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Airport concession fees in the era of COVID-19 | ICF 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. Kansas City names company to run concessions at new KCI Airport - KMBC With the new economic and industry realities, capital access may be an even greater hurdle. COVID-19: For airport enterprise recovery, it's time to act now . Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. 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. Consulting. 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. This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . 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). Pandemic Pain For Retail Is Much Higher At Some Airports Than - Forbes 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. 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. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. It was suspended in June, following the severe decline of passenger traffic over those . In times of continued and prolonged growth, airports have learned to depend upon MAGs. 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. 2023 Plante & Moran, PLLC. To ensure nondiscrimination in federally funded contracts for DOT airport assistance programs. Retail/Gift Shop 11% of Gross Receipts or Minimum Annual Guarantee Terminal Advertising 30% -60% of Gross Receipts or Minimum Annual Guarantee . The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. Master operators are common options, such as HMS Host Intl, Paradies Lagardere, Delaware North, and SSP. The Airport has also experienced a reduction in passengers and operations as a result of . Products and services both fall into the concessions category. 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. Learn. That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. 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. The big change at Los Angeles International Airport allows concessionaire partners, which include DFS Group, Hudson and HMSHost, among others, to pay percentage rent rather than a minimum annual guarantee (MAG) from April 1 through June 30 as a result of passenger traffic declines due to the coronavirus pandemic. O'Hare and Midway concessionaires to get rent relief - Chicago Sun-Times Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. In this model, the airport takes on two roles: landlord and partner in the operation. However, it does reduce the potential benefit to the airport by splitting the proceeds generated. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. 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. The airport operator is always present and has a wealth of knowledge about the airport. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. Where do we go from here? C. Concession Fee. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. While this methodology is feasible, it does not get to the actual number of passengers who see a concession location. In either case, history has shown that MAGs are not supportable in the event of severe downturns. Where appropriate and agreed to by airport sponsors, terminal use leases should be amended to reflect the airlines changed operating circumstances. Option 4: Airport-concessionaire joint ventures. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. Opinion: Airport concession fee strategies in the coronavirus era The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. While the bulk of the $10 billion appropriated for airport sponsors can be used, if necessary, to make bond principal and interest payments, airport sponsors may be faced with difficult decisions about how to prioritize needs during the financial stress. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . They will typically lease space for counter and office space and additional space for the vehicle storage. 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. BADGES AND SECURITY: . A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. In this model, the airport takes on two roles: landlord and partner in the operation. This website uses cookies to improve your experience while you navigate through the website. Each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. A concessionaire's rent structure in an airport may differ from the traditional model. Primarily, in residual agreements, the rates vary based on airport revenue. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. There will still be passengers, and the concession industry needs to be ready to serve them. 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. However, this still may not be the most effective solution. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. MAG: Each Respondent shall indicate payment of a Minimum Annual Guarantee ("MAG") of $_____. With the announcement by the GASB of a delay in the required implementation of these new standards, your organization will need to decide how to respond. Airlines are likely to oppose any PFC increase, and in the absence of any increase, infrastructure spending would likely be funded through additional appropriations to the Airport and Airway Trust Fund. However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. Why is airport food so expensive? - Policygenius . For aviation, global recovery to 2019 levels is projected to take several years, into 2023 for markets with significant domestic air . Additionally, nonoperating revenues would generally include grants, among other things. Flashcards. Concessions Development - Airport University Minimum Annual Guarantee. 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. 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. While some of these answers require more information from the federal agencies, there are 10 burning questions we can answer now. In North America, airports tend to look at MAGs as the least amount of acceptable rent. Terminal Closure and Footprint Reductions. To provide flexibility to recipients of federally funded projects in providing opportunities to DBEs. The actual process is the easiest for the airport sponsor since there are minimal contracts. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. Opinion: Why MAG flexibility is essential for airport advertising Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. To go along with that, concessions are often subject to Minimum Annual Guarantees (MAG). The Federal Aviation Administration (FAA) .