The pandemic could serve as a catalyst for change in how airport contracts with concessionaires are structured, airport directors said Wednesday on a weekly industry call hosted by the Airport Restaurant & Retail Association agreed.
Huntley Lawrence, acting COO, director of aviation, Port Authority of New York and New Jersey; Justin Erbacci, CEO, Los Angeles World Airport; and Lester Sola, director and CEO, Miami-Dade Aviation Department, shared their experiences through the pandemic and their thoughts about business structures in the future.
“I think this pandemic has really defined how airport concessions will look going forward,” Sola said. “Maybe one day in the future you’ll be back to some form of MAG. I don’t see it. For Miami International, the direction that we have is that we’re going to go away from MAGs.”
In the coming weeks, Miami International Airport (MIA) will embark on creating a tiered approach to concessions contracts. “We’re having conversations with some of our concessionaires…,” Sola said. “Our initial offering would be that, at a minimum, someone would have to pay the square foot rent for the space. Then, depending on how their businesses going, we would participate on a percentage of gross. It would be tiered, so as [concessionaires] do better, [the airport] does better as well.”
Lawrence also signaled that change may be in order. “We’re going to have to be open to looking at things differently, and that’s going to be difficult in some circumstances because we’ve entered into contracts – some long-term contracts [with terminal operators],” he said. “I think we’ll have to see how we come out of this, get some lessons learned, and maybe revisit some of the ways that we do business.”
“At the most fundamental level, the concession operator, the one that operates that store, is going to have to consider the risks that they have in managing that business day to day, and what happens when passengers are not at the level that they are anticipated,” Lawrence continued, noting that a reassessment of the risk level that can reasonably be tolerated may be in order.
The call participants also shared updates on international traffic developments, a sector that has been stymied by travel restriction due to the pandemic. “Unfortunately the new travel restrictions out of Europe and then extended to all international travel, I think has been pretty significant and devastating to our traffic,” Lawrence said. “We think international traffic is going to be hurt even further.”
Erbacci noted efforts underway at the national level, through the American Association of Airport Executives, to create a system where passengers can either get tested at the airport or show they’ve had the vaccine.
“We need people to feel comfortable with traveling again and we need to make it as safe as possible,” Erbacci said, noting that the Biden administration appears to be more receptive to a comprehensive effort. “The key is getting to a situation where people can fly safely without having to go and get quarantined. That’s the only way we’re going to stimulate any travel. We all have the testing infrastructure in place…but we need to get some type of standardization.”
Vaccine distribution is also key, noted Sola. “Once we’re able to expedite the ability to roll out this vaccine, I think that’s when we’ll truly see recovery for the industry and the travel, whether it be business or, or for leisure, because you won’t have to get tested,” he said. “You can show the fact that you’ve had the vaccine and you’ll be able to come in and out of the airport.”
Looking for Relief
More financial relief and a continuation of vaccine distribution are both necessary to aid in recovery of the aviation system, panelists said. Lawrence noted that PANYNJ had to find “creative ways” to ensure that the terminal operators at system airports were passing on the financial relief awarded to airports under the first two stimulus packages.
PANYNJ had to “have specific and direct conversation with terminal operators to ‘strongly encourage’ them to provide the relief and pass the relief through to the to the to the actual tenant,” Lawrence said, adding that “it is going to take a lot more of those creative types of relief packages to get this industry back on the road to recovery.”
“Candidly, we need a lot more, [particularly for] minority-owned businesses that have very little cash and really are on the brink of a failure,” he said.
“It’s clear, we’re going to need more and probably not just a one-time relief,” Erbacci agreed. “We have to also look at how he can change the way that we get our capital improvement programs funded in the longer term. Whether it be PFC or [something else], we have to find ways to get more sustainable and long-term assistance for the airports.”
Erbacci also called for a federal effort to promote travel. “This is an area where despite all of our efforts we didn’t really get a lot of support in the previous administration,” he said. “How do we put in policies and practices in place to help us stimulate traveling? I think that’s something that we need to look at going forward,” he said, calling for innovative solutions that are not dragged down by bureaucracy and politics.
In addition to seeking federal solutions, Erbacci said LAWA has launched an ACDBE working group to address challenges faced specifically by the small businesses operating in airports. The goal is to create a program that will help ACDBEs gain business in the airport, and then to be able to sustain their business once opened. “We’re hoping that’s going to help us to identify and work together, to see how we can promote and help ACDBEs be more successful,” he said.
At PANYNJ airports, Lawrence said one goal going forward is to “be in lockstep with the folks that we do business with,” – something he acknowledges wasn’t always happening in the past. “We are taking a look at how we address issues like relief, but also what will likely happen to future concession agreements as we work our way through this COVID situation,” he said. “The way agreements are structured today may very well be different in the future out of necessity.”
Collaboration is Key
One development that has come out of the pandemic is an increased level of collaboration among airports, tenants and airlines.
“It required a level of collaboration and communication with stakeholders that was unprecedented,” noted Lawrence. “We ended up getting into some unprecedented relationships with our stakeholders and found it necessary to provide relief … and really focus on the financial wellbeing of the entire aviation ecosystem. We had to adapt and innovate quickly.”
Lawrence said traffic at PANYNJ airport is down 70-75% currently but “we believe we are recovering nonetheless.”
MIA was positioned to play a vital role in ensuring all stakeholders worked together, necessary to limit the devastation, according to Sola. “We knew that we had a vital role in really orchestrating the camaraderie and the ‘working together’ approach” in an effort to limit impact on the overall community, he said.
“Recognizing that in an instance like this government that tends to be slow in reaction, we actually reacted very quickly,” Sola said. “We knew that we couldn’t just run towards the contracts that we have with airlines, contracts, or agreements that we have with concessionaires or providers. We knew that we had to communicate with all these parties” for immediate results, then sort-out the longer-term solutions later.”
Collaboration was also key at Los Angeles International Airport (LAX). “There was no playbook for how to react to this situation,” noted Erbacci. A positive development was the way all stakeholders worked together, a situation that he hopes will continue.
“We’ll have to continue to collaborate closely and respond as things occur as dynamically as they have been, and they will continue to be dynamic,” Erbacci said. “We just have to try to figure out how to continue to work closely together towards common objectives.”
Also on the call, Nicholas Crews, secretary of ARRA and president and CEO of Crews Hospitality, updated listeners on the latest on the industry’s lobbying efforts for financial assistance from the U.S. government. He noted that the Biden administration has put forth a $1.9 trillion relief package that includes $20 billion in transit relief. The macro-level bill did not specifically outline relief for the aviation industry.
“There will be much more to come regarding this next relief bill in the near future,” Crews said. “We’re going to make sure all the industry stakeholders are working together to assure we’re singing from the same sheet of music while we collectively lobby Congress and the administration to assure airports and concessionaires are included in this next round of much needed relief.”