PORT OF SEATTLE 
MEMORANDUM 
COMMISSION AGENDA               Item No.      4d 
ACTION ITEM 
Date of Meeting    November 25, 2014 
DATE:    November 10, 2014 
TO:      Ted Fick, Chief Executive Officer 
FROM:   James R. Schone, Director, Aviation Business Development 
Nick Harrison, Senior Manager, Aviation Operations 
Jeff Wolf, Manager, Aviation Business Development and Analysis 
SUBJECT:  Third Party Firm to Manage the Airport's Common-Use Premium Lounges. 
ACTION REQUESTED 
Request Commission authorization for the Chief Executive Officer to execute a contract for
operation of common-use premium lounges at Seattle-Tacoma International Airport for a total
contract cost to the Port not to exceed $2,000,000 and a term of three years with two, one-year
options to extend. 
SYNOPSIS 
The Airport currently has two common-use premium lounges in operation. These lounges are an
essential service for the international airlines that do not operate their own lounges at the Airport,
or airlines that require additional space outside of their own proprietary lounges. Both lounges 
are operated under a management contract with VIP Hospitality (VIP) that was executed in
March 2010 and expires March 31, 2015. 
The contract will have a three-year initial term along with two (2) one-year options to extend. 
The estimated contract value is anticipated to be $2,000,000, which represents the estimated total
management fees paid to the selected lounge operator over the potential five-year contract
period. In addition to the management fees, as part of this contract the Port will be spending an
estimated $4 million over the five-year period on labor, food, and beverage, office supplies,
janitorial services, and applicable licenses. Port staff has included the estimated costs associated
with this contract in the 2015 operating budget. 
BACKGROUND 
A premium passenger lounge is an essential component of the services offered by airlines that
target high margin first- and business-class passengers on international flights.  A premium
lounge offers a quiet place for passengers to relax prior to boarding their flight along with
services including complimentary food and beverage, computer access, newspapers, magazines, 
and televisions. The Port provision of common-use lounges - Club International on the South
Satellite and Club Cascade on Concourse A - (Exhibit 1) meets a critical market need for those
international airlines that cannot justify building or leasing their own facility and that cannot be

Template revised May 30, 2013.

COMMISSION AGENDA 
Ted Fick, Chief Executive Officer 
November 10, 2014 
Page 2 of 6 
accommodated as sub-tenants in the existing airline-branded lounges at the Airport, including 
Delta, United, British, and Alaska. Many international carriers view the lack of access to a
premium lounge at an airport as a barrier to successful entry into that market. Having commonuse
premium lounges available for international carriers is critical to meeting the Port's Century
Agenda objective to double the number of international flights in the next 25 years. 
Common-use, premium lounge services were first introduced at the Airport decades ago with a
lounge called Club International, located on the Mezzanine level of the South Satellite. At the
time, Club International was a no-frills common-use lounge where airlines would provide their
own staffing, food, and beverages to accommodate their passengers while paying a flat per-use
fee to the Port regardless of the number of passengers using the lounge.
Due to the importance of lounge space in attracting international carriers to the Airport, in 2009,
Port staff decided to change the operating model in an effort to improve the level of service to all
carriers and travelers utilizing the lounge. Under the operating model implemented in 2009, the
Port contracted out management and operation of the lounge(s) to a third party. All expenses
related to operation of the lounges, including capital and operating expenses, were funded by the
Port. 
The contract for this third-party management service was structured to include a fixed base
management fee as well as an incentive fee that is dependent on the profitability of the lounge
operation.  The third-party operator is  responsible for staffing, procurement of food and
beverage, and management oversight. In addition, the model was changed from a fixed perflight
charge to an individual per-passenger charge applied to airlines' passengers who visit the
facility. The rate to utilize the lounge was set at $30 per passenger with a minimum of $300 per
flight. 
In late 2009, a request for proposal process was conducted for the purpose of hiring a firm to
manage the common-use lounges provided by the Port under this new operating model.  VIP
Hospitality Inc. (VIP) was selected and in March 2010, VIP and the Port entered into a threeyear
contract with two (2) one-year options to extend the lease. At that time, the Port also made 
modest improvements to the facility, including new furniture, carpet, and paint. During the
course of the past 4 years, Port staff has worked closely with VIP staff to provide regular
oversight of the operations. 
In 2011, when Delta Airlines decided to build a new lounge for their passengers on the roof of
the South Satellite and vacate their existing lounge on the concourse level of the South Satellite,
the Port made a decision to move Club International to the former Delta lounge location.  The
primary motivation for this move was to create a larger, more attractive, and more convenient
location for the airlines using Club International. In March 2012, Club International opened on
the concourse level where it continues to operate today. 
Club International currently provides lounge services to passengers from eight different airlines
with the majority of these passengers using the lounge between 10 a.m. and 2 p.m. Due to the

