percentage of their annual gross revenues derived from operations at the airport or a minimum annual guaranteed amount, whichever is greater. However, sponsors dont need to apply for the increased federal share of FY20 AIP or FY 2020 Supplemental Discretionary grants. 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. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. Airports would also have to hire and manage many additional hourly employees. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. As a result, airports may wish to consider going a step further. Concessions covers more than what you think of served at a traditional concession stand. Meanwhile, Aena is forecasting that in the period to 2023, the minimum annual guaranteed rents and fixed rents, corresponding to contracts in force at 30 June 2020, will decrease. Looking for abbreviations of MAG? In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. Minimum Annual Guarantee Process Up to 3 years Or Up to $100,000 per year Direct negotiation with potential concessionaire Over 3 years and up to 5 Meanwhile the company maintained a resilient retail margin of above 60%, helped by minimum annual guarantee waivers to airport landlords of $1.2 billion. 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 These cookies do not store any personal information. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. The airport environment is complex and has become even more challenging due to COVID-19. Airports would have to offer benefit packages to these employees in line with those provided to other employees of the airport. 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. For aviation, global recovery to 2019 levels is projected to take several years, into 2023 for markets with significant domestic air . ); 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). But opting out of some of these cookies may affect your browsing experience. COVID-19 has sent shockwaves throughout the world. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. 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. Tallahassee, FL 32310 . Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. There are numerous ways to frame a contract without a MAG. 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. With the new economic and industry realities, capital access may be an even greater hurdle. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . Performance. Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . If any portion of the $2 billion is left over after distributing in accordance with 49 U.S.C. At least for the immediate future, there will be reduced demand for concession services. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. 6 . By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. Airlines value an attractive commercial program because it makes a better background for the expression of their brand. Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. . New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. For construction contracts over _____ federal regulations require the airport to obtain a bid guarantee to equal at least _____ of the bid price, as well as performance and payment bonds equaling _____ percent of the contract. Airports around the country will soon receive their share of $10 billion in FAA grants provided in the CARES Act. Without this expertise, the concession will almost certainly fail to operate at an optimum level. 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. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. Find more information in a tax alert comparing COVID-19 employer tax incentives, issued by our National Tax Office. To level the playing field so that DBEs can compete . Learn. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. 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. To ensure that the program is performed in accordance with law. 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. By using this site you agree to our use of cookies. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. . To promote the use of DBEs for federally funded projects. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations. To remove barriers in participation of DBEs. These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. The single factor most tied to concession success is the footfall past the concession locations. 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. The FAA will use the Office of Management and Budget (OMB) SF-424, Application for Federal Assistance, and provide a simplified grant agreement shortly after it receives an application. (The catch: Potential renters must submit a formal proposal to the Airport Commission and are subject . However, this still may not be the most effective solution. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee (MAG). It is Minimum Annual Guarantee. The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. 9. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. 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. which guarantees that the tenant will pay the airport a minimum amount annually. 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. President Donald Trump has already tweeted his support for such an infrastructure bill. The fallacy of Minimum Annual Guarantee (MAG). In times of continued and prolonged growth, airports have learned to depend upon MAGs. "We've already . These MAG clauses in concession contracts should be carefully reviewed. The same rules govern the use of CARES Act funds that govern the use of all airport revenues. 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. Where do we go from here? The develop pays the amount due to the airport through the lease agreement and pockets the rest. 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. Primarily, in residual agreements, the rates vary based on airport revenue. Greater of 30% or Minimum Annual Guarantee : Taxi Fees (annual contract fee) Pre-Arranged Transportation (per pickup) $6.00 . Very hands off for the airport sponsor. 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. (1) On-Airport (% of Gross Receipts). First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations.