The single factor most tied to concession success is the footfall past the concession locations. Looking for abbreviations of MAG? We did not review solicitation or award of concession agreements in this audit. (By comparison, the competing House of Representatives version of the bill contained no such restriction.) The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). The airport operator is always present and has a wealth of knowledge about the airport. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. 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. 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. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. (1) On-Airport (% of Gross Receipts). 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. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. CARES Act grant recipients should follow the FAAs Policy and Procedures Concerning the Use of Airport Revenues (Revenue Use Policy), 64 Federal Register 7696 (64 FR 7696), as amended by 78 Federal Register 55330 (78 FR 55330). 4.1.3 Percentage Fees. Airport Retailer Dufry's Sales Rise By Over 50% In 2021, But - Forbes . Option 4: Airport-concessionaire joint ventures. Rates for each new fiscal year will be posted on this page after Board approval of the rates and fees. There are numerous ways to frame a contract without a MAG. A by-location per passenger MAG may be too complicated for widespread implementation at this point. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. Elsewhere, airports do not expect vendors to exceed their MAGs. . . 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. Both were selected based on a global tender, and need to pay the Minimum Annual Guarantee of 31 crore each to the Airports Authority of India. Here are some others. An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. Discover our insights for a sustainable, low-emissions future. However, sponsors dont need to apply for the increased federal share of FY20 AIP or FY 2020 Supplemental Discretionary grants. The airport environment is complex and has become even more challenging due to COVID-19. However, MAGs in concession contracts still expect continued growth. Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. The actual process is the easiest for the airport sponsor since there are minimal contracts. For aviation, global recovery to 2019 levels is projected to take several years, into 2023 for markets with significant domestic air . Non-Aeronautical Revenues and New Business Models: Topic - ACI Insights When one partner tries to do too much, it will lessen the benefits of the joint venture. 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. Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. 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. The Trinity model can be considered an extension of the joint venture model. 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 . No one is sure how long recovery will take. The airport environment is complex and has become even more challenging due to COVID-19. These cookies do not store any personal information. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. 9. If FAA does not receive emergency approval, the economic recovery of the nation's air 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 . 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. Without this expertise, the concession will almost certainly fail to operate at an optimum level. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). A. 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 FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. Some airports have had huge success in meeting ACDBE goals with the developer model. The CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. Tallahassee International Airport . 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. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. Fuelling Airport Recovery Via Non-Aeronautical Revenue | WSP - WSPglobal 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 . CM Module 1 Questions Flashcards | Quizlet 3300 Capital Circle, S.W. In times of continued and prolonged growth, airports have learned to depend upon MAGs. In North America, airports tend to look at MAGs as the least amount of acceptable rent. The competitive landscape may beby necessityaltered. A concessionaire's rent structure in an airport may differ from the traditional model. Discover the top trends shaping government in 2023. Concessions and retail often fill that need. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. The question that airport managers must ask themselves is which rent strategy is realistic in the current environment. As a result, the collectability of this revenue may need to be reviewed and an allowance for estimated uncollectable amounts may need to be recorded. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. Proposed laws would allow Uber, Lyft pickups at Seattle airport and 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. In other parts of the world, MAGs are the airport's exact expected rental payments. Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. softballrizer. To help develop firms that can compete in the marketplace outside of the DBE program. 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. 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. 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. . This is only for the passenger traffic, while for . Concessions Development - Airport University To ensure that firms meet the requirements of DBE qualification. Meanwhile the company maintained a resilient retail margin of above 60%, helped by minimum annual guarantee waivers to airport landlords of $1.2 billion. Concessions FAQs - Raleigh-Durham International Airport If the airport sponsor determines that its in its best interest to defer the MAG, the revenue should still be recorded in the period earned, and the receivable should be considered for treatment as noncurrent depending on the new repayment terms. If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. mwaa.com - RFP-21-26914: Fixed Base Operator, IAD In other parts of the world, MAGs are the airports exact expected rental payments. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). The workforce retention requirement doesnt apply to nonhub or nonprimary airports. These three options do not change the underlying airport-concessionaire relationship. 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. Option 5: The Trinity (or Trinity Plus) model. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee (MAG). While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. There will still be passengers, and the concession industry needs to be ready to serve them. Airports maintain goals of working with Disadvantaged Business Enterprises or more commonly referred to as DBEs. By clicking Accept, you consent to the use of ALL the cookies. