In this model, the airport takes on two roles: landlord and partner in the operation. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. 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. 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 This site uses Akismet to reduce spam. 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. This information collection permits FAA to confirm that rent relief is consistent with the requirements of CRRSA and ARPA. 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 . 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. Minimum Annual Guarantees. 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. October 09, 2020, 11:40 a.m. EDT 4 Min Read. The price tag is a whopping $440 per square foot. 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. 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. Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. . A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. 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. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. 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. Products and services both fall into the concessions category. These cookies will be stored in your browser only with your consent. 2023 Plante & Moran, PLLC. The airport environment is complex and has become even more challenging due to COVID-19. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. The company, which . 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. . For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. 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. Most simply, the airport and vendor could agree to a fixed percentage rent. 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. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. 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, Hrmes) are given the ability to design and operate their mini outlets. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. It beat four other finalists. At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. Normally, operating classification on the statement of revenues, expenses, and changes in net position will typically follow the classification of operating activities in the statement of cash flows. Some airports have had huge success in meeting ACDBE goals with the developer model. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. In North America, airports tend to look at MAGs as the least amount of acceptable rent. One-twelfth of the MAG shall be due in advance on the first day of each month The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. These three options do not change the underlying airport-concessionaire relationship. There are means of counting passengers who pass a concession location, but few airports have installed such technology. Regardless, this shifting of risk may not be acceptable to airports. Below are some considerations for airport sponsors to keep in mind. Save my name, email, and website in this browser for the next time I comment. Match. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. With the announcement by the GASB of a delay in the required implementation of these new standards, your organization will need to decide how to respond. In North America, airports tend to look at MAGs as the least amount of acceptable rent. However, it does reduce the potential benefit to the airport by splitting the proceeds generated. Concessions covers more than what you think of served at a traditional concession stand. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. Consulting. 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. 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. Minimum Annual Guarantee (MAG) of at least Eleven Million Dollars ($11,000,000) for each Contract Year and an annual escalation of at least three percent (3%) for the Contract Term. 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. 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. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. Concessions covers more than what you think of served at a traditional concession stand. 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. 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. 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. Airport concession program in order to maximize non-aviation revenue, increasing sales per enplaned passenger at a rate higher than passenger . As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. Non-aeronautical revenueairport revenue from sources other than airlinestypically includes retail concessions, 1 car parking, and property and real estate. However, this still may not be the most effective solution. The Secretary of Transportation may waive this workforce retention requirement if they determine that the sponsor is experiencing economic hardship as a direct result of the requirement, or that the requirement reduces aviation safety or security. There will still be passengers, and the concession industry needs to be ready to serve them. Please pay it forward. Tax. Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all. 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.. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . Discover the top trends shaping government in 2023. (The catch: Potential renters must submit a formal proposal to the Airport Commission and are subject . Performance. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. The key will be ensuring that airline charges remain fair and reasonable. While some of these answers require more information from the federal agencies, there are 10 burning questions we can answer now. 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 . A collective of travel retailers have agreed that operational contracts hinging on minimum annual guarantees (MAGs) are no longer workable in a Covid-ravaged air transport climate and must be reformed. The minimum annual guarantee of $3.25 million to the airport for the right to run the restaurant is too high and could result in the partners cutting corners to make the payments or, even worse . 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. . These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. We also use third-party cookies that help us analyze and understand how you use this website. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. The federal share for FY 2018 and 2019 Supplemental Discretionary grants wont increase. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. To remove barriers in participation of DBEs. 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. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. By clicking Accept, you consent to the use of ALL the cookies. 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). A third party can absorb some of the liability and risk from the airport operator. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee (MAG). The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. 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. 