Resource Manual for Airport In-Terminal Concessions (2011) / Chapter Skim
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9 Business Terms and Concession Agreements
9 Business Terms and Concession Agreements
Pages 137-154
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From page 137... ...
In establishing term lengths, airport operators should consider the following: • Expected capital investments. Larger capital investments may justify longer agreement terms so that adequate time is available to amortize the investments.
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From page 138... ...
0 2 4 6 8 10 12 Advertising Duty Free Food & Beverage News/Gift Services Specialty Retail Ye a rs Large Hub Medium Hub Small Hub Non-Hub Source: LeighFisher using data from the airport surveys conducted for ACRP Project 01-11.
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From page 139... ...
If special local circumstances exist that make it important to enter into a long-term exclusive agreement, airport operators may submit detailed information with requests to the FAA Regional Civil Rights Office for review and approval to enter into such an agreement. Term extension options should be carefully crafted and managed so that they meet legal requirements, serve the airport operator's purposes, and are granted only to deserving concessionaires.
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From page 140... ...
is sometimes computed based on the concession fees received by the airport operator from the space in the most recent year or based on the projected Year 1 percentage fees that the airport operator expects to receive under the new concession agreement. For example, the airport operator Source: LeighFisher using data from the airport surveys conducted for ACRP Project 01-11.
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From page 141... ...
When developing new concession agreements, airport operators need to determine which MAG adjustment methodology best serves their purposes. Regardless of the approach used, in most cases, concession agreements establish that the MAG in succeeding years may never fall below the Year 1 MAG amount, which constitutes the floor of the airport enterprise's minimum annual revenue throughout the term of the concession agreement.
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From page 142... ...
9.3.2 Percentage Rents The survey results indicate that percentage rents for the major concession categories typically average in the 10% to 15% of gross receipts range, except for terminal advertising (which is usually considerably higher) and duty free (which is often somewhat higher)
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From page 143... ...
at the high end of the range. Source: LeighFisher using data from the airport surveys conducted for ACRP Project 01-11.
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From page 144... ...
Profit-sharing arrangements may provide marginally improved revenues, but may also transfer risk to the airport operator when passenger traffic declines or concessionaire costs increase. Source: LeighFisher using data from the airport surveys conducted for ACRP Project 01-11.
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From page 145... ...
Airport operators may or may not require concessionaires to pay separate charges for the use of utilities. When required, separate meters may be installed so that the utility companies bill the concessionaires directly, or charges may be determined based on allocations from submeter readings or estimated use calculations.
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From page 146... ...
146 Resource Manual for Airport In-Terminal Concessions
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From page 147... ...
Business Terms and Concession Agreements 147 # Co un ty R espo ns ib il it y Co nc es si on ai re Re sp on si b ili ty No t Ap pl ic ab le El ec tr ic al 1 I nf ra st ru ct ur e (w it hi n Le as ed Pr em is es or e xcl us iv el y ser vi ng Le ased Pr em is es ) X 2 T r ansf or me r - Co ncess io na ir e El ec tr ic al Se rv ic e X 3 T r ans fo me r( s)
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From page 148... ...
. Airport operators should tailor the performance standards in their concession agreements to the policies, procedures, goals, and objectives in place at their particular airport.
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From page 149... ...
At some airports, the concession agreement requires a strict compliance with street pricing, while, at others, an add-on, such as street pricing plus 10%, is in place. The surveys conducted for this research indicated that street pricing plus 10% is now the most commonly used pricing policy among airport concessions (except for duty free where prices are most often benchmarked to those at other airports)
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From page 150... ...
Concessionaires generally believed that pricing policies need to reflect the sales volume and cost structure of the airport's concessionaires and take into account percentage rents, development costs, local wage rates, and other costs. 0% 5% 10 % 1 5% 20% 25% 30% 35 % 4 0% 45 % 5 0% Be nc hm arke d to Ot he r Ai r por ts St r eet Pr ic in g + 5% St re et Pr ic in g + Ot he r St r eet Pr ic in g St r eet Pr ic in g + 10% F ood Co nv en ie nc e Re ta il Sp ec ia lt y Re ta il Du ty Fr ee Source: LeighFisher using data from the airport surveys conducted for ACRP Project 01-11.
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From page 151... ...
In establishing minimum investment requirements, airport concession managers should be aware of any recent costs for building concession facilities at their airport, as well as at other airports. As the result of security requirements, delivery restrictions, materials durability and quality requirements, and other cost factors, concession buildout costs at airports are often significantly higher than at similar branded off-airport locations.
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From page 152... ...
9.8 Midterm Investment Requirements It is standard practice for airport operators to include a requirement for concessionaires to make additional investments near the midpoint of the agreement term, especially in those cases where the term spans more than 5 years. The midterm investment requirement is established by the airport operator in the solicitation process and included in the concession agreement.
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From page 153... ...
9.10 Business Practices in Need of Review In the surveys conducted for this research, airport concession managers were asked to identify general business practices that are most in need of change or improvement. The top three practices cited were (1)
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From page 154... ...
0 4 .5 5. 0 Street pricin g RFP processes Performanc e sta ndards in concession agreements Perc entage rent s Minimum annual gua ra ntees Mid-term refurbishment re quirements Length of term Lack of transparency in so lic itation proc es s Design review processes Cost of constructin g im provement s Concessionaires Airport operators No Impo rt ance High Importance Source: LeighFisher using data from the airport surveys conducted for ACRP Project 01-11.
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