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AAAE Airport Certified Employee (ACE) - Airport Finance > Module 4 - Non-Airline Agreements and Commercial Development > Flashcards

Module 4 - Non-Airline Agreements and Commercial Development Flashcards

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1
Q

Why should an airport develop other sources of revenue?

A

Over-reliance on air-carrier revenues; as other revenue increases the airline rates and charges could decrease; the positive impact that other revenue streams will have on the surrounding community.

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2
Q

What is an Economic Impact Study?

A

It is a report that summarizes and demonstrates the airport’s impact on the local and regional economy.

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3
Q

What areas are quantified in an Economic Impact Study?

A

All financial areas to include those that occur off the airport premises.

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4
Q

What ACRP Synthesis relates to an Economic Impact Study?

A

ACRP Synthesis 7, Airport Economic Impact Methods and Models.

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5
Q

What are some of the impacts that may be measured?

A

Employment (number of jobs)
Wages
Local/Regional spending
Tourism
Air Traffic
Cargo
MIlitary/Emergency Services
Time Savings

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6
Q

What are the three primary methods used to measure the economic impacts of aviation?

A
  1. Input-Output Method
  2. Collection of Benefits Method
  3. Catalytic Method
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7
Q

In the Input-Output method, what are the impacts measured?

A
  1. Direct - directly related to the airport’s operation.
  2. Indirect - normally occurring off-airport but still related to the airport’s operation.
  3. Induced impacts (multiplier effects) - Produces the highest value, and measures the effect of the responding money from the other two impacts.
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8
Q

In the Collection of Benefits method, what does it focus on?

A

Quantitative and Qualitative measures of benefits reduced costs, and revenues created by the airport.

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9
Q

What terms is the Catalytic method expressed in?

A

Monetary. Measures the spillover effects of how the airport contributes to the supply side of the economy.

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10
Q

What are the two fundamental forms of terminal concession agreements?

A

Food and Beverage

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11
Q

What makes up Retail Concessions

A

Books, Electronics, clothing and accessory stores, jewelry stores, unique regional stores.

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12
Q

What are some duty-free items?

A

Alcohol, Cigarettes, perfume other high end products.

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13
Q

What are some of the factors that can influence how the airport chooses to oversee concessions?

A
  1. Amount of capital the airport is willing to commit to concession development
  2. The size of the airport and the number of concession locations
  3. The number of airport staff the organization is willing to dedicate to the program
  4. The experience and capabilities of the airport staff to oversee concession operations.
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14
Q

What is MAG, and how does it apply?

A

Minimum Annual Guarantee, the minimum amount of concession fees the operator will pay the airport regardless of actual sales.

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15
Q

What is the intent of a MAG?

A

To insure that the airport receives some reasonable amount of revenue for the activity as a baseline, with the hope that airport revenues from the concession percentage fee will exceed the agreed upon MAG.

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16
Q

What is a Developer/Manager Model?

A

the Developer/Manager is responsible for major capital development costs of the concessions program and for the management of that program after initial development is complete.

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17
Q

What are the three models used for concession agreements?

A
  1. Developer
  2. Fee Manager
  3. Master Concessionaire
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18
Q

What are the advantages of the Developer Model?

A
  1. Airport capital funds are preserved for other, non-terminal concession, projects
  2. The burden of the airport to oversee the contr4acting and construction of the concession locations falls upon the developer/manager.
  3. Less concession expertise is needed on airport staff as the developer/manager pursues an operator for the location and, due to their experience at other airports, has a broad range of experience with various concepts, brands, and operators.
  4. The developer/manager can help the airport avoid dealing with direct political issues with new concepts or operators.
  5. The developer/manager has a vested interest in maintaining the quality of the program as their income is related to maximizing sales.
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19
Q

What are the disadvantages of the Developer Model?

A
  1. The airport is giving up a material portion of the concessions revenue to compensate the developer/manager and the agreement term with the developer/manager can be long (20+ years) for them to recover their investments.
  2. The airport does not have absolute control of the program, although it may have concept or brand approval rights.
  3. The airport may be interested in certain concepts to accommodate passenger demand that has less of a financial return (less sales) whereas the developer/manager, while concerned about customer demand, may want to drive higher earning concepts.
  4. The developer/manager may not be willing to invest in additional concession space build-out after their initial investment without additional terms or additional revenue sharing.
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20
Q

What is the Fee Manager Model?

A

This model is similar to the Developer/Manager Model, with the exception that the Fee Manager does not expend any of its own funds for capital development of the concession spaces.

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21
Q

What are the advantages of the Fee Manager Model?

