minimum annual guarantee airport

The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. 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. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. Notably, the GASB has deferred the implementation date of GASB Statement No. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . Airports would have to offer benefit packages to these employees in line with those provided to other employees 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. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. There are a few limitations, however, that make this a less than optimal solution. 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. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. 49 CFR Part 23 requires airports to have a concessions-based DBE program. Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. A. 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. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. Providing a product or service inside the airport environment is one of the key qualifiers for a concessionaire. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. 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. While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. Car rental companies are concessionaires at the airport. You also have the option to opt-out of these cookies. 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. Will this have an impact on airline and concession agreements? 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. 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. (a) Annual Reconciliation. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. This . There will still be passengers, and the concession industry needs to be ready to serve them. 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 Flashcards. It is Minimum Annual Guarantee. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. 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. However, sponsors dont need to apply for the increased federal share of FY20 AIP or FY 2020 Supplemental Discretionary grants. (By comparison, the competing House of Representatives version of the bill contained no such restriction.) While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. Alternatively, different percentages could be charged for varying levels of sales or by assigning either fixed or variable rates to different product categories (e.g., one percentage for food and non-alcoholic beverage and a separate percentage for alcoholic drinks only). The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. Minimum Annual Guarantee ("MAG") Lowest amount of rent to be paid To Be Negotiated . To meet aggressive congressional deadlines for request submissions, a new airport industry request is being made with three potential components: $13 billion in additional emergency assistance, a gap financing program for airports, and a touchless journey through security. a minimum annual guarantee or MAG annually, which more or less translates to rent. The Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter. 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. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. 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. Budapest Airport. Concessionaires need to understand this new business reality when they ask for relief. Consulting. 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. No one is sure how long recovery will take. 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. A concessionaire's rent structure in an airport may differ from the traditional model. Tallahassee, FL 32310 . A by-location per passenger MAG may be too complicated for widespread implementation at this point. Lets consider six potential options. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. "We've already . First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. Elsewhere, airports do not expect vendors to exceed their MAGs. The FAA has published a map showing airports that are receiving the funds and the allocations made to them. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . This site uses Akismet to reduce spam. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. This category only includes cookies that ensures basic functionalities and security features of the website. 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). 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. In North America, airports tend to look at MAGs as the least amount of acceptable rent. For information on the business impacts of COVID-19, please visit ourCOVID-19 Resource Center, which we continue to update as the situation evolves. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. In other parts of the world, MAGs are the airports exact expected rental payments. There are means of counting passengers who pass a concession location, but few airports have installed such technology. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. 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. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . The city may extend the action for an additional 30-day . 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). 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. Some airports have just a single FBO while others have multiple. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. There are numerous ways to frame a contract without a MAG. 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. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. C. Concession Fee. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. Regardless, this shifting of risk may not be acceptable to airports. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. 47114, with minimum apportionments for smaller airports that serve between 8,000 and 10,000 passengers annually. 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. At least for the immediate future, there will be reduced demand for concession services. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. An amount of $7.4 billion, which can be distributed to airport sponsors for any purpose for which airport revenues may lawfully be used. The purpose for which airport revenues may lawfully be used is widely viewed as a reference to the FAAs Policy on Permitted and Prohibited Uses of Airport Revenue (Revenue Diversion Policy). The 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. If youre far enough along in the implementation process, you may want to move forward with adopting these standards. 116-94). The funds are coming directly from the U.S. Treasurys General Fund to prevent, prepare for, and respond to the impacts of the COVID-19 public health emergency. Lets consider six potential options. Flashcards. 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. 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.

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