minimum annual guarantee airport

One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. 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 The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. Here are some others. Normally, airport concessionaires pay the city a percentage of sales or a "minimum annual guarantee" based on sales the previous year, whichever is greater. 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. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. In North America, airports tend to look at MAGs as the least amount of acceptable rent. With the new economic and industry realities, capital access may be an even greater hurdle. The company, which . Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. 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. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. There are means of counting passengers who pass a concession location, but few airports have installed such technology. By using this site you agree to our use of cookies. Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. The city of Atlanta suspended the minimum annual guarantee payment obligation for concessionaires and rental car companies at Hartsfield-Jackson Atlanta International Airport (ATL) for a four-month period ending June 20. Find more information in a tax alert comparing COVID-19 employer tax incentives, issued by our National Tax Office. Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. Percentage Rent - In addition to the MAG, Concessionaires shall pay percentage rent but only to the extent that percentage rent exceeds the monthly installment of MAG, Minimum Annual Guarantee. 47114 (as modified by the CARES Act), then the remainder is distributed in the same manner as the $7.4 billionbased on a mixture of enplanements and debt service. Retail/Gift Shop 11% of Gross Receipts or Minimum Annual Guarantee Terminal Advertising 30% -60% of Gross Receipts or Minimum Annual Guarantee . The intent of DBE programs is to increase the amount of business done with Minority Business Enterprises (MBE) and Women Business Enterprises (WBE). In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the 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. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. The airport operator is always present and has a wealth of knowledge about the airport. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. The workforce retention requirement doesnt apply to nonhub or nonprimary airports. Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. Most simply, the airport and vendor could agree to a fixed percentage rent. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. 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 CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. 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. The MAC has already waived minimum annual guarantees three . As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. If the airport sponsor determines that it is in its best interest to waive the MAG, then these clauses can be replaced with an alternative fee structure, such as a simple percentage of sales or some other agreed-upon metric of performance. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . At least for the immediate future, there will be reduced demand for concession services. Minimum Annual Guarantee. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. Where do we go from here? February 2, 2021January 28, 2021 | AirportU. These three options do not change the underlying airport-concessionaire relationship. 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 Trinity model can be considered an extension of the joint venture model. 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. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. Will this have an impact on airline and concession agreements? Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. That is no longer possible. Providing a product or service inside the airport environment is one of the key qualifiers for a concessionaire. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. Attention: Finance & Administration Division . Supplemental Airport Grant-In-Aid Funding . It beat four other finalists. Airport concession fees in the era of COVID-19, Airports should carefully consider how they structure deals and their business models, Do Not Sell or Share My Personal Information, Limit the Use of My Sensitive Personal Information. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. The fallacy of Minimum Annual Guarantee (MAG). (The catch: Potential renters must submit a formal proposal to the Airport Commission and are subject . Airports should carefully consider how they structure deals and their business models to ensure more flexibility to respond to potential future shocks. The cost of design and construction for your space is going to be much higher. 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. 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. 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. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . By way of comparison, in the past two fiscal years (FY19 and FY20), the federal government has appropriated approximately $3.35 billion in regular Air Improvement Program (AIP) spending and an additional $400$500 million in discretionary AIP grants. Concessions covers more than what you think of served at a traditional concession stand. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. 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. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. Elsewhere, airports do not expect vendors to exceed their MAGs. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. Minimum Annual Guarantees. 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. which guarantees that the tenant will pay the airport a minimum amount annually. 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. Rates and Fees are adjusted annually based on the Airport's fiscal year, from October 1st through September 30th. FBOs may collect the landing fees for GA aircraft or charge them a fuel-flowage fee on behalf of the airport. By clicking Accept, you consent to the use of ALL the cookies. Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. Guarantee: 50% of Minimum Annual Guarantee. A master operator, or sometimes referred to as an institutional operator, serves as a master lessee and either provide or sublease concessionaires for the airport. To level the playing field so that DBEs can compete . A by-location per passenger MAG may be too complicated for widespread implementation at this point. The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. A third party company could be contracted to handle the leasing and management of concessions on behalf of the airport. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. Find out how our purpose shapes our culture, people, and mission-driven work. COVID-19 has sent shockwaves throughout the world. One-twelfth of the MAG shall be due in advance on the first day of each month 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. President Donald Trump has already tweeted his support for such an infrastructure bill. 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). Option 5: The Trinity (or Trinity Plus) model. 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). 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 Airports are left with four basic responses: do nothing, suspend minimum annual guarantees (MAG), defer rent, or rent abatement. $100,000, 5%, 100% . A by-location per passenger MAG may be too complicated for widespread implementation at this point. Where do we go from here? In either case, history has shown that MAGs are not supportable in the event of severe downturns. "No. Airport concession program in order to maximize non-aviation revenue, increasing sales per enplaned passenger at a rate higher than passenger . Land . The repayment will occur over time, with 50% of the deferral being due by Dec. 31, 3021, and the remaining due by Dec. 31, 2022. Passengers have needs while at airports. This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. 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. A. At SAN, rent is calculated as a percentage of the gross revenues supported by a minimum annual guarantee, or MAG, that is a part of the leasing requirements. With the new economic and industry realities, capital access may be an even greater hurdle. It varies based on the size, capacity, and operations of the airport. The FAA has published a map showing airports that are receiving the funds and the allocations made to them. It is Minimum Annual Guarantee. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. No one is sure how long recovery will take. For information on the business impacts of COVID-19, please visit ourCOVID-19 Resource Center, which we continue to update as the situation evolves. We also use third-party cookies that help us analyze and understand how you use this website. 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. 3300 Capital Circle, S.W. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. (By comparison, the competing House of Representatives version of the bill contained no such restriction.) October 09, 2020, 11:40 a.m. EDT 4 Min Read. Option 6: The airport as concession operator. 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. In other parts of the world, MAGs are the airport's exact expected rental payments. Under one version of an infrastructure plan floated by House Democrats (the Moving Forward Framework), airports and airspace improvements would be funded, in part, by an increase in PFCs. When passenger traffic does come back, airports should rethink how their concession contracts work. Most simply, the airport and vendor could agree to a fixed percentage rent. 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 . Most experts agree that there will be no quick snapback of passengers, so airports face the issue of having too many concessions locations or even too many operators. Regardless, this shifting of risk may not be acceptable to airports. They often charge more than 10% for water and alcohol, Waguespack said. 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. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. Bid. 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 . 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. 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. Project. 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. In this model, the airport takes on two roles: landlord and partner in the operation. 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. Performance. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. In addition, they typically provide the fueling services for the airport. Meanwhile the company maintained a resilient retail margin of above 60%, helped by minimum annual guarantee waivers to airport landlords of $1.2 billion. COVID-19 has sent shockwaves throughout the world. To remove barriers in participation of DBEs. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. This document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. Most experts agree that there will be no quick snapback of passengers, so airports face the issue of having too many concessions locations or even too many operators. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. 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 . 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. . These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. View bio. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. 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. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. 49 CFR Part 23 requires airports to have a concessions-based DBE program. Page 3 of 61 - Non-exclusive On-airport Rental Car Concession - Proposal documents 3. 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. Guarantee: $50,000. This is only for the passenger traffic, while for . 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.. While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. 6 . See how we help fast-changing industries succeed. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. The airport environment is complex and has become even more challenging due to COVID-19. To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. 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. 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. 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. 116-94). SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. 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. Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. Learn. 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. 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. However, this still may not be the most effective solution. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. 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. . Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. Airports would also have to hire and manage many additional hourly employees. Primarily, in residual agreements, the rates vary based on airport revenue. But opting out of some of these cookies may affect your browsing experience. 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. How To Reset Puff Counter On Geekvape Aegis, Cleveland Clinic Ortho Express Care Locations, Ucla Health Leadership, Daniel Gutierrez Obituary Santa Rosa Ca, Chad Flores Sarah Isgur, Articles M