If you have questions about COVID-19s impact on your business, please reach out to your Loeb relationship partner or email us directly [email protected]. 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. Phoenix airport restaurants get rent relief during coronavirus If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. 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. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. However, this still may not be the most effective solution. minimum annual guarantee (MAG) obligations to eligible airport concessions. Airport concession fees in the era of COVID-19 | ICF Concessions and retail often fill that need. 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. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. 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. 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 Some larger airports take a percentage of every sale. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. Performance. https://www.law.cornell.edu/cfr/text/49/part-23, Airport Concessions Disadvantaged Business Enterprises, Developing An Operating Budget - Airport University, Disadvantaged Business Enterprises - Airport University. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. Opinion: Airport concession fee strategies in the coronavirus era . The develop pays the amount due to the airport through the lease agreement and pockets the rest. They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. Lets consider six potential options. 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. Tax. Discover our insights for a sustainable, low-emissions future. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? Food worker shortage at Sacramento airport prompts closures | The 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. 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. Concessions FAQs - Raleigh-Durham International Airport This category only includes cookies that ensures basic functionalities and security features of the website. Very hands off for the airport sponsor. Regulatory Updates due to Coronavirus - Federal Aviation Administration The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. 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. If FAA does not receive emergency approval, the economic recovery of the nation's air 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. Receive perspectives on the industries and issues that matter. The Trinity model can be considered an extension of the joint venture model. 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. 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 . We also use third-party cookies that help us analyze and understand how you use this website. 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-Aeronautical Revenues and New Business Models: Topic - ACI Insights However, it does reduce the potential benefit to the airport by splitting the proceeds generated. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. A concessionaire's rent structure in an airport may differ from the traditional model. PDF Request for Proposal - Dallas/Fort Worth International Airport Attention: Finance & Administration Division . These MAG clauses in concession contracts should be carefully reviewed. 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. Kansas City names company to run concessions at new KCI Airport - KMBC How Airports Handle Non-Aeronautical Revenue | Aviation Pros Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . Tallahassee, FL 32310 . 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. What this option does do is change the distribution of risk. These three options do not change the underlying airport-concessionaire relationship. Airport prices are very high and there's little travelers can do about 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). These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. The airport environment is complex and has become even more challenging due to COVID-19. 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 . Find more information in a tax alert comparing COVID-19 employer tax incentives, issued by our National Tax Office. Airports maintain goals of working with Disadvantaged Business Enterprises or more commonly referred to as DBEs. 4.1.1 Minimum Annual Guaranteed Concession Fee. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. The Trinity model can be considered an extension of the joint venture model. For years 2, 3, 4, and 5 of the Term of the Agreement, the Minimum Annual Guarantee shall be 85% of the Concessionaire's previous year's concession fees paid to County or the Minimum Annual Guarantee bid for the first 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. Bond Covenants and Indenture Pledge of Revenues. There are means of counting passengers who pass a concession location, but few airports have installed such technology. 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. As a result, airports may wish to consider going a step further. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. percentage of their annual gross revenues derived from operations at the airport or a minimum annual guaranteed amount, whichever is greater. 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. The fallacy of Minimum Annual Guarantee (MAG). 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. Option 6: The airport as concession operator. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). 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. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. The price tag is a whopping $440 per square foot. The single factor most tied to concession success is the footfall past the concession locations. 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. Elsewhere, airports do not expect vendors to exceed their MAGs. The actual process is the easiest for the airport sponsor since there are minimal contracts. Rates and Fees are adjusted annually based on the Airport's fiscal year, from October 1st through September 30th. PDF Department of Aviation Concessions Management
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