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Rates for each new fiscal year will be posted on this page after Board approval of the rates and fees. To remove barriers in participation of DBEs. Without this expertise, the concession will almost certainly fail to operate at an optimum level. 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. Project. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. The Secretary of Transportation may waive this workforce retention requirement if they determine that the sponsor is experiencing economic hardship as a direct result of the requirement, or that the requirement reduces aviation safety or security. 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. Minimum Annual Guarantees. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. The develop pays the amount due to the airport through the lease agreement and pockets the rest. Additionally, nonoperating revenues would generally include grants, among other things. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. The Revenue Use Policy document defines permitted and prohibited uses of airport revenue. In other parts of the world, MAGs are the airport's exact expected rental payments. Percentage Rent - In addition to the MAG, Concessionaires shall pay percentage rent but only to the extent that percentage rent exceeds the monthly installment of MAG, 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. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. Alan has over two decades of experience in commercial/concession management, facility planning, financial analysis, and government procurement. (1) On-Airport (% of Gross Receipts). 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. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. Rent abatement / minimum annual guarantee: A decision to abate rent (including "minimum annual guarantees" and also encompassing fees) is a local . This site uses Akismet to reduce spam. However, MAGs in concession contracts still expect continued growth. In other parts of the world, MAGs are the airport's exact expected rental payments. "No. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. 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. Below are some considerations for airport sponsors to keep in mind. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. Were here to help! If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. Minimum Annual Guarantee: Each Proposer shall submit its proposal as a minimum annual guarantee (MAG) for each of the first two (2) years of the Concession Agreement. 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. While many contracts include a "force majeure" clause, this does not necessarily cover pandemic scenarios and in many instances, there is no formal agreement in place to review commercial terms in the event of such a . Annual fee for the airport to perform snow removal at the Vehicle Ready/Storage Vehicle Parking Area and Service Building/Wash Bay Facility. These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. 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. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. For aviation, global recovery to 2019 levels is projected to take several years, into 2023 for markets with significant domestic air . A. The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator. (a) Annual Reconciliation. 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. The AICPA State and Local Governments audit guide includes certain accounting guidance that has been cleared by GASB as Category B authoritative guidance. 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. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. Discover the top trends shaping government in 2023. Guarantee: $50,000. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. 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. 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. 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 FBOs lease space from the airport sponsor to be able to provide those services. 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 . Wealth Management. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. 2023 Plante & Moran, PLLC. Minimum Annual Guarantee (MAG) - The amount proposed and/or agreed to by the Concessionaire, that Concessionaire guarantees as minimum payment per year to DFW. To ensure that firms meet the requirements of DBE qualification. The FAA issued an extension of limited waiver (PDF) through October 29, 2022 of the minimum-slot-usage requirement for international operations at John F. Kennedy International Airport (JFK), LaGuardia Airport (LGA), and Ronald Reagan Washington National Airport (DCA).Additionally, the FAA extended through October 29, 2022, our . 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). No one is sure how long recovery will take. 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. Primarily, in residual agreements, the rates vary based on airport revenue. Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. Minimum Annual Guarantee. While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. In other parts of the world, MAGs are the airports exact expected rental payments. Find out how our purpose shapes our culture, people, and mission-driven work. Airports should carefully consider how they structure deals and their business models to ensure more flexibility to respond to potential future shocks. Regulatory Updates Extension of Minimum Slot Usage Requirements. Concessionaires could avoid minimum annual guarantee payments for a third quarter as the MAC develops a long-term relief plan. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. 1, their minimum annual guarantee was superior to anybody . 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 . Created by. Notably, the GASB has deferred the implementation date of GASB Statement No. At least for the immediate future, there will be reduced demand for concession services. Find more information in a tax alert comparing COVID-19 employer tax incentives, issued by our National Tax Office. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. 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. Airports would also have to establish supply lines for products that they have not procured in the past. Normally, airport concessionaires pay the city a percentage of sales or a "minimum annual guarantee" based on sales the previous year, whichever is greater. 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. Flashcards. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. They will typically also offer a percentage of their gross receipts to the airport as part of the RFP for the FBO services. COVID-19 has sent shockwaves throughout the world. 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. 4.1.1 Minimum Annual Guaranteed Concession Fee. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. There are a few limitations, however, that make this a less than optimal solution. Bid. View bio. This is only for the passenger traffic, while for . 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 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. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. The CFC is a charge based on either the contract value, gross receipts, or per car per day. See how we support our people, protect the planet, and give back to communities. This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. 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. Airports would also have to hire and manage many additional hourly employees. BADGES AND SECURITY: . The MAC has already waived minimum annual guarantees three . 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. Receive perspectives on the industries and issues that matter. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. They charge restaurants a minimum annual guarantee, also known as "rent" in the non-airport world. This document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. A collective of travel retailers have agreed that operational contracts hinging on minimum annual guarantees (MAGs) are no longer workable in a Covid-ravaged air transport climate and must be reformed. