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. Looking for abbreviations of MAG? As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). Even before the contagion, the "Minimum Annual Guarantee" (MAG) model was already under challenge, and does this tool remain fit-for-purpose? The Board of Airport Commissioners at Los Angeles World Airports has recently approved a recommendation by management to permit concessionaire relief measures, including moving all concessionaires with contracts based on Minimum Annual Guarantee fee payments to percentage rent-based agreements The FAA helped to level the playing field by allowing DBEs to compete for concessions contracts in airports. Created by. Airport prices are very high and there's little travelers can do about See how we help fast-changing industries succeed. Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. 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. However, it does reduce the potential benefit to the airport by splitting the proceeds generated. With standard concession management programs, the airport operator assumes all of the risk for leasing the property but stands to profit the most by receiving a larger amount of generated revenues. But opting out of some of these cookies may affect your browsing experience. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. . The Audit Committee has reviewed this report and is releasing it in accordance with Article 2, Chapter 6 of the City Charter. Where do we go from here? June 9: Extending the leases of current airport, dining, and retail (ADR) tenants by up to three years, including a temporary suspension of the Minimum Annual Guarantee (MAG) for ADR tenants through the end of 2020, and possibly extending this policy into 2021. Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. There are several types of concessionaires that lease space to operate at the airport. To ensure that firms meet the requirements of DBE qualification. City of Philadelphia Procurement Department - Bid Solicitation Regardless, this shifting of risk may not be acceptable to airports. Guarantee: $50,000. 47114, with minimum apportionments for smaller airports that serve between 8,000 and 10,000 passengers annually. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. 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. For years 2, 3, 4, and 5 of the Term of the Agreement, the Minimum Annual Guarantee shall be 85% of the Concessionaire's previous year's concession fees paid to County or the Minimum Annual Guarantee bid for the first Stakeholders are already beginning discussions on a proposed Phase 4 stimulus bill. The develop pays the amount due to the airport through the lease agreement and pockets the rest. The fallacy of Minimum Annual Guarantee (MAG) In times of continued and prolonged growth, airports have learned to depend upon MAGs. Minimum Annual Guarantee _____- concession often establish their rates as a percentage of gross . A concessionaire's rent structure in an airport may differ from the traditional model. Elsewhere, airports do not expect vendors to exceed their MAGs. 636(a)(37)) that has been applied toward rent or minimum annual guarantee costs. Find more information in a tax alert comparing COVID-19 employer tax incentives, issued by our National Tax Office. The competitive landscape may beby necessityaltered. SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. What this option does do is change the distribution of risk. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. Attention: Finance & Administration Division . Opinion: Why MAG flexibility is essential for airport advertising If flights do not return to their pre-pandemic levels, then the airport will not be able to recover former passenger levels. Regardless, this shifting of risk may not be acceptable to airports. Necessary cookies are absolutely essential for the website to function properly. If youre far enough along in the implementation process, you may want to move forward with adopting these standards. Minimum Annual Guarantee (MAG). High-profile restaurateurs battle for Orlando International eatery There will still be passengers, and the concession industry needs to be ready to serve them. Similar to a third party option, an institutional operator can reduce risk while also reducing proceeds to the airport operator. Primarily, in residual agreements, the rates vary based on airport revenue. Kona International Airport at Keahole is located on the western coast of the Island of Hawaii, approximately 10 miles from the town of Kailua Kona. Concessionaires need to understand this new business reality when they ask for relief. As MSP airport develops long-term relief plan for shops and restaurants In the event that the concessionaire is unsuccessful, the airport absorbs the losses. Save my name, email, and website in this browser for the next time I comment. Minimum Annual Guarantees. No one is sure how long recovery will take. They will typically also offer a percentage of their gross receipts to the airport as part of the RFP for the FBO services. Airport concession contracts for the full panoply of concessions, including rental cars, parking and retail, usually contain a minimum annual guarantee (MAG). 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. PDF SCHEDULE OF RATES AND CHARGES - Talgov There are numerous ways to frame a contract without a MAG. 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. 