4.1.2 Minimum Annual Guaranteed Concession Fee Payment. Airports maintain goals of working with Disadvantaged Business Enterprises or more commonly referred to as DBEs. Greater of 30% or Minimum Annual Guarantee : Taxi Fees (annual contract fee) Pre-Arranged Transportation (per pickup) $6.00 . Normally, airport concessionaires pay the city a percentage of sales or a "minimum annual guarantee" based on sales the previous year, whichever is greater. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. 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. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . 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. The concept is not uncommon. them from immediately acquiescing to their advertisers' perfectly justifiable requests is the cold draught of the minimum annual guarantee (MAG). 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. . The airport operator is always present and has a wealth of knowledge about the airport. 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 . ); 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). Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . . 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. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. 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. Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. Receive perspectives on the industries and issues that matter. 4.1.1 Minimum Annual Guaranteed Concession Fee. 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. 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. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. Bid. Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . The FBOs lease space from the airport sponsor to be able to provide those services. 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. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. 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. 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. 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. 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. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. Most simply, the airport and vendor could agree to a fixed percentage rent. MAG - Minimum Annual Guarantee. Terminal Closure and Footprint Reductions. Guarantee: 50% of Minimum Annual Guarantee. In other parts of the world, MAGs are the airports exact expected rental payments. 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. 6 . 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.. 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. The Federal Aviation Administration (FAA) . Duty Free Americas Miami offered a minimum annual guarantee to the airport of $20 million -- topping the $18.5 million offered by Dufry Miami Retail Partnership and about $9 million more than two . Learn how your comment data is processed. This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. 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. Option 4: Airport-concessionaire joint ventures. See how we support our people, protect the planet, and give back to communities. 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. Match. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. Meanwhile the company maintained a resilient retail margin of above 60%, helped by minimum annual guarantee waivers to airport landlords of $1.2 billion. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. There will still be passengers, and the concession industry needs to be ready to serve them. If you have questions. In this model, the airport takes on two roles: landlord and partner in the operation. The FAA released guidance for airport administrators, but questions still linger and issues have gone unaddressed. A concessionaire's rent structure in an airport may differ from the traditional model. 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 adjustment in Guaranteed Annual Rent may not, in any event, result in a decrease in the current amount of Minimum Annual Guaranteed Rent.. Any increase in Minimum Annual Guaranteed Rent shall be based upon an average increase in the index calculated over a period of 90 days prior to the end of the current five year term. The airport charges the businesses 8 percent of gross revenue, or a 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. 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. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. The key will be ensuring that airline charges remain fair and reasonable. Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. Airports are left with four basic responses: do nothing, suspend minimum annual guarantees (MAG), defer rent, or rent abatement. 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. Looking for abbreviations of MAG? Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. A MAG, as currently developed, is unsustainable in anything but relatively normal times. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. 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. Tax. For information on the business impacts of COVID-19, please visit ourCOVID-19 Resource Center, which we continue to update as the situation evolves. 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. 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). As a result, airports may wish to consider going a step further. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. 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. leasehold at Washington Dulles International Airport (IAD). 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. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. As a result, airports may wish to consider going a step further. You also have the option to opt-out of these cookies. There are numerous ways to frame a contract without a 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. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. Minimum Annual Guarantee. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. 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. softballrizer. Tallahassee International Airport . 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. One such excerpt from this guide (Paragraph 6.81) indicates nonoperating revenues would generally include, among other things, grants that may be used, at the recipients discretion, for either operating purposes or capital outlay. That being said, while there seems to be a compelling argument that most of the CARES Act funding for airports may be operating, each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. Percentage (privilege) Fees - 10% of gross revenue from airport related car rentals, or a minimum annual guarantee, whichever is greater. In North America, airports tend to look at MAGs as the least amount of acceptable rent. 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. Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. 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. 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. "We've already . The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. Lets consider six potential options. They often charge more than 10% for water and alcohol, Waguespack said. 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. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. The city may extend the action for an additional 30-day . 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. 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. Rates for each new fiscal year will be posted on this page after Board approval of the rates and fees. That will, in turn, harm the concession program. 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. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. 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. Attention: Finance & Administration Division . 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. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. The actual process is the easiest for the airport sponsor since there are minimal contracts. View bio. To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations.