The airport operator is always present and has a wealth of knowledge about the airport. Learn. 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. There are several types of concessionaires that lease space to operate at the airport. The funds are coming directly from the U.S. Treasurys General Fund to prevent, prepare for, and respond to the impacts of the COVID-19 public health emergency. Through Dec. 31, 2020, the airport sponsor must continue to employ at least 90% of the number of individuals employed (after adjusting for retirements or voluntary employee separations) as of March 27, 2020. 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. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. 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. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. 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. 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. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. June 9: Extending the leases of current airport, dining, and retail (ADR) tenants by up to three years, including a temporary suspension of the Minimum Annual Guarantee (MAG) for ADR tenants through the end of 2020, and possibly extending this policy into 2021. In other parts of the world, MAGs are the airports exact expected rental payments. 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. Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. COVID-19 has sent shockwaves throughout the world. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. If you have questions. It is Minimum Annual Guarantee. Elsewhere, airports do not expect vendors to exceed their MAGs. The entire concessions space is typically leased out to a single company who is responsible for subletting the spaces. 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). 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. Car rental companies are concessionaires at the airport. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. 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. 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. To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. Rates for each new fiscal year will be posted on this page after Board approval of the rates and fees. The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. 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. - Suite 1 . . The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. leasehold at Washington Dulles International Airport (IAD). One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. 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. That will, in turn, harm the concession program. Rent abatement / minimum annual guarantee: A decision to abate rent (including "minimum annual guarantees" and also encompassing fees) is a local . Concessions and retail often fill that need. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. The Trinity model can be considered an extension of the joint venture model. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. 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 MAG clauses in concession contracts should be carefully reviewed. The airport environment is complex and has become even more challenging due to COVID-19. 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). Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. The Trinity model can be considered an extension of the joint venture model. Providing a product or service inside the airport environment is one of the key qualifiers for a concessionaire. softballrizer. 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. . A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. While some of these answers require more information from the federal agencies, there are 10 burning questions we can answer now. 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. Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . Guarantee: 50% of Minimum Annual Guarantee. 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. 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. For construction contracts over _____ federal regulations require the airport to obtain a bid guarantee to equal at least _____ of the bid price, as well as performance and payment bonds equaling _____ percent of the contract. Audit. Concessionaires need to understand this new business reality when they ask for relief. Concessionaires need to understand this new business reality when they ask for relief. 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 . The policies and procedures are available for review here. Option 6: The airport as concession operator. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. In this model, the airport takes on two roles: landlord and partner in the operation. 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. Below are some considerations for airport sponsors to keep in mind. A third party can absorb some of the liability and risk from the airport operator. When passenger traffic does come back, airports should rethink how their concession contracts work. Primarily, in residual agreements, the rates vary based on airport revenue. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. Necessary cookies are absolutely essential for the website to function properly. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. 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. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. There are means of counting passengers who pass a concession location, but few airports have installed such technology. Meanwhile the company maintained a resilient retail margin of above 60%, helped by minimum annual guarantee waivers to airport landlords of $1.2 billion. The big change at Los Angeles International Airport allows concessionaire partners, which include DFS Group, Hudson and HMSHost, among others, to pay percentage rent rather than a minimum annual guarantee (MAG) from April 1 through June 30 as a result of passenger traffic declines due to the coronavirus pandemic. . However, this still may not be the most effective solution. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. Minimum Annual Guarantees. 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. 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. As a result, airports may wish to consider going a step further. Passengers have needs while at airports. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. The key will be ensuring that airline charges remain fair and reasonable. Most simply, the airport and vendor could agree to a fixed percentage rent. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. This 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.