A
  1. Less concession expertise is needed on airport staff as the developer/manager pursues operators for the locations and, due to their experience at other airports, has a broad range of experience with various concepts, brands, and operators.
  2. The developer/manager can help the airport avoid dealing with direct political issues with new concepts or operators.
  3. The fee manager has a vested interest in maintaining the quality of the program as their income is related to maximizing sales.
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22
Q

What are the disadvantages of the Fee Manager Model?

A
  1. The airport uses its own funds for cap[ital improvements, that could be utilized for other projects, for the concession locations.
  2. The airport does not have absolute control of the program, although it may have concept or brand approval rights.
  3. The airport may be interested in certain concepts to accommodate passenger demand that has less of a financial return (less sales) whereas the fee manager, while concerned about customer demand, may want to drive higher earning concepts.
  4. The airport’s revenues are reduced by sharing concession rents with the fee manager.
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23
Q

What is a Master Concessionaire?

A

In this model, the airport selects one or two concessionaires, usually one for food/beverage and one for retail, that operates all the concession locations related to that area. Like the fee manager model, this model is most useful in airports that have their concession location in place and/or are willing to pay for the construction of new spaces.

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24
Q

What are the advantages of a Master Concessionaire?

A
  1. The airport only has to manage one or two contractual relationships (food/beverage and retail)with the master concessionaire(s).
  2. The master concessionaire has experience in managing programs at other airports and brings that expertise, through proof of concepts, etc., to the airport.
  3. The airport staff’s primary role is to manage the relationship with the master concessionaire, monitor the quality of the program, and review and approve concepts.
  4. More revenue is retained by the airport since there is not a party sharing in the concession rents as in previous models.
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25
Q

What are the disadvantages of a Master Concessionaire?

A
  1. In working with master concessionaires, concepts that are available to the airport are limited to the relationships that the master concessionaire has with brands.
  2. The airport is fully reliant upon the quality of the corporate and local management for he master concessionaire. They operate and maintain the entire portfolio under them and, unlike an individual operator, ending the relationship can be very complex.
  3. Should there be a transition to another master concessionaire at the end of the current agreement, brand concepts could possibly change, specifically in locations where the outgoing master concessionaire has exclusive brand rights.
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26
Q

What is Direct Program Management?

A

In this model, the airport elects to manage the concession program itself. In this model, the airport would solicit for concessionaires for each location, or package several locations together, and enter into agreements for each of these locations.

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27
Q

What are the advantages of Direct Program Management?

A
  1. Lack of concern over brand availability since the airport can contact with multiple operators with varying relationships
  2. Disruption with operator changes are minimized since agreement terms can be spaced out.
  3. The airport has sole discretion on the concepts in the program.
  4. Additional locations (or the demolition of existing but unused locations) do not impact existing agreements.
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28
Q

What are the disadvantages of Direct Program Management?

A
  1. The airport must procure, usually through a time-consuming RFP process, operators for each of the locations.
  2. Airport staff take on a greater responsibility for oversight of the program and this would require more internal resources than the other models.
  3. It may be difficult to get operators for all locations unless the airport “packages” locations together.
  4. The airport itself must be able to withstand pressure from officials or other stakeholders recommending an operator or brand.
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29
Q

What is “street pricing”?

A

“Street Pricing” requires concessionaires to price their items equivalent to the same item, or as close to the same as possible, available to customers off the airport.

30
Q

What are Living Wage Laws/Regulations?

A

They are a wage sufficient to provide the necessities and comforts essential to an acceptable standard of living.

31
Q

Audits/Agreed upon Procedures of Concessionaires.

A

A necessary component of concession agreements is language requiring the operator to provide to the airport an audit or agreed upon procedure validating and verifying the concession amounts paid to the airport over the course of the year

32
Q

How can the airport measure Concession Program Performance?

A
  1. Concession space per 1,000 or 10,000 passengers (often broken down into the various categories).
  2. Sales per passenger (total, domestic, and international).
  3. Sales per square foot of concession space
  4. Airport revenue per passenger
  5. Airport revenue per square foot of concession space
33
Q

What is critical when measuring performance?

A

To ensure that the airport is using appropriate comparable airports in its benchmarking.

34
Q

What is/are ACDBE?

A

Airport Concession Disadvantaged Business Enterprise requirements.

35
Q

What requires an ACBDE Program to be in place at a commercial service primary airport?

A
  1. $200,000 or greater in either rental car or non-rental car concession revenues
  2. Receive FAA Grant Funds
36
Q

What must an ACDBE Program include?

A
  1. Provisions for a policy statement, liaison officer, and directory.
  2. Certification standards for eligible DBEs
  3. A Statement committing the sponsor to operate the ACDBE Program in a non-discriminatory manner.
    These can all be in one policy letter that covers the standard DBE Program and the ACDBE Origran rather than separately in each program.
37
Q

What CFR regulates the ACDBE Program?