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. Annual fee for the airport to perform snow removal at the Vehicle Ready/Storage Vehicle Parking Area and Service Building/Wash Bay Facility. Most simply, the airport and vendor could agree to a fixed percentage rent. a minimum annual guarantee or MAG annually, which more or less translates to rent. Off-airport companies pay up to 8% of gross revenue from their airport-related car rentals. The current decline dwarfs those of the recent past, as enplanement levels have dropped by upwards of 90%. White Paper: Airport Concession Agreements - ACI World Store . https://www.law.cornell.edu/cfr/text/49/part-23, Airport Concessions Disadvantaged Business Enterprises, Developing An Operating Budget - Airport University, Disadvantaged Business Enterprises - Airport University. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. Examples of concessions within airports include: A direct concession lease involves the space being directly marketed, leased, and managed by the airport operator. A MAG, as currently developed, is unsustainable in anything but relatively normal times. Hawaii Aviation | Kona International Airport at Keahole SFO Launches Emergency Rent Relief Program for Airport Concession That may limit the ability for new entrants, as well as making some concession opportunities less attractive to vendors. Tallahassee, FL 32310 . 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. The city named the Vantage Airport Group to run the concessions when the new terminal opens in 2023. 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. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. 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. To help develop firms that can compete in the marketplace outside of the DBE program. This is only for the passenger traffic, while for . Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. How Airports Handle Non-Aeronautical Revenue | Aviation Pros Until a few weeks ago, your organization has likely been focused on implementing several new GASB standards, including GASB Statement No. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. Match. Elsewhere, airports do not expect vendors to exceed their MAGs. In this model, the airport takes on two roles: landlord and partner in the operation. Minimum Annual Guaranteed Rent Definition | Law Insider In other parts of the world, MAGs are the airport's exact expected rental payments. Minimum Annual Guarantee. February 2, 2021January 28, 2021 | AirportU. Receive perspectives on the industries and issues that matter. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. There are a few limitations, however, that make this a less than optimal solution. Airport concession program in order to maximize non-aviation revenue, increasing sales per enplaned passenger at a rate higher than passenger . 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. Consulting. In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. In times of continued and prolonged growth, airports have learned to depend upon MAGs. If, on the other hand, the airport sponsor decides to enforce the terms of a MAG, then it should carefully review the concession contract to determine the terms of enforcement and whether the concessionaire has any basis to refuse to pay the MAG. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. This document addresses common issues that have arisen or may arise for airport sponsors during the response to the COVID-19 public health emergency. To remove barriers in participation of DBEs. 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. 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). A different methodology is required to ensure that vendors are allowed to earn a fair return on their investments, are able and willing to reinvest to improve and grow, and still provide a reasonable return to the airports. Each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . Page 3 of 61 - Non-exclusive On-airport Rental Car Concession - Proposal documents 3. Airport concession fees in the era of COVID-19 | ICF 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. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. O'Hare and Midway concessionaires to get rent relief - Chicago Sun-Times The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. As such, most airports should stay out of active management of the concession location, leaving that to the expert partner. Airports should carefully consider how they structure deals and their business modelsto ensure more flexibility to respond to potential future shocks. Option 5: The Trinity (or Trinity Plus) model. 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. At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. 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. At SAN, rent is calculated as a percentage of the gross revenues supported by a minimum annual guarantee, or MAG, that is a part of the leasing requirements. Airport Operations Flashcards | Quizlet This information collection permits FAA to confirm that rent relief is consistent with the requirements of CRRSA and ARPA. 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. A per enplanement MAG would be a strain on most airports accounting departments, especially if the footfall varies by location. . Rates and Fees are adjusted annually based on the Airport's fiscal year, from October 1st through September 30th. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . 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