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. That is no longer possible. 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. Concessionaires could avoid minimum annual guarantee payments for a third quarter as the MAC develops a long-term relief plan. In times of continued and prolonged growth, airports have learned to depend upon MAGs. With a MAG based on enplanements, the airport accepts the risk of failing to deliver enough enplanements. Most airports are not prepared to be on a constant hiring cycle for entry-level hourly employees. Were here to help! However, there is no relief of the obligation to withhold and remit the corresponding employee share. To ensure that the program is performed in accordance with law. These MAGs are usually based on some percentage of the prior year's revenue and are intended to provide the airport sponsor with a revenue floor from these . The $10 billion in funding is divided into four main categories: For airport grants, after the Secretary of Transportation announces awards under the CARES Act, each airport sponsor must submit a grant application to access those funds. 47114, with minimum apportionments for smaller airports that serve between 8,000 and 10,000 passengers annually. What this option does do is change the distribution of risk. percentage of their annual gross revenues derived from operations at the airport or a minimum annual guaranteed amount, whichever is greater. The additional funds appropriated by the CARES Act were intended, in large part, to help airport sponsors meet their debt service and bond obligations. As a result, airports may wish to consider going a step further. The key will be ensuring that airline charges remain fair and reasonable. This option would give the airport operator the ultimate control over its concession program as it takes on full responsibility for all business aspects. While the model has primarily been used for duty free concessions, it has worked equally well for other types of concessions. A by-location per passenger MAG may be too complicated for widespread implementation at this point. Airport vendors have you right where they want you trapped at the gate, drinking a $20 beer. The minimum annual guarantee of $3.25 million to the airport for the right to run the restaurant is too high and could result in the partners cutting corners to make the payments or, even worse . Concessionaires need to understand this new business reality when they ask for relief. This leads to another possibility: to eliminate MAGs and tie airport payments to sales only. While the bulk of the $10 billion appropriated for airport sponsors can be used to make bond principal and interest payments if necessary, airport sponsors may be faced with difficult decisions about how to prioritize needs while under financial stress. At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios. SCOPE OF FEES TO BE PAID THE CITY BY CONCESSIONAIRES a. Save my name, email, and website in this browser for the next time I comment. Regardless, this shifting of risk may not be acceptable to airports. While this model is new, a unified strategy could bring about a unique airport concession experience to the benefit of all participants. Guarantee: 50% of Minimum Annual Guarantee. 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. A MAG is guarantees the airport sponsor a minimum amount of money from the concession, in the event they do not generate much revenue. Paid parking went into effect at . These cookies will be stored in your browser only with your consent. The FAAs Office of Airports will administer these grant funds to airport sponsors. softballrizer. North American airports generally believe that if a vendor is paying a MAG, there may be a business problem. Will this have an impact on airline and concession agreements? However, it does reduce the potential benefit to the airport by splitting the proceeds generated. Many airport agreements allow for a suspension of MAGs in the event of a severe enplanement decrease. Airport Cargo Community system Bid Opening Date: 07/13/2021 05:00:00 PM Purchaser: Kevin Hanagan Organization: City of Philadelphia . PFCs have been set at $4.50/passenger since 2000, and increasing the PFC maximum has been a priority of the airport industry for some time. While some of these answers require more information from the federal agencies, there are 10 burning questions we can answer now. The Federal Aviation Administration (FAA) . Passengers have needs while at airports. 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. The concept is not uncommon. Lets consider six potential options. Some larger airports take a percentage of every sale. These MAGs are usually based on some percentage of the prior years revenue and are intended to provide the airport sponsor with a revenue floor from these concession contracts. The actual process is the easiest for the airport sponsor since there are minimal contracts. 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. Senior Living Development Consulting (Living Forward), Reimagining the future of healthcare systems, National Plan of Integrated Airports System, tax alert comparing COVID-19 employer tax incentives. 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. C. Concession Fee. 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. Match. The FAA may retain up to $10 million to fund the award and oversight of grants made pursuant to the CARES Act. . Its clear that fixed MAGs are unable to provide the flexibility necessary to deal with severe occurrences. While many contracts include a "force majeure" clause, this does not necessarily cover pandemic scenarios and in many instances, there is no formal agreement in place to review commercial terms in the event of such a . Fixed Based Operators or FBOs, are service providers to many GA and corporate aircraft. The intent of DBE programs is to increase the amount of business done with Minority Business Enterprises (MBE) and Women Business Enterprises (WBE). 2023 Plante & Moran, PLLC. Delta will pay market rates to lease these three additional Delta-preferred gates with a minimum annual guarantee (MAG). In a standard MAG model, the concessionaire bears a great deal of uncertainty with little risk falling to the airport. Wealth Management. 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. Airport vendors typically pay a portion of their revenues to the MAC, and those payments can't fall below the minimum annual guarantee. At least for the immediate future, there will be reduced demand for concession services. Looking for abbreviations of MAG? If youre far enough along in the implementation process, you may want to move forward with adopting these standards. Concessions are typically leased with a percentage type lease so that a specific percentage of gross sales are given to the airport as part of their lease agreement. 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. . This is especially true for leases that incorporate the minimum annual guarantee (MAG) mechanism or fixed rent clauses. Each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment. "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 . An engaging panel discussion entitled 'Road to Recovery: The Retailer Perspective' took place during yesterday's virtual Summit of the . They will typically lease space for counter and office space and additional space for the vehicle storage. While the vendor still has some risk to pay for its investment and employee wages, rent is solely dependent on sales. 49 CFR Part 23 requires airports to have a concessions-based DBE program. Airports outside of North America are already experiencing the benefit of joint ventures between the airport operator and concession operators. A collective of travel retailers have agreed that operational contracts hinging on minimum annual guarantees (MAGs) are no longer workable in a Covid-ravaged air transport climate and must be reformed. At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS. However, it is unlikely that most airport operators have staff with specific expertise in concession operations and management. They often charge more than 10% for water and alcohol, Waguespack said. In other parts of the world, MAGs are the airport's exact expected rental payments. 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. The FAA has issued additional guidance on airport concession fees, some of which reverses earlier policies. The question that airport managers must ask themselves is which rent strategy is realistic in the current environment. The competitive landscape may beby necessityaltered. Terms in this set (15) What is MAG and what does it stand for? Normally, operating classification on the statement of revenues, expenses, and changes in net position will typically follow the classification of operating activities in the statement of cash flows. The fallacy of Minimum Annual Guarantee (MAG). 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. To meet aggressive congressional deadlines for request submissions, a new airport industry request is being made with three potential components: $13 billion in additional emergency assistance, a gap financing program for airports, and a touchless journey through security. 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. While passenger safety and well-being are paramount, the extreme reduction in passenger flow has rippled across the entire airport-airline ecosystem. 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.. (1) On-Airport (% of Gross Receipts). The FAA will use the Office of Management and Budget (OMB) SF-424, Application for Federal Assistance, and provide a simplified grant agreement shortly after it receives an application.