Guarantee: $50,000. No one is sure how long recovery will take. 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. We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. Signatory carriers may exercise significant control over an airport's capital budgeting process under provisions in a use agreement known as. These three options do not change the underlying airport-concessionaire relationship. $100 million is distributed to general aviation airports in accordance with categories established by the National Plan of Integrated Airport Systems (NPIAS). However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. It varies based on the size, capacity, and operations of the airport. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. . The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. This Minimum Annual Guarantee must exceed $100,000. Minimum Annual Guarantee. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . 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. The single factor most tied to concession success is the footfall past the concession locations. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. To remove barriers in participation of DBEs. 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. CARES Act grant recipients should follow the FAAs Policy and Procedures Concerning the Use of Airport Revenues (Revenue Use Policy), 64 Federal Register 7696 (64 FR 7696), as amended by 78 Federal Register 55330 (78 FR 55330). 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. Minimum Annual Guarantee. While the airport might invest capital in the joint venture, it must be involved in a management committee overseeing the business. It is mandatory to procure user consent prior to running these cookies on your website. The Airport has also experienced a reduction in passengers and operations as a result of . That is no longer possible. 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. A concessionaire's rent structure in an airport may differ from the traditional model. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. 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. Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee . While the leased space is non-aeronautical revenue, the CFCs are non-operating revenue. Rates and Fees are adjusted annually based on the Airport's fiscal year, from October 1st through September 30th. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. Regulatory Updates Extension of Minimum Slot Usage Requirements. 4.1.1 Minimum Annual Guaranteed Concession Fee. 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. If the airport sponsor determines that its in its best interest to defer the MAG, the revenue should still be recorded in the period earned, and the receivable should be considered for treatment as noncurrent depending on the new repayment terms. The price tag is a whopping $440 per square foot. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. Lets consider six potential options. Other organizations that havent yet addressed some of these pending standards may want to take advantage of the implementation delays. Airports would also have to establish supply lines for products that they have not procured in the past. To ensure that the program is performed in accordance with law. Under the current process, minimum annual guarantee for the first year is the financial bid parameter for selection of bidder and the period of concession is 10 years from the commercial operations date. Find out how our purpose shapes our culture, people, and mission-driven work. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. However, this still may not be the most effective solution. FBOs may collect the landing fees for GA aircraft or charge them a fuel-flowage fee on behalf of the airport. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. The MAC has already waived minimum annual guarantees three . Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports rate covenant under the current circumstances are appropriate. 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. 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. President Donald Trump has already tweeted his support for such an infrastructure bill. Paid parking went into effect at . February 2, 2021January 28, 2021 | AirportU. Minimum Annual Guarantee (MAG). In other parts of the world, MAGs are the airport's exact expected rental payments. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. This essentially flips the rent risk from being entirely on the vendors (in a MAG-based model) to being entirely on the airport. minimum annual guarantee (MAG) obligations to eligible airport concessions. Another advantage of this model is that it may provide a means to improve the levels of involvement of smaller and local businesses. 3300 Capital Circle, S.W. Test. COVID-19 has sent shockwaves throughout the world. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. 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 . The policies and procedures are available for review here. Six options for how to ensure that the airport concessions industry continues to be a robust and vibrant business for all. A. Discover our insights for a sustainable, low-emissions future. To promote the use of DBEs for federally funded projects. 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. 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 Concessionaires need to understand this new business reality when they ask for relief. A third party company could be contracted to handle the leasing and management of concessions on behalf of the airport. Airports would also have to hire and manage many additional hourly employees. In either case, history has shown that MAGs are not supportable in the event of severe downturns. 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. Through Dec. 31, 2020, the airport sponsor must continue to employ at least 90% of the number of individuals employed (after adjusting for retirements or voluntary employee separations) as of March 27, 2020. 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. . The cost of design and construction for your space is going to be much higher. 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, 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. While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. 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. FBO/SASO: NOTE: That will, in turn, harm the concession program. Elsewhere, airports do not expect vendors to exceed their MAGs. Because of the drastic reduction in flights and passenger traffic, airlines have been shrinking their staffing, space requirements and gate usage. In North America, airports tend to look at MAGs as the least amount of acceptable rent.