Most simply, the airport and vendor could agree to a fixed percentage rent. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . Below are some considerations for airport sponsors to keep in mind. Test. Please pay it forward. The city may extend the action for an additional 30-day . It is mandatory to procure user consent prior to running these cookies on your website. High-profile restaurateurs battle for Orlando International eatery Airlines value an attractive commercial program because it makes a better background for the expression of their brand. PDF Federal Aviation Administration Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. Retailers: Minimum annual guarantee 'rules of engagement' have changed 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. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. 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. Retail/Gift Shop 11% of Gross Receipts or Minimum Annual Guarantee Terminal Advertising 30% -60% of Gross Receipts or Minimum Annual Guarantee . When passenger traffic does come back, airports should rethink how their concession contracts work. This . a minimum annual guarantee or MAG annually, which more or less translates to rent. They often charge more than 10% for water and alcohol, Waguespack said. 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 COVID-19 Considerations for Airports and Airport Sponsors 116-94). 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. mwaa.com - RFP-21-26914: Fixed Base Operator, IAD A third party can absorb some of the liability and risk from the airport operator. Pandemic Pain For Retail Is Much Higher At Some Airports Than - Forbes The CFC is a charge based on either the contract value, gross receipts, or per car per day. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. 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. . FBOs may collect the landing fees for GA aircraft or charge them a fuel-flowage fee on behalf of the airport. Relief for US airport operators deemed insufficient despite US$800m Match. 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). 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. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. Review Journal | Legal Notices | NOTICE OF INTENTION TO ENTER I This website uses cookies to improve your experience while you navigate through the website. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. February 2, 2021January 28, 2021 | AirportU. 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 O'Hare and Midway concessionaires to get rent relief - Chicago Sun-Times It varies based on the size, capacity, and operations of the airport. 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. The develop pays the amount due to the airport through the lease agreement and pockets the rest. 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. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . 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. View bio. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. 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. 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. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. County of Muskegon Muskegon County Airport 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. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. Primarily, in residual agreements, the rates vary based on airport revenue. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). COVID-19 has sent shockwaves throughout the world. Percentage (privilege) Fees - 10% of gross revenue from airport related car rentals, or a minimum annual guarantee, whichever is greater. 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. 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. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. The future of airport concessions in a post-COVID-19 world AAAE CM Exam Module 1 Own Verison Flashcards | Quizlet 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. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. Regardless, this shifting of risk may not be acceptable to airports. 49 CFR Part 23 requires airports to have a concessions-based DBE program. softballrizer. Learn how your comment data is processed. The future of airport concessions in a post-COVID-19 world - Duty Free percentage of their annual gross revenues derived from operations at the airport or a minimum annual guaranteed amount, whichever is greater. The policies and procedures are available for review here. 1, their minimum annual guarantee was superior to anybody . The April 4th FAA guidance permits this: In coordination with airport sponsors, airlines, the Transportation Security Administration (TSA), and other entities, closing gates or sections of terminals is likely to be acceptable if the closure is executed in response to reduced passenger volumes and operations, is not discriminatory, and does not provide an unfair competitive advantage to one operator. Percentage Rent to the Board as set forth in Article 1 based on Concessionaire's Gross Receipts, subject to a Minimum Annual Guarantee (MAG) as set forth in Article 1, and as further provided below. By clicking Accept, you consent to the use of ALL the cookies. 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. 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, the airport sponsor decides to enforce the terms of a MAG, then it should carefully review the concession contract to determine the terms of enforcement and whether the concessionaire has any basis to refuse to pay the MAG. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. "We've already . That $7.4 billion is divided in half and distributed in two ways: 50% is allocated among all commercial service airports based on each sponsors calendar year 2018 enplanements as a percentage of total 2018 enplanements for all commercial service airports., 50% is allocated among all commercial service airports based on an equal combination of each sponsors fiscal year 2018 debt service as a percentage of the combined debt service for all commercial service airports and each sponsors ratio of unrestricted reserves to their respective debt service.. Airport Operations Flashcards | Quizlet We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. October 09, 2020, 11:40 a.m. EDT 4 Min Read. Elsewhere, airports do not expect vendors to exceed their MAGs. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. The same rules govern the use of CARES Act funds that govern the use of all airport revenues. Airports provide the passengers, the retailers provide the services. 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. See how we support our people, protect the planet, and give back to communities. 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. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. 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. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. The price tag is a whopping $440 per square foot. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. To ensure that firms meet the requirements of DBE qualification. While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. There are means of counting passengers who pass a concession location, but few airports have installed such technology. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. The airport operator is always present and has a wealth of knowledge about the airport. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. The competitive landscape may beby necessityaltered. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. Minimum Annual Guarantees. Milwaukee, Wisconsin General Mitchell International Airport Car Rental 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. PDF The term will begin on (" ") or upon opening to the public; A Guide to Transportation Funding Options - Texas A&M University DOCX Airport Rescue Grants Airport Concession Certification for XYZ Airport The airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. Opinion: Why MAG flexibility is essential for airport advertising The MAC has already waived minimum annual guarantees three . 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. Airports would also have to establish supply lines for products that they have not procured in the past. 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. Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. COVID-19 has sent shockwaves throughout the world. 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. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? Consulting. A by-location per passenger MAG may be too complicated for widespread implementation at this point.