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. (1) On-Airport (% of Gross Receipts). As a result, airports may wish to consider going a step further. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. 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. That will, in turn, harm the concession program. The Revenue Use Policy document defines permitted and prohibited uses of airport revenue. 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. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. . Guarantee: 50% of Minimum Annual Guarantee. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. 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. Looking for abbreviations of MAG? 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 The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. 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. An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. 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. Match. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. With the new economic and industry realities, capital access may be an even greater hurdle. If an airport operator closes a concourse or a terminal, it would need to eliminate some concession spaces from its contracts, which may render some deals no longer viable. SFO concession tenants pay the greater of a Minimum Annual Guarantee (MAG) or a percentage of Gross Receipts (Concession Fee), along with other cleaning and infrastructure fees. There will still be passengers, and the concession industry needs to be ready to serve them. Land . Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. Passengers have needs while at airports. The Airport has also experienced a reduction in passengers and operations as a result of . Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). Option 5: The Trinity (or Trinity Plus) model. 6 . 47114, with minimum apportionments for smaller airports that serve between 8,000 and 10,000 passengers annually. Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. These MAG clauses in concession contracts should be carefully reviewed. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. . While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. 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. The workforce retention requirement doesnt apply to nonhub or nonprimary airports. An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . The MAC has already waived minimum annual guarantees three . Option 6: The airport as concession operator. 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. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). Attention: Finance & Administration Division . Airports are left with four basic responses: do nothing, suspend minimum annual guarantees (MAG), defer rent, or rent abatement. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. Flashcards. 49 CFR Part 23 requires airports to have a concessions-based DBE program. The FAA has published a map showing airports that are receiving the funds and the allocations made to them. This category only includes cookies that ensures basic functionalities and security features of the website. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Tallahassee International Airport . 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. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). Guarantee: $50,000. A MAG, as currently developed, is unsustainable in anything but relatively normal times. Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. COVID-19 has sent shockwaves throughout the world. 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. They will typically also offer a percentage of their gross receipts to the airport as part of the RFP for the FBO services. The airport environment is complex and has become even more challenging due to COVID-19. 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. . Test. The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. 4.1.1 Minimum Annual Guaranteed Concession Fee. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. 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. In other parts of the world, MAGs are the airport's exact expected rental payments. To ensure that firms meet the requirements of DBE qualification. 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. Examples of Minimum Annual Guaranteed Rent in a sentence. A by-location per passenger MAG may be too complicated for widespread implementation at this point. This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . Airlines value an attractive commercial program because it makes a better background for the expression of their brand. This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. However, this still may not be the most effective solution. However, sponsors dont need to apply for the increased federal share of FY20 AIP or FY 2020 Supplemental Discretionary grants. The FAA issued an extension of limited waiver (PDF) through October 29, 2022 of the minimum-slot-usage requirement for international operations at John F. Kennedy International Airport (JFK), LaGuardia Airport (LGA), and Ronald Reagan Washington National Airport (DCA).Additionally, the FAA extended through October 29, 2022, our . 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. While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. Receive perspectives on the industries and issues that matter. 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. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . (By comparison, the competing House of Representatives version of the bill contained no such restriction.) 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. A prepaid monthly "lease" to do business on the property. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. 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. In other parts of the world, MAGs are the airports exact expected rental payments. Without this expertise, the concession will almost certainly fail to operate at an optimum level. 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. The concept is not uncommon. At least for the immediate future, there will be reduced demand for concession services. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. Until a few weeks ago, your organization has likely been focused on implementing several new GASB standards, including GASB Statement No. No one is sure how long recovery will take. President Donald Trump has already tweeted his support for such an infrastructure bill. It is mandatory to procure user consent prior to running these cookies on your website. Some airports have just a single FBO while others have multiple. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. The fallacy of Minimum Annual Guarantee (MAG). Percentage (privilege) Fees - 10% of gross revenue from airport related car rentals, or a minimum annual guarantee, whichever is greater. Minimum Annual Guarantee - How is Minimum Annual Guarantee abbreviated? Airlines value an attractive commercial program because it makes a better background for the expression of their brand. Discover our insights for a sustainable, low-emissions future.

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