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. Besides giving each airport blanket permission to decide its own strategy, the emphasis on shifting costs between various classes of airport tenants is crucial. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. . While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. Percentage Rent to the Board as set forth in Article 1 based on Concessionaire's Gross Receipts, subject to a Minimum Annual Guarantee (MAG) as set forth in Article 1, and as further provided below. Madang, Papua New Guinea - Madang (Airport Code) MAG: Mainzer Aufbaugesellschaft mbH: MAG: Mission Assurance Guidelines: MAG . 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. The Federal Aviation Administration (FAA) . In addition to the detailed guidance in the Revenue Use Policy, the CARES Act makes clear that the funds may not be used for any purpose unrelated to the airport. The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. leasehold at Washington Dulles International Airport (IAD). As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. 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. FBOs may collect the landing fees for GA aircraft or charge them a fuel-flowage fee on behalf of the airport. The cost of design and construction for your space is going to be much higher. Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. The competitive landscape may beby necessityaltered. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. Respondents will propose both a MAG and a Percentage (%) of Annual Gross Revenue, the greater of which will be paid . The Airport has also experienced a reduction in passengers and operations as a result of . The concept is not uncommon. 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. . The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. Airports provide the passengers, the retailers provide the services. These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. Regardless, this shifting of risk may not be acceptable to airports. An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. The minimum guaranteed rent for the first year of the lease is the amount proposed by the winning proposal. We also use third-party cookies that help us analyze and understand how you use this website. 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. Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. 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. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. (The catch: Potential renters must submit a formal proposal to the Airport Commission and are subject . 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. What this option does do is change the distribution of risk. softballrizer. By clicking Accept, you consent to the use of ALL the cookies. 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. Some airports have had huge success in meeting ACDBE goals with the developer model. As a result, airports may wish to consider going a step further. The Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. The entire concessions space is typically leased out to a single company who is responsible for subletting the spaces. Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? These MAG clauses in concession contracts should be carefully reviewed. ); 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). That will, in turn, harm the concession program. In the concessions arena, they are referred to as Airport Concessions Disadvantaged Business Enterprise (ACDBE). See how we help fast-changing industries succeed. The CARES Act roughly triples the amount of money flowing from the federal government directly to airports for 2020. A third party can absorb some of the liability and risk from the airport operator. Products and services both fall into the concessions category. Up to $2 billion apportioned in accordance with the per-passenger apportionment rules of 49 U.S.C. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. With the new economic and industry realities, capital access may be an even greater hurdle. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. There will still be passengers, and the concession industry needs to be ready to serve them. Rates and Fees are adjusted annually based on the Airport's fiscal year, from October 1st through September 30th. 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. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. How does the Airport Authority charge rent? . Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. The workforce retention requirement doesnt apply to nonhub or nonprimary airports. New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. Using one unnamed airport as an example, with which 3Sixty is in constant dialogue and has a strong relationship Anson said: "The sum total of the $800 million when converted to one airport and to 3Sixty Duty Free would mean around a third of one month's minimum annual guarantee rent. The single factor most tied to concession success is the footfall past the concession locations. 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. But opting out of some of these cookies may affect your browsing experience. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. The FAA has published a map showing airports that are receiving the funds and the allocations made to them. Chris Dinsdale has worked at Budapest Airport since 2015, originally as CFO until March 2021, where he was nominated for the position as CEO . As a result, airports may wish to consider going a step further. Current generally accepted accounting principles suggests that entities should establish a policy that defines operating revenues for enterprise funds and use it consistently. One-twelfth of the MAG shall be due in advance on the first day of each month Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. It is mandatory to procure user consent prior to running these cookies on your website. When one partner tries to do too much, it will lessen the benefits of the joint venture. Because of the drastic reduction in flights and passenger traffic, airlines have been shrinking their staffing, space requirements and gate usage. At least for the immediate future, there will be reduced demand for concession services. The same rules govern the use of CARES Act funds that govern the use of all airport revenues. However, there is no relief of the obligation to withhold and remit the corresponding employee share. In North America, airports tend to look at MAGs as the least amount of acceptable rent. Terms in this set (15) What is MAG and what does it stand for? Some larger airports take a percentage of every sale. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). 4.1.3 Percentage Fees. . "We've already . However, this still may not be the most effective solution. Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. Nichols wrote to the County Board of Supervisors that $12.1 million of the money will be used to finalize airport agreements that waive contractual minimum annual guarantee rents for airport . 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. 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. Airport concession program in order to maximize non-aviation revenue, increasing sales per enplaned passenger at a rate higher than passenger . If, at the end of any year during the Term, the total amount of monthly installments of MAG and Percentage Fees paid for such year is less than the total amount of annual MAG and Percentage . 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. The airport environment is complex and has become even more challenging due to COVID-19. 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. 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. The company, which . 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). They will typically lease space for counter and office space and additional space for the vehicle storage. The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. 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. Audit. 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. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. 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 .