Retail Impacts

Retail Impacts Concessionaires, airports discuss losses, rent relief, and opportunities By Lindsay M. Hitch January 2002 Estimated SHORT-TERM Impacts Operating Revenue Loss by Source 9/11-9/15 Shutdown/Severe Impact 9/16-9/22...

Derryl Benton, director of concessions and disadvantaged business enterprise (DBE) programs at Orlando International Airport, explains that after September 11 his tenants complained of lost revenue and diminished passenger traffic, and asked for rent relief. Benton approached the airport to see what could be done, assuming rent relief was a reasonable request. Due to budget constraints and the debt structure of the airport, says Benton, it was not possible for Orlando International to grant rent relief.
Orlando’s operations and maintenance budget makes up 45 percent ($129 million) of its budgeted expenses ($286 million). Debt service makes up another 42 percent ($119 million). The remaining 13 percent consists of fund deposits ($17 million) and debt service coverage ($19 million).
The airport cut its operations and maintenance (O&M) budget by 20 percent to make up for decreased landing fees, PFCs, parking revenues, hotel revenues, and other revenue sources. Salaries and benefits, which make up 29 percent ($37 million) of the O&M budget, suffered the largest cuts. Benton says the airport offered early retirement, established a hiring freeze, and deleted about 20 positions. And as the airport was making cuts in some areas, others, like the police department, required significant increases.

Stu Holcombe, senior vice president and director of business development for CA One Services, says that while he can appreciate an airport’s budget constraints he also recognizes the small margins of airport concessionaires.
The airport environment often requires higher capital, labor, and rent costs while also requiring street pricing, thus not allowing the concessionaire to make up for increased expenses. Holcombe reports that CA One has had to cut 700 positions since Septem-ber, and a large reason for that is unrealistic rent structures.
Because airport concessions contracts are bid competitively, operators often bid lower than what they can truly afford in order to get the contract. Holcombe recommends setting a reasonable minimum annual guarantee (MAG), using a percentage for the first year and then reevaluating based on enplanements.
Tom Nolan, Jr., director of airport development for McDonald’s Corpor-ation says it is important for airports to say what they want in the RFP. "If it’s rent, say that up front and plan accordingly in the RFP," says Nolan. He also calls for reasonable flexibility on street pricing — value pricing that would take into account airport versus non-airport retail rent.

Conference attendees represented several airports of varying size and the concessionaires serving those airports. Some have been impacted more than others by the restrictions of non-ticketed people beyond security. Interest-ingly, the general concensus on whether it is better to be pre- or post-security is mixed.
Those operators with shops beyond security say they haven’t felt a pinch by the lack of "meeters and greeters" in the concourses. The passenger numbers are down, but it’s the passengers that most often make purchases, they say.
Operators with shops pre-security also feel fortunate for their location in most cases. Taking advantage of most travelers passing a shop, however, is dependent on optimizing passengers’ dwell time. Since passengers who arrive two hours early spend most of their time in security lines, pre-security concessions will likely suffer.

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