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. . Fuelling Airport Recovery Via Non-Aeronautical Revenue | WSP - WSPglobal This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. . This . As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. October 09, 2020, 11:40 a.m. EDT 4 Min Read. PDF Concession Policy 1. Overview 1 A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. 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. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. which guarantees that the tenant will pay the airport a minimum amount annually. If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. Airport Retailer Dufry's Sales Rise By Over 50% In 2021, But - Forbes 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. There will still be passengers, and the concession industry needs to be ready to serve them. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. Terms in this set (15) What is MAG and what does it stand for? Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. Without this expertise, the concession will almost certainly fail to operate at an optimum level. 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. Regardless, this shifting of risk may not be acceptable to airports. Minimum Annual Guarantee. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. The competitive landscape may beby necessityaltered. COVID-19 has sent shockwaves throughout the world. Importantly, the $2 billion is not subject to the reduced apportionments for larger airports that also impose passenger facility charges (PFCs). A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee . Atlanta, GA - Hartsfield-Jackson Atlanta International Airport. In other parts of the world, MAGs are the airports exact expected rental payments. You also have the option to opt-out of these cookies. The master operator concept typically limits the ACDBE participation goals and may require additional efforts to maintain. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. A third party company could be contracted to handle the leasing and management of concessions on behalf of the airport. Rates and Fees are adjusted annually based on the Airport's fiscal year, from October 1st through September 30th. . There are numerous ways to frame a contract without a MAG. . It was suspended in June, following the severe decline of passenger traffic over those . 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. President Donald Trump has already tweeted his support for such an infrastructure bill. Non-aeronautical revenueairport revenue from sources other than airlinestypically includes retail concessions, 1 car parking, and property and real estate. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. ); that is, airport sponsors meeting statutory and policy requirements under this section, as well as those identified in the FAAs current National Plan of Integrated Airports System (NPIAS). Attention: Finance & Administration Division . Concessionaires are, in general, seeking some manner of rent relief from their airport partners. 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 the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. The single factor most tied to concession success is the footfall past the concession locations. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. 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. 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. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. In other parts of the world, MAGs are the airport's exact expected rental payments. 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. CM Module 1 Questions Flashcards | Quizlet First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. The city may extend the action for an additional 30-day . Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator. One-twelfth of the MAG shall be due in advance on the first day of each month I certify that Airport Concessions Inc. has not received a second draw or assistance for a covered loan under section 7(a)(37) of the Small Business Act (15 U.S.C. 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 . 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. SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. 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. The key will be ensuring that airline charges remain fair and reasonable. PDF DENVER INTERNATIONAL AIRPORT (DEN) - Denvergov.org Relief for US airport operators deemed insufficient despite US$800m Hawaii Aviation | Kona International Airport at Keahole A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . The Trinity model can be considered an extension of the joint venture model. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. PDF Request for Proposal - Dallas/Fort Worth International Airport Non-airport retail leases typically charge rent on a per square foot (PSF) basis. The FAA regional office must approve if the airport receives federal funding and is a primary airport with commercial service and the revenue generated by concessions exceeds $200,000. At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. County of Muskegon Muskegon County Airport The Board of Airport Commissioners at Los Angeles World Airports has recently approved a recommendation by management to permit concessionaire relief measures, including moving all concessionaires with contracts based on Minimum Annual Guarantee fee payments to percentage rent-based agreements The FBOs lease space from the airport sponsor to be able to provide those services. Most simply, the airport and vendor could agree to a fixed percentage rent. They often charge more than 10% for water and alcohol, Waguespack said. June 9: Extending the leases of current airport, dining, and retail (ADR) tenants by up to three years, including a temporary suspension of the Minimum Annual Guarantee (MAG) for ADR tenants through the end of 2020, and possibly extending this policy into 2021. Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. . It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . In addition, they typically provide the fueling services for the airport. A payment called a Minimum Annual Guarantee will be waived for the months of March, April and May last year. Some larger airports take a percentage of every sale. No one is sure how long recovery will take. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Why is airport food so expensive? - Policygenius While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. They will typically also offer a percentage of their gross receipts to the airport as part of the RFP for the FBO services. 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. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. 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.
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