Sea-Tac airport may allow Uber, Lyft and Sidecar to start picking up passengers if new rules are passed. However, this still may not be the most effective solution. The airport operator is always present and has a wealth of knowledge about the airport. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. a minimum annual guarantee or MAG annually, which more or less translates to rent. This category only includes cookies that ensures basic functionalities and security features of the website. "We've already . 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). If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. 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. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. A by-location per passenger MAG may be too complicated for widespread implementation at this point. Looking for abbreviations of MAG? This opportunity is for two available FBO leaseholds with a general aviation terminal, office 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. They will typically also offer a percentage of their gross receipts to the airport as part of the RFP for the FBO services. 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. If FAA does not receive emergency approval, the economic recovery of the nation's air The question that airport managers must ask themselves is which rent strategy is realistic in the current environment. Each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? A. Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. 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. Minimum Annual Guarantees. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. 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.. An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. The airport environment is complex and has become even more challenging due to COVID-19. This is especially true for leases incorporating a Minimum Annual Guarantee (MAG) mechanism or fixed rent clauses. Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG). The FAA released guidance for airport administrators, but questions still linger and issues have gone unaddressed. Wealth Management. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). With the new economic and industry realities, capital access may be an even greater hurdle. 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. When one partner tries to do too much, it will lessen the benefits of the joint venture. To remove barriers in participation of DBEs. Car rental companies are concessionaires at the airport. The minimum guaranteed rent for the first year of the lease is the amount proposed by the winning proposal. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. Because of the drastic reduction in flights and passenger traffic, airlines have been shrinking their staffing, space requirements and gate usage. Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. 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. 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. Discover the top trends shaping government in 2023. 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. These MAG clauses in concession contracts should be carefully reviewed. To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. A third party can absorb some of the liability and risk from the airport operator. 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. Products and services both fall into the concessions category. 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. 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. 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. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. Flashcards. In the event that the concessionaire is unsuccessful, the airport absorbs the losses. There are several types of concessionaires that lease space to operate at the airport. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . A payment called a Minimum Annual Guarantee will be waived for the months of March, April and May last year. To promote the use of DBEs for federally funded projects. View bio. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. 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. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. The key will be ensuring that airline charges remain fair and reasonable. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. Minimum Annual Guarantee (MAG). Rent abatement should be tied to the changed circumstances caused by the public health emergency and done in accordance with Grant Assurances 22 and 24, as well as related statutes. Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all. Current generally accepted accounting principles suggests that entities should establish a policy that defines operating revenues for enterprise funds and use it consistently. In other parts of the world, MAGs are the airport's exact expected rental payments. . Airport sponsors must certify compliance with the CARES Act employment requirements at the time of grant execution and report employment totals quarterly on June 30, Sept. 30, and Dec. 31, 2020. A concessionaire's rent structure in an airport may differ from the traditional model. Terms in this set (15) What is MAG and what does it stand for? Greater of 30% or Minimum Annual Guarantee : Taxi Fees (annual contract fee) Pre-Arranged Transportation (per pickup) $6.00 . 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. 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. Tallahassee International Airport . There are means of counting passengers who pass a concession location, but few airports have installed such technology. 84, Fiduciary Activities. The entire concessions space is typically leased out to a single company who is responsible for subletting the spaces. The city may extend the action for an additional 30-day . 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. These cookies will be stored in your browser only with your consent. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. Test. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. As a result, airports may wish to consider going a step further. 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. "No. President Donald Trump has already tweeted his support for such an infrastructure bill. In the concessions arena, they are referred to as Airport Concessions Disadvantaged Business Enterprise (ACDBE). To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). Retail/Gift Shop 11% of Gross Receipts or Minimum Annual Guarantee Terminal Advertising 30% -60% of Gross Receipts or Minimum Annual Guarantee . 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. In this model, the airport takes on two roles: landlord and partner in the operation. 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). 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 single factor most tied to concession success is the footfall past the concession locations. Passengers have needs while at airports. In North America, airports tend to look at MAGs as the least amount of acceptable rent. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . 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. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. Atlanta, GA - Hartsfield-Jackson Atlanta International Airport. Rent abatement should be tied to the changed circumstances caused by the public health emergency and done in accordance with Grant Assurances 22 and 24, as well as related statutes. Receive perspectives on the industries and issues that matter. 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. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee . The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. 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. The Trinity model can be considered an extension of the joint venture model. All rights reserved. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. There are a few limitations, however, that make this a less than optimal solution. 116-94). $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. 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). 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). 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. No one is sure how long recovery will take. The Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter. . 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. Primarily, in residual agreements, the rates vary based on airport revenue. 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. In North America, airports tend to look at MAGs as the least amount of acceptable rent. 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. 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 At least for the immediate future, there will be reduced demand for concession services. FBOs may collect the landing fees for GA aircraft or charge them a fuel-flowage fee on behalf of the airport. However, there is no relief of the obligation to withhold and remit the corresponding employee share. A MAG, as currently developed, is unsustainable in anything but relatively normal times. Rates and Fees are adjusted annually based on the Airport's fiscal year, from October 1st through September 30th. 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. Please read our Privacy Policy for more information on the cookies we use. In other parts of the world, MAGs are the airports exact expected rental payments. Audit. Budapest Airport. There are numerous ways to frame a contract without a MAG. While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. 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. Elsewhere, airports do not expect vendors to exceed their MAGs. Please pay it forward. When passenger traffic does come back, airports should rethink how their concession contracts work. One of the components of the CARES Act provides the opportunity for employers to defer payment of the 6.2% FICA portion of the employers portion of employment taxes, effective immediately through Dec. 31, 2020. Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. When passenger traffic does come back, airports should rethink how their concession contracts work. The company, which . That will, in turn, harm the concession program. Necessary cookies are absolutely essential for the website to function properly. Without this expertise, the concession will almost certainly fail to operate at an optimum level. 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. Paid parking went into effect at . Non-aeronautical revenueairport revenue from sources other than airlinestypically includes retail concessions, 1 car parking, and property and real estate. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. COVID-19 has sent shockwaves throughout the world. While the model has primarily been used for duty-free concessions, it has worked equally well for other types of concessions. This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. They often charge more than 10% for water and alcohol, Waguespack said. There are a few limitations, however, that make this a less than optimal solution. Here are some others. The FBOs lease space from the airport sponsor to be able to provide those services. 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. Concessionaires could avoid minimum annual guarantee payments for a third quarter as the MAC develops a long-term relief plan. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. softballrizer. . Given the current state of the economy, Congress has turned to working on the next comprehensive economic relief package, which is being referred to as CARES 2.0. 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. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. Meanwhile the company maintained a resilient retail margin of above 60%, helped by minimum annual guarantee waivers to airport landlords of $1.2 billion. A prepaid monthly "lease" to do business on the property. The MAC has already waived minimum annual guarantees three . Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). 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 .