Concessions covers more than what you think of served at a traditional concession stand. Percentage (privilege) Fees - 10% of gross revenue from airport related car rentals, or a minimum annual guarantee, whichever is greater. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. There will still be passengers, and the concession industry needs to be ready to serve them. 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 are a few limitations, however, that make this a less than optimal solution. A by-location per passenger MAG may be too complicated for widespread implementation at this point. There are a few limitations, however, that make this a less than optimal solution. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. 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. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. This opportunity is for two available FBO leaseholds with a general aviation terminal, office space . That $7.4 billion is divided in half and distributed in two ways: 50% is allocated among all commercial service airports based on each sponsors calendar year 2018 enplanements as a percentage of total 2018 enplanements for all commercial service airports., 50% is allocated among all commercial service airports based on an equal combination of each sponsors fiscal year 2018 debt service as a percentage of the combined debt service for all commercial service airports and each sponsors ratio of unrestricted reserves to their respective debt service.. 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. This financial shock has created a number of legal and financial issues. Were here to help! Minimum Annual Guarantee listed as MAG. 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. In the event that the concessionaire is unsuccessful, the airport absorbs the losses. 4.1.1 Minimum Annual Guaranteed Concession Fee. What this option does do is change the distribution of risk. New non-aeronautical revenue streams are critical to airport recovery from the COVID-19 pandemic. Tallahassee International Airport . To level the playing field so that DBEs can compete . 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. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). Find more information in a tax alert comparing COVID-19 employer tax incentives, issued by our National Tax Office. Elsewhere, airports do not expect vendors to exceed their MAGs. View bio. 49 CFR Part 23 requires airports to have a concessions-based DBE program. Products and services both fall into the concessions category. Where do we go from here? Land . The Airports Authority of India (AAI) has kick-started the process of appointing ground handling agencies for 83 state-run airports for a . Elsewhere, airports do not expect vendors to exceed their MAGs. The joint venture model allows the airport to supply capital, likely at a lower cost than its business partners. In North America, airports tend to look at MAGs as the least amount of acceptable rent. Each contributes its expertise, capital, and support to result in a uniform, consistent, and superior customer experience throughout the passengers journey. These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C. Bond Covenants and Indenture Pledge of Revenues. 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. The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. Minimum Annual Guarantees. 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. New model commercial contracts will require a complete rebuild of the airport's financial model, along with revised relations with financiers. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. A by-location per passenger MAG may be too complicated for widespread implementation at this point. 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. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. Nor do we know whether travel habits will change permanently because of new practices learned during lockdowns. Airports should consider alternative methodologies for managing and operating their concession programs for concessions to remain viable business options. Without this expertise, the concession will almost certainly fail to operate at an optimum level. It was suspended in June, following the severe decline of passenger traffic over those . Concessionaires need to understand this new business reality when they ask for relief. However, there is no relief of the obligation to withhold and remit the corresponding employee share. 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. It is mandatory to procure user consent prior to running these cookies on your website. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. They will typically also offer a percentage of their gross receipts to the airport as part of the RFP for the FBO services. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. Unlike earlier phases of stimulus, Phase 4 has the potential to include a significant infrastructure focus. 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 key will be ensuring that airline charges remain fair and reasonable. In North America, airports tend to look at MAGs as the least amount of acceptable rent. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . 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. Hence, a fairer methodology for establishing a MAG is to base it on an absolute value per exposed passenger. See how we help fast-changing industries succeed. By clicking Accept, you consent to the use of ALL the cookies. Airport sponsors should carefully review their bond covenants and indentures, with a particular focus on pledge of revenues and flow of funds. We also use third-party cookies that help us analyze and understand how you use this website. That will, in turn, harm the concession program. If an airport can become a partner in the operation of a concession, it might also consider being a concession operator on its own. 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 - How is Minimum Annual Guarantee abbreviated? While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . 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. Page 3 of 61 - Non-exclusive On-airport Rental Car Concession - Proposal documents 3. A MAG, as currently developed, is unsustainable in anything but relatively normal times. (a) Annual Reconciliation. MAG - Minimum Annual Guarantee. 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. 1, their minimum annual guarantee was superior to anybody . Match. The company, which . One of the keys, however, to the success of this model is the realization that each partner brings particular strengths, skills, and abilities. These cookies do not store any personal information. SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. FBO/SASO: NOTE: - Suite 1 . Because of the drastic reduction in flights and passenger traffic, airlines have been shrinking their staffing, space requirements and gate usage.
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