Minneapolis-St. Paul International Airport (MSP) and Dallas/Fort Worth International Airport (DFW) have both aggressively worked with concessionaires to provide rent relief during the COVID-19 pandemic. They intend to continue collaborating with their partners as the recovery continues and they’re open to conversations relating to how future contracts might be structured going forward.
Zenola Campbell, vice president of concessions at DFW, and Eric Johnson, director of commercial management and airline affairs at MSP, shared their thoughts during the weekly conference call hosted by the Airport Restaurant and Retail Association (ARRA).
Both airports were quick to offer relief as COVID-19 hit in March of 2020. DFW switched its operators to percentage rent, modified hours of operation, provided significant relief on storage, operating and maintenance costs and offered, through the end of this month, the option for any operator afraid for their survival the opportunity to release locations with no penalties. Operators remain on percentage rent and DFW staff has been working with them on staggered opening and closing scenarios, Campbell said.
MSP broke down the entirety of its operator cost components in March, quickly offered deferred rent and, following clarifications on rules from the Federal Aviation Administration, waived the MAG, as well, in quarterly segments. Increased communications that arose from the pandemic were the silver lining in the messy year, Johnson said.
“It got us to the point where we were having real, regular conversations with all our operators,” he said. “At one point it was daily contact with people.”
As a result of those talks, MSP put together a relief plan where MAGs were waived from January 1 to June 30, 2021, for all concessionaires. Then, starting July 1, MSP structured a tiered approach to bringing MAG back online depending on passenger volume. As of July 1, traffic was at 70 percent of 2019 levels, so the MAG was restored at 60 percent of the previous requirement.
“We are still assuming that on January 1, 2022, we will be back to our full MAGs, but that will remain to be seen,” he said.
Prior to pandemic, DFW had already started a Growth and Partnerships (GAP) program aimed at finding ways to better work with concessionaires as partners. Campbell said the airport had already instituted a program where operators in their first year would pay percentage rent rather than a MAG. The MAG would then be set the following year, typically at around 75 percent or less of what a specific location was expected to produce in sales, Campbell said.
Labor Costs Concerns
While both airports agree on the need for collaboration and working with operators on reducing costs, neither has found the perfect solution for the biggest challenge facing airports as traffic has returned this spring: hiring and paying staff.
Weddig noted seeing a job posting for a gas station attendant at $17-an-hour in a rural part of the country and adds that Amazon raised its average starting rates to $18-per-hour.
As part of its efforts to help operators, MSP did as part of its long-term relief program allow restaurants to institute up to a 4 percent pre-tax hospitality charge. The airport required significant signage be posted around point-of-sale and location entry points so the pubic was aware of the charge, but there have been notably few complaints, Johnson said.
It’s not considered part of gross revenue, so the airport does not get any part of that in rent.
“We took a look around at what was happening in the local community and there were a lot of similar types of fees that restaurants were charging to address health care costs and rising wage costs to the operator,” Johnson said.
The fee is up for review at the end of each year and can be reduced or removed by the airport based on local market trends, but he doesn’t see it going away anytime soon.
“I don’t see the street side version of the hospitality fee going away anytime soon, just because regardless of what happens in the recovery, labor costs are still going to be escalated from where they were before,” he says. “I would anticipate this will be an ongoing fee that we will probably see for some time.”
Campbell again acknowledged the airport role in finding more efficient ways of getting buildouts or installing cooking equipment “that will have less intense labor implications,” she says. “We’re all in it to make money and we want to make smart money,” she says. “I think we can work together on in regard to what are some of those things that we can look at in terms of taking costs out of the business.”
RFPs Coming Soon?
While traffic has returned quicker than expected at MSP, Johnson told listeners that he doesn’t see the airport putting out any major concessions RFPs in the near future. MSP initially intended to put out an RFP in 2020 for its Terminal 2 concessions but tabled it due to the pandemic. Three-year extensions are buying staff some time to evaluate the recovery, he added, because he doesn’t want to build a program around what is now a leisure traveler-dominated industry only to see business travel return shortly after a new program opens.
DFW is jumping back into the RFP mix a bit sooner, Campbell said. One of its terminals is under redevelopment and “we are looking at getting that back in play” probably in the first quarter of 2022.