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It beat four other finalists. PDF SCHEDULE OF RATES AND CHARGES - Talgov The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. The single factor most tied to concession success is the footfall past the concession locations. County of Muskegon Muskegon County Airport While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. Add it up, and the cost of operating at an airport is often higher than operating at a typical mall. 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. How involved the airport gets in the day-to-day operation is the option of the airport and their partner(s). The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. Given that we are considering a new paradigm, airports and concessionaires may wish to consider three other business structure options. 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. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. By clicking Accept, you consent to the use of ALL the cookies. 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. Flashcards. There are a few limitations, however, that make this a less than optimal solution. Relief for US airport operators deemed insufficient despite US$800m These benefit packages may make the cost of employment significantly higher than the all-in employment costs for most concession operators. Regardless, this shifting of risk may not be acceptable to airports. In the event that the concessionaire is unsuccessful, the airport absorbs the losses. In this model, the airport takes on two roles: landlord and partner in the operation. 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 develop pays the amount due to the airport through the lease agreement and pockets the rest. Tenants at airport get break on debts - Arkansasonline.com Primarily, in residual agreements, the rates vary based on airport revenue. See how we help fast-changing industries succeed. 49 CFR Part 23 requires airports to have a concessions-based DBE program. (The catch: Potential renters must submit a formal proposal to the Airport Commission and are subject . Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. Find out how our purpose shapes our culture, people, and mission-driven work. We did not review solicitation or award of concession agreements in this audit. The CFC is a charge based on either the contract value, gross receipts, or per car per day. 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. 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. Phoenix airport restaurants get rent relief during coronavirus 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. 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. 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. 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. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. 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. A third party can absorb some of the liability and risk from the airport operator. 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. Duty Free Americas Receives Recommendation for Miami Airport Deal Meanwhile the company maintained a resilient retail margin of above 60%, helped by minimum annual guarantee waivers to airport landlords of $1.2 billion. 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. 4.1.2 Minimum Annual Guaranteed Concession Fee Payment. To promote the use of DBEs for federally funded projects. Pandemic Pain For Retail Is Much Higher At Some Airports Than - Forbes PDF Appropriations Act, 2021 and the American Rescue Plan Act, 2021 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. Airport Boards approve financial relief plans for concessionaires and Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. Retailers: Minimum annual guarantee 'rules of engagement' have changed Learn how your comment data is processed. The master operator concept typically limits the ACDBE participation goals and may require additional efforts to maintain. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. Airports are left with four basic responses: do nothing, suspend minimum annual guarantees (MAG), defer rent, or rent abatement. When passenger traffic does come back, airports should rethink how their concession contracts work. Airports Authority of India to appoint ground handling agencies for 83 New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. Guarantee: 50% of Minimum Annual Guarantee. They will typically lease space for counter and office space and additional space for the vehicle storage. Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. 6 . There will still be passengers, and the concession industry needs to be ready to serve them. This simplified agreement includes the requirements under the CARES Act and makes funds immediately available for expenses, other than airport development, including payroll, debt service, utility expenses, service contracts, and supplies. 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. A payment called a Minimum Annual Guarantee will be waived for the months of March, April and May last year. While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. There are means of counting passengers who pass a concession location, but few airports have installed such technology. To ensure that the program is performed in accordance with law. . The MAC has already waived minimum annual guarantees three . Under one version of an infrastructure plan floated by House Democrats (the Moving Forward Framework), airports and airspace improvements would be funded, in part, by an increase in PFCs. 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 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. Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. Elsewhere, airports do not expect vendors to exceed their MAGs. Strategic agency for engagement and transformation. By using this site you agree to our use of cookies. "This is to offset rent and minimum annual guarantee requirements of those tenants in the face of a severe decline in their customers (passengers) during the continuing COVID issue." Airport . How does the Airport Authority charge rent? The company, which . Airports maintain goals of working with Disadvantaged Business Enterprises or more commonly referred to as DBEs. Where do we go from here? 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). 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.