A

49 CFR 23.25

38
Q

Under 49 CFR 23.25 what measures must be addressed?

A
  1. A narrative description of the types of measures to ensure non-discriminatory participation.
  2. A provision for setting goals consistent with the regulations.
  3. Provisions seeking ACDBEs in all types of concession activities rather than limiting the efforts to one or several categories of participation.
  4. Race-neutral measures the sponsor will take to obtain participation.
  5. Race-conscious measures that will be utilized when race-neutral measures alone are not sufficient to meet the overall goal.
  6. Requiring businesses subject to ACDBE goals at the airport to make good faith efforts to meet goals.
39
Q

Is the airport’s ACDBE Program supposed to be approved by the FAA?

A

Yes, it must be submitted to the FAA Regional Office for approval. Also, if there are significant changes to the current ACDBE Program, it also must be submitted for approval.

40
Q

What is the single greatest source of non-airline revenue?

A

Parking revenue.

41
Q

What are some of the different types of parking on an airport?

A

Hourly, Short-term, Long-Term, Economy or Extended, Valet

42
Q

What are the different models of parking management?

A
  1. Self-Management
  2. Outsourced Parking Management
  3. Parking Concession Agreements
43
Q

What is Self-Management?

A

Where the airport utilizes airport staff to operate and manage the parking.

44
Q

What are the advantages to Self-Management?

A
  1. The airport controls all aspects of the program and all the revenue.
  2. The airport can make decisions that align with its strategy rather than purely based upon revenues (e.g. keeping rates low to raise customer satisfaction).
45
Q

What are the disadvantages to Self-Management?

A
  1. Parking operations may not be a core competency of the airport, and staff may not have enough expertise in parking management and operations as compared to third-party operators (the airport could, however, hire a constant(s) to assist).
  2. The employees of the parking operation are retained by the airport, creating management responsibilities, benefits, etc.
  3. The airport must address customer concerns and complaints directly.
46
Q

What is Outsourced Parking Management Agreement?

A

This is where the airport turns over the management and operation of the parking functions to a third party through a parking management agreement.

47
Q

What are the advantages of Outsourced Parking Management Agreements?

A
  1. The airport relieves itself of the day-to-day responsibilities of the parking operations.
  2. Less staff needs to be assigned to the function as the airport’s focus is limited to oversight.
  3. Parking management firms should have a handle on best practices.
  4. An outside firm may take on capital investments in parking facilities or improvements that the airport is unable to accommodate due to other funding priorities.
  5. Customer complaints are handled by the management company directly.
48
Q

What are the disadvantages of Outsources Parking Management Agreements?

A
  1. Unless adequately defined in the agreement, customer service provided by the management company may not meet airport expectations.
  2. The airport must receive a detailed audit verifying both revenues and the manager’s expenses.
  3. The airport’s parking revenue income is reduced due to the profit of the management company, however, if they are doing a good job, revenues and expenses should be performing better than under airport management.
49
Q

What is a Parking Concession Agreement?

A

The airport selects a parking operator/manager that performs functions similar to that of a parking manager with one difference. The manager is compensated fully by receiving a percentage of the overall gross parking revenues.

50
Q

What are the advantages of a Parking Concession Agreement?

A
  1. The airport relieves itself of the day-to-day responsibilities of the parking operations.
  2. With a concession fee, the concessionaire’s intent would be to maximize parking revenues, which benefits the airport.
  3. Minimal airport oversight, staff only needs to validate parking revenues.
  4. Parking management firms should have a handle on best practices.
  5. Customer complaints are handled by the management company directly.
51
Q

What are the disadvantages of a Parking Concession Agreement?

A
  1. The concessionaire, not the airport, has use of the parking revenues until the required payment date.
  2. A lack of control over the parking function and, ultimately, the customer experience.
  3. In some cases, parking revenue collected by a concessionaire may be subject to state and/or local taxes that the airport would otherwise be exempt from. These taxes would reduce the revenue base shared with the airport.
  4. The loss of revenue resulting from the concession fee paid to the operator.
52
Q

What are some tools that can be used to retain or grow parking revenue?

A
  1. Offer a reward program for parking patrons (and possibly having that program also cover terminal concessions) to build loyalty.
  2. Take advantage of the proximity to the terminal(s). If possible, passengers often prefer to walk into the terminal and eliminate the risk of having to wait for a shuttle.
  3. Simplifying the parking process by allowing for customers to choose from different options on how to pay for their parking (reservations or pre-booking, pay-on-foot, utilizing highway transponders like the EZ-pass to pay for parking, etc.).
  4. Since airports usually have different parking products, offering discounts on more expensive products during slower periods. For example, if the airport has a covered parking lot used primarily by business travelers on weekdays, the airport can offer a discount to those parking in non-covered economy spaces if they park and exit during slower times (Friday - Sunday).
53
Q

What are some ways to analyze performance of the parking agreement?