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. Products and services both fall into the concessions category. The cost of design and construction for your space is going to be much higher. Sea-Tac airport may allow Uber, Lyft and Sidecar to start picking up passengers if new rules are passed. 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 airport charges the businesses 8 percent of gross revenue, or a minimum annual guarantee. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. Flashcards. 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. First, and most important, the recently enacted Coronavirus Aid, Relief, and Economic Security Act (CARES Act) contains a supplemental appropriation of $10 billion to be made through Grants-In-Aid for Airports. That $10 billion is divided into the following categories: Any airport that receives money under the CARES Act must continue to employ, for the remainder of 2020, at least 90% of the number of employees that airport had as of March 27, the date of the enactment of the Act. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. All rights reserved. There are a few limitations, however, that make this a less than optimal solution. (a) Annual Reconciliation. Minimum Annual Guarantee. Regardless, this shifting of risk may not be acceptable to airports. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. At least for the immediate future, there will be reduced demand for concession services. Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. 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. Retailers: Minimum annual guarantee 'rules of engagement' have changed They often charge more than 10% for water and alcohol, Waguespack said. 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. 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. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. PDF The term will begin on (" ") or upon opening to the public; They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. White Paper: Airport Concession Agreements - ACI World Store CARES Act funding: Ten things airports need to know Supplemental Airport Grant-In-Aid Funding 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. 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 This . The same rules govern the use of CARES Act funds that govern the use of all airport revenues. This category only includes cookies that ensures basic functionalities and security features of the website. Review Journal | Legal Notices | NOTICE OF INTENTION TO ENTER I By using this site you agree to our use of cookies. The company, which . them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG). Hawaii Aviation | Kona International Airport at Keahole Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). 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. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. Airports would also have to establish supply lines for products that they have not procured in the past. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. The recent COVID-19 pandemic has highlighted the need for an alternative outlook on the way that commercial contracts between airports and concessionaires are structured to reflect the current and future uncertainty around passenger profiles and passenger traffic volumes. Primarily, in residual agreements, the rates vary based on airport revenue. 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. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . minimum annual guarantee (MAG) obligations to eligible airport concessions. 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 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. A third party can absorb some of the liability and risk from the airport operator. This site uses Akismet to reduce spam. 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. In the concessions arena, they are referred to as Airport Concessions Disadvantaged Business Enterprise (ACDBE). Guarantee: $50,000. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. 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. Regulatory Updates Extension of Minimum Slot Usage Requirements. COVID-19: For airport enterprise recovery, it's time to act now 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. 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. percentage of their annual gross revenues derived from operations at the airport or a minimum annual guaranteed amount, whichever is greater. Percentage (privilege) Fees - 10% of gross revenue from airport related car rentals, or a minimum annual guarantee, whichever is greater. 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 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. In North America, airports tend to look at MAGs as the least amount of acceptable rent. In addition, they typically provide the fueling services for the airport. These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. Some larger airports take a percentage of every sale. PDF Appropriations Act, 2021 and the American Rescue Plan Act, 2021 Test. 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. If, at the end of any year during the Term, the total amount of monthly installments of MAG and Percentage Fees paid for such year is less than the total amount of annual MAG and Percentage . Learn. But opting out of some of these cookies may affect your browsing experience. Airports would also have to hire and manage many additional hourly employees. [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. SFO to launch rent relief programme for airport concession tenants Airports should carefully consider how they structure deals and their business models to ensure more flexibility to respond to potential future shocks. Passengers have needs while at airports. 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. 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. Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. Find out how our purpose shapes our culture, people, and mission-driven work. A MAG, as currently developed, is unsustainable in anything but relatively normal times. The entire concessions space is typically leased out to a single company who is responsible for subletting the spaces. To remove barriers in participation of DBEs. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. 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. Weve compiled the top 10 things that you should know about the CARES Act funding for airports. Phoenix airport restaurants get rent relief during coronavirus Airport Boards approve financial relief plans for concessionaires and . PDF DENVER INTERNATIONAL AIRPORT (DEN) - Denvergov.org A by-location per passenger MAG may be too complicated for widespread implementation at this point. It is 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. Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . 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. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020.