Given the current state of the economy, Congress has turned to working on the next comprehensive economic relief package, which is being referred to as CARES 2.0. Looking for abbreviations of MAG? 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. Attention: Finance & Administration Division . FBOs may collect the landing fees for GA aircraft or charge them a fuel-flowage fee on behalf of the airport. Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas. You also have the option to opt-out of these cookies. By using this site you agree to our use of cookies. Where abatement results in shifting costs between various classes of airport tenants and users, the airport sponsor is encouraged to consult with all affected parties. The airport human resources function is likely not ready to handle that, as the annual turnover of concession employees often approaches 150%. FBO/SASO: NOTE: Having been hit particularly hard, airports are searching for answers to problems on a scale that simply wasnt imaginable six months ago. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. leasehold at Washington Dulles International Airport (IAD). Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). A third party can absorb some of the liability and risk from the airport operator. Terminal Rentals - Rent paid by car rental companies for ticket counters and office space in terminals. Minimum Annual Guarantee or " MAG " means the minimum Privilege Fee due the Authority annually from the Operator set forth in Section 5.2. 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. Denver International Airport will price $925 million of refunding bonds to help ease its debt service burden during the pandemic-driven traffic decline . HMS Host, the food and beverage concessionaire at Clinton National, is required to pay a minimum annual guarantee of $594,000, which works out to $49,500 monthly under the terms of its contract. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. The Trinity model is particularly applicable to duty free concessions, where it is practical to divide a store into departments wherein vendors (e.g., Channel, Rolex, Hrmes) are given the ability to design and operate their mini outlets. By clicking Accept, you consent to the use of ALL the cookies. 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. The city of Atlanta suspended the minimum annual guarantee payment obligation for concessionaires and rental car companies at Hartsfield-Jackson Atlanta International Airport (ATL) for a four-month period ending June 20. As a result, if concessionaires produce lower sales because there is no traffic, it will result in space rental rates increasing. To promote the use of DBEs for federally funded projects. The Federal Aviation Administration (FAA) . Necessary cookies are absolutely essential for the website to function properly. While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. An amount of $7.4 billion, which can be distributed to airport sponsors for any purpose for which airport revenues may lawfully be used. The purpose for which airport revenues may lawfully be used is widely viewed as a reference to the FAAs Policy on Permitted and Prohibited Uses of Airport Revenue (Revenue Diversion Policy). "We've already . 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 . A concessionaire's rent structure in an airport may differ from the traditional model. Yellow Cab pays Sea-Tac a $3.67 million minimum annual guarantee or 13 percent of its . . To level the playing field so that DBEs can compete . installments during the first year of the Term. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. This site uses Akismet to reduce spam. Terminal Closure and Footprint Reductions. In this model, the airport takes on two roles: landlord and partner in the operation. The airport operator is always present and has a wealth of knowledge about the airport. The MAC has already waived minimum annual guarantees three . Find more information in a tax alert comparing COVID-19 employer tax incentives, issued by our National Tax Office. 84, Fiduciary Activities. The passenger experience results from a combination of the actions or inactions of airport, concessionaire, and airline. Rent abatement / minimum annual guarantee: A decision to abate rent (including "minimum annual guarantees" and also encompassing fees) is a local . Airport concession fees in the era of COVID-19, Airports should carefully consider how they structure deals and their business models, Do Not Sell or Share My Personal Information, Limit the Use of My Sensitive Personal Information. They rent space to provide a service/product (rental car) for an agreed upon time frame at a certain rate. Nor do we know whether travel habitswill change permanently because of new practices learned during lockdowns. This financial shock has created a number of legal and financial issues. 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 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. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. Concessions and retail often fill that need. The Trinity model is particularly applicable to duty-free concessions, where it is practical to divide a store into departments wherein vendors (e.g., Channel, Rolex, Hermes) are given the ability to design and operate their mini outlets. 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. If you are a sponsor who controls multiple airports the FAA has stated in its CARES Act FAQ, an airport sponsor may use funds at any airport under its control. Depending on the level of the sales decrease, the resulting increase in space rental rates may lead to concessions being no longer economically viable. percentage of their annual gross revenues derived from operations at the airport or a minimum annual guaranteed amount, whichever is greater. As is becoming evident, basing financial remuneration on an aspirational or required numberor even recent experiencecan fail. Guarantee: 50% of Minimum Annual Guarantee. Sea-Tac airport may allow Uber, Lyft and Sidecar to start picking up passengers if new rules are passed. Alternatively, different percentages could be charged for varying levels of sales or by assigning either fixed or variable rates to different product categories (e.g., one percentage for food and non-alcoholic beverage and a separate percentage for alcoholic drinks only). All rights reserved. These MAG clauses in concession contracts should be carefully reviewed. 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. That will, in turn, harm the concession program. If you have questions about COVID-19s impact on your business, please reach out to your Loeb relationship partner or email us directly atCOVID19@loeb.com. 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. 47114, with minimum apportionments for smaller airports that serve between 8,000 and 10,000 passengers annually. 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. Minimum Annual Guarantee (MAG). See how we help fast-changing industries succeed. 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. Airports would also have to hire and manage many additional hourly employees. 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. The Airport has also experienced a reduction in passengers and operations as a result of . Discover the top trends shaping government in 2023. Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital. However, there is no relief of the obligation to withhold and remit the corresponding employee share. 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. It may be necessary for an airport to close concession locations as they may close portions of the airport to reduce their operating costs. First championed by Martin Moodieone of the stalwarts of the concession industrythis model has airports, retailers, and suppliers cooperate in developing concession operations. Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. For example, TSA has reduced lanes or consolidated passenger screening checkpoint operations in numerous airports in response to the reduction in originating passenger volume.. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. 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. Examples of Minimum Annual Guaranteed Rent in a sentence. Greater of 30% or Minimum Annual Guarantee : Taxi Fees (annual contract fee) Pre-Arranged Transportation (per pickup) $6.00 . 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. Calculating MAG based on traffic in a larger area (e.g., the concourse or terminal) is one possible answer. Very hands off for the airport sponsor. Strategic agency for engagement and transformation. Primarily, in residual agreements, the rates vary based on airport revenue. "This is to offset rent and minimum annual guarantee requirements of those tenants in the face of a severe decline in their customers (passengers) during the continuing COVID issue." Airport . A MAG, as currently developed, is unsustainable in anything but relatively normal times. Concessionaires are, in general, seeking some manner of rent relief from their airport partners. 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. Non-airport retail leases typically charge rent on a per square foot (PSF) basis. They will typically lease space for counter and office space and additional space for the vehicle storage. In airports with residual airline agreements, the airlines will be required to make up the difference between revenue to the airport and required revenue to pay for airport development and other expenses. Some airports have had huge success in meeting ACDBE goals with the developer model. While it may never be business as usual again, the airport and its business partners need to adjust to a new normal. 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. Airports would also have to hire and manage many additional hourly employees. Concessions covers more than what you think of served at a traditional concession stand. Airlines have a significant stake in the quality of the concession program because of its impact on the passenger experience. It was suspended in June, following the severe decline of passenger traffic over those . Yet one of the most severe barriers to entry, particularly for small businesses, has always been limited access to capital.