A
  1. Number of transactions
  2. Average length of stay (by product or lot).
  3. Percentage of occupancy (by product or lot).
  4. Occupancy by day of the week.
  5. Seasonal variation in parking transactions and revenues
  6. Comparable rates at other airports and local parking facilities.
54
Q

What is the first step in developing Ground Transportation revenues?

A

The establishment of a ground transportation policy at the airport.

55
Q

What areas should be addressed in a ground transportation policy?

A
  1. Ground transportation operator requirements.
  2. Application process.
  3. Insurance.
  4. Terminal curbside space allocation.
  5. Vehicle condition requirements.
  6. Vehicle identification requirements.
  7. Driver background checks.
  8. Permitted roadway and parking area use.
  9. Pick-up, drop-off, and waiting locations.
  10. Driver requirements and conduct.
  11. Environmental sustainability initiatives.
  12. Fee structure.
  13. Trip reporting/tracking/billing.
56
Q

What are some fees that can be associated with a ground transportation policy?

A
  1. Operator application fee.
  2. Vehicle registration fee.’
  3. Permit/decal fee.
  4. Charges for initial/lost Automated Vehicle Identification (AVI) transponder.
  5. Dwell time charges.
  6. Late payment fees.
  7. Fees for violations/penalties of the ground transportation policy.
57
Q

What is a TNC?

A

Transportation Network Companies, i.e Uber, Lyft, and other ride-share companies.

58
Q

What are CONRACs?

A

Consolidated Rental Car Facilities. An area for the rental car company to house cars, ready-return spaces and quick turn around facilities.

59
Q

What are some of the issues airports must consider with a CONRAC?

A
  1. Expected future demand of rental cars.
  2. Financing - will the airport be financing, or will the rental car companies be financing?
  3. Are the rental car companies willing to support a CONRAC program?
60
Q

What are some metrics to track rental car performance?

A
  1. Number of transactions.
  2. Transaction days.
  3. Average days per transaction.
  4. Average rental rate.
  5. Gross revenues.
  6. Add-on fees and taxes.
  7. CFC revenues.
61
Q

How do airports handle Advertising Agreements?

A

Most airports hire an outside firm through an RFP. The agreement will include projections for estimated revenues and a percentage split of the gross revenue.

62
Q

Regarding Fixed Based Operators (FBOs), what are the special considerations of the FAA?

A

Airport Sponsors are obligated by Grant Assurance 22.
Airport Sponsors may not grant Exclusive Rights.
The airport sponsor has the right to be the exclusive FBO provider at the airport.
The FAA strongly encourages airport sponsors and users to resolve business and economic issues at ta local level.
It is made clear that the FAA does not approve FBO Leases and agreements and does not regulate the entry and exit of FBOs into local markets.

63
Q

What may be considered when determining the reasonableness of FBO Fees?

A

Capital investment required of the FBO
Prevailing labor costs
Insurance requirements
Increases in rents and other fees paid by the FBO
Fuel costs and the long-term financial commitment to operate an FBO.

64
Q

Should Minimum Standards be formally established?

A

Yes

65
Q

What should Minimum Standards cover?

A

Commercial Aeronautical Activities with reasonable detail.
The type and amount of space an FBO or SASO will be required to rent/develop.
Minimum types of products, services, and facilities that must be made available to customers.

66
Q

What is the key consideration for airport sponsors in relation to development and environmental reviews?

A

The process can take a significant amount of time and may create obstacles in completing development projects.

67
Q

What are the two types of Land Releases?

A
  1. Partial - when the airport is seeking to change the use, operation or designation of the on-airport property.
  2. Full - when the airport is seeking to sell and remove from its ALP.
68
Q

Can aeronautical property be used for non-aeronautical projects?

A

Yes, in certain circumstances. This would be considered Concurrent Use of Airport Property. The land would remain for aeronautical use but also be used for other non-aeronautical, usually revenue-producing, purposes.

69
Q

What Grant Assurances will need to be reviewed for land release?

A

Grant #4 - Good Title
Grant #5 - Preserving Rights and Powers
Grant#21 - Compatible Land Use
Grant #25 - Airport Revenues
Grant #29 - Airport Layout Plan/Exhibit “A”
Grant #31 - Disposal of Land

70
Q

What FAA Order applies to Land Release?

A

FAA Order 5190.6B

71
Q

What is Fiar Market Value (FMV)?

A

The value for airport property that is supported by at least one independent appraisal report acceptable to the FAA. FAA Order 5190.6B 22.17(d)

AAAE Airport Certified Employee (ACE) - Airport Finance (5 decks)

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