 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). Atlanta, GA - Hartsfield-Jackson Atlanta International Airport. In this model, the airport takes on two roles: landlord and partner in the operation. Option 4: Airport-concessionaire joint ventures. 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). 2023 Plante & Moran, PLLC. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. Regardless, this shifting of risk may not be acceptable to airports. Regardless, this shifting of risk may not be acceptable to airports. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. 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. Test. Providing a product or service inside the airport environment is one of the key qualifiers for a concessionaire. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. A prepaid monthly "lease" to do business on the property. 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. . Airport concession program in order to maximize non-aviation revenue, increasing sales per enplaned passenger at a rate higher than passenger . Percentage (privilege) Fees - 10% of gross revenue from airport related car rentals, or a minimum annual guarantee, whichever is greater.

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