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Normally, airport concessionaires pay the city a percentage of sales or a "minimum annual guarantee" based on sales the previous year, whichever is greater. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. . By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. 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. Airports provide the passengers, the retailers provide the services. If, on the other hand, the airport sponsor decides to enforce the terms of a MAG, then it should carefully review the concession contract to determine the terms of enforcement and whether the concessionaire has any basis to refuse to pay the MAG. 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. which guarantees that the tenant will pay the airport a minimum amount annually. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. 9. In North America, airports tend to look at MAGs as the least amount of acceptable rent. Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. At least for the immediate future, there will be reduced demand for concession services. 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. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. The FAA released guidance for airport administrators, but questions still linger and issues have gone unaddressed. 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. 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. Find out how our purpose shapes our culture, people, and mission-driven work. The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. View bio. Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. 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 develop pays the amount due to the airport through the lease agreement and pockets the rest. Here are some others. 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. It is Minimum Annual Guarantee. Some airports have had huge success in meeting ACDBE goals with the developer model. (a) Annual Reconciliation. Examples of Minimum Annual Guaranteed Rent in a sentence. 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. 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 . A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. The key will be ensuring that airline charges remain fair and reasonable. 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. 4.1.3 Percentage Fees. An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. 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. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. Airport Operations. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. Without this expertise, the concession will almost certainly fail to operate at an optimum level. 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. . C. Concession Fee. The same rules govern the use of CARES Act funds that govern the use of all airport revenues. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. 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. If you have questions about COVID-19s impact on your business, please reach out to your Loeb relationship partner or email us directly atCOVID19@loeb.com. The workforce retention requirement doesnt apply to nonhub or nonprimary airports. 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. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. . Test. These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. In other parts of the world, MAGs are the airport's exact expected rental payments. . Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. By using this site you agree to our use of cookies. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. Rent abatement / minimum annual guarantee: A decision to abate rent (including "minimum annual guarantees" and also encompassing fees) is a local . Minimum Annual Guarantee ("MAG") Lowest amount of rent to be paid To Be Negotiated . Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. Option 5: The Trinity (or Trinity Plus) model. NOTICE OF INTENTION TO ENTER INTO FOUR SEPARATE CONCESSION LEASE AGREEMENTS WITH THE DAY ONE GROUP LLC NOTICE IS HEREBY GIVEN, to all interested parties, that the Clark County Board of Commissioners intends to enter into four separate Concession Lease Agreements (Agreements) for the operation of 5 specialty retail concessions with The Day One Group LLC (Company) serving Harry Reid . The airport environment is complex and has become even more challenging due to COVID-19. There are numerous ways to frame a contract without a MAG. Paid parking went into effect at . Elsewhere, airports do not expect vendors to exceed their MAGs. In the concessions arena, they are referred to as Airport Concessions Disadvantaged Business Enterprise (ACDBE). Airports are left with four basic responses: do nothing, suspend minimum annual guarantees (MAG), defer rent, or rent abatement. Creation of the lounge would require around a $4-million investment from whichever group decides to take over the space, which is 9,100 square feet -- on the small side for most airport lounges. The airport environment is complex and has become even more challenging due to COVID-19. 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. Greater of 30% or Minimum Annual Guarantee : Taxi Fees (annual contract fee) Pre-Arranged Transportation (per pickup) $6.00 . To level the playing field so that DBEs can compete . Discover our insights for a sustainable, low-emissions future. COVID-19 has sent shockwaves throughout the world. A third party company could be contracted to handle the leasing and management of concessions on behalf of the airport. 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. Minimum Annual Guarantee listed as MAG. 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. SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. Very hands off for the airport sponsor. Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. Additionally, car rental companies will usually be required to pay the airport a Customer Facility Charge (CFC). In other parts of the world, MAGs are the airports exact expected rental payments. This document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. 87, Leases by a full 18 months, resulting in June 30, 2022 year-ends to be the first to implement the significant new leasing standard. 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. The competitive landscape may beby necessityaltered. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. . Most simply, the airport and vendor could agree to a fixed percentage rent. Like their partners in the airline industry, airports have been dramatically affected by the slowdown in flights and passenger traffic associated with COVID-19. Non-aeronautical revenueairport revenue from sources other than airlinestypically includes retail concessions, 1 car parking, and property and real estate. . October 09, 2020, 11:40 a.m. EDT 4 Min Read. They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. 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. Minimum Annual Guarantee means the minimum amount of money that is due annually and payable monthly to Authority from Concessionaire, as provided in Article 5 of this Agreement. The key will be ensuring that airline charges remain fair and reasonable. Option 6: The airport as concession operator. Regardless, this shifting of risk may not be acceptable to airports. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. Some larger airports take a percentage of every sale. 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. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. COVID-19 has sent shockwaves throughout the world. In North America, airports tend to look at MAGs as the least amount of acceptable rent. New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . . Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. Concessions covers more than what you think of served at a traditional concession stand. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). In other parts of the world, MAGs are the airport's exact expected rental payments. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. 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. There are means of counting passengers who pass a concession location, but few airports have installed such technology. Where do we go from here? The Trinity model can be considered an extension of the joint venture model. Guarantee: 50% of Minimum Annual Guarantee. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. 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. Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. The minimum guaranteed rent for the first year of the lease is the amount proposed by the winning proposal. What this option does do is change the distribution of risk. "We've already . One-twelfth of the MAG shall be due in advance on the first day of each month 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. This website uses cookies to improve your experience while you navigate through the website. Were here to help! minimum annual guarantee (MAG) obligations to eligible airport concessions. Audit. In a 6-to-3 vote on Monday, June 8, the council approved temporarily revising the Minimum Annual Guarantee, which is a fixed amount restaurants guarantee they will pay the city to do business at . The master operator concept typically limits the ACDBE participation goals and may require additional efforts to maintain. 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. The question that airport managers must ask themselves is which rent strategy is realistic in the current environment. However, MAGs in concession contracts still expect continued growth. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . That will, in turn, harm the concession program. 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. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . 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. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. The fallacy of Minimum Annual Guarantee (MAG). 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. 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). 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. Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator. 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. In North America, airports tend to look at MAGs as the least amount of acceptable rent. 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. leasehold at Washington Dulles International Airport (IAD). In North America, airports tend to look at MAGs as the least amount of acceptable rent. At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. 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 To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. 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). Lets consider six potential options. Bond Covenants and Indenture Pledge of Revenues. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. 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. 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 passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. The airport operator is always present and has a wealth of knowledge about the airport. Terms in this set (15) What is MAG and what does it stand for? While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. It is mandatory to procure user consent prior to running these cookies on your website. Match. Meanwhile the company maintained a resilient retail margin of above 60%, helped by minimum annual guarantee waivers to airport landlords of $1.2 billion. 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 . While the bulk of the $10 billion appropriated for airport sponsors can be used to make bond principal and interest payments if necessary, airport sponsors may be faced with difficult decisions about how to prioritize needs while under financial stress. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. 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. Airports maintain goals of working with Disadvantaged Business Enterprises or more commonly referred to as DBEs. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. Performance. To promote the use of DBEs for federally funded projects. In other parts of the world, MAGs are the airports exact expected rental payments. As someone who's sat on all four corners of the airport advertising negotiating table - media owner, airport operator, media agency and client - I have a degree of sympathy with all parties. Concessions are typically leased with a percentage type lease so that a specific percentage of gross sales are given to the airport as part of their lease agreement. 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 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. There are a few limitations, however, that make this a less than optimal solution. 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. 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.
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