COMMISSION AGENDA 
Ted Fick, Chief Executive Officer 
November 10, 2014 
Page 3 of 6 
rapid growth of international carriers calling on the Airport, the lounge reached its capacity
during the summer of 2013 for the peak usage time.  The other airline-branded lounges also
reached capacity due to increases in scheduled departures of the airlines using those lounges.
Faced with the need from existing international carriers for lounge service that could not be met,
Port staff worked with VIP to open an additional common-use premium lounge located on the A
Concourse, Club Cascade. This new lounge opened on October 28, 2013, and is currently being
utilized by three carriers. 
The financial performance of Club International has steadily improved primarily due to the
increase in international airline service at the Airport.  In fact, demand for these lounges has
grown so quickly that this business has become a significant generator of non-aeronautical net
income. The following chart shows the historical performance of Club International since its
opening in 2010 along with Club Cascade starting in October 2013. 
2010     2011     2012     2013      2014
Actual    Actual    Actual     Actual     Forecast
Passengers               3,517         6,712        12,973      34,057      50,700
Gross Revenue        $ 105,500       $ 201,360       $ 413,070       $ 1,051,395        $ 1,600,000 
Total Operating Expenses   $ 156,860       $ 174,513       $ 292,049       $ 603,028       $ 781,469 
Net Operating Income    $ (51,360)       $ 26,847      $ 121,021       $ 448,367       $ 818,531 
Base Management Fee   $ 68,668      $ 73,152      $ 73,140      $ 87,600      $ 87,600 
Incentive Management Fee $ - $ - $ 9,666     $ 42,880      $ 57,979 

Notes:
Base Management and Incentive Management Fees are included in Total Operating Expenses
Port staff released an RFP for a new contract for common-use lounge management services at
the Airport on September 3, 2014. The vendor selected as a result of this RFP will be
responsible for staffing, procurement of food and beverage, and management oversight of the
Airport's common-use premium lounges. This new contract will include compensation to the
selected manager similar to the compensation model in place with the current contract with VIP. 
A base management fee will be paid by the Port to the selected firm. In addition, an incentive
management fee, dependent on lounge profitability, will be paid to the operator. The base
management fee will be a fixed payment, while the incentive management fee will be calculated
utilizing only those costs under the control of the lounge operator, primarily food and beverage,
labor, and supplies. Costs outside of the control of the lounge operator, including base utilities, 
janitorial services, and structural repairs and maintenance, will be excluded from the incentive
management fee calculation. Port staff believes implementing this type of compensation model
will result in a fair and appropriate fee paid to the selected lounge manager.

COMMISSION AGENDA 
Ted Fick, Chief Executive Officer 
November 10, 2014 
Page 4 of 6 
In addition, the RFP and new contract state that the lounge operator will need to adhere to
Resolution No. 3694 setting hiring standards, training opportunities, and minimum compensation
associated with safety and security at the Airport for any employees that meet the criteria of a
'covered employee' as established in that resolution.  Port staff will also make sure that the
selected operator is aware of and complies with any decisions that the Commission makes
regarding other employment criteria for firms that contract with the Port of Seattle related to its
initiative on Quality Jobs. 
SCHEDULE 
Port staff anticipates awarding the contract near the end of 2014 with commencement of the new
contract following the expiration of the current contract on March 31, 2015. 
FINANCIAL IMPLICATIONS 
Based on the current lounge operation and anticipated demand for future lounge use, Port staff
has created the lounge passenger activity forecast shown below: 
2015      2016      2017      2018      2019
Forecast    Forecast    Forecast    Forecast    Forecast
Total Passengers             60,000      62,400      64,900      67,500      70,200
Total Lounge Revenue    $ 1,893,000        $ 1,969,000        $ 2,048,000        $ 2,130,000        $ 2,215,000 
Growth in passenger volumes is based on new lounge users, including those resulting from
agreements with airlines and walk-up customers and is generally tied to new international air
service.  However, even with new air service, the use of Port lounges is not guaranteed, as
customers may decide to utilize alternative Airport lounges. Staff intends to continue the
promotion of the walk-up, or day-use, business which, in addition to growth due to new air
service, is the basis for the 4% annual increase in passenger volumes shown above. 
Through the RFP process, interested firms will propose amounts for both the base and incentive
management fees included in total operating expenses, so final determination of the actual fees
will be based on proposed amounts and actual future lounge performance. Historically, total fees
paid to VIP have ranged from 12% of gross revenues (2013) to65% of gross revenues (2010). 
This fluctuation in percentages is due to the nature of the mostly fixed management fee paid to
VIP compared to the variable revenues generated at the lounges, based on number of carriers 
utilizing the lounges. When the number of carriers is low, as in 2010, revenues are low and the
management fees become a high percentage of gross revenues.  With higher revenues, as in
2013, the management fee as a percentage of gross revenues decreases. For purposes of
projections, Port staff estimates these fees at approximately $2,000,000, representing about 20%
of gross revenues over the five-year projection period shown above. This estimate is the basis
for the requested Commission authorization of $2,000,000.

COMMISSION AGENDA 
Ted Fick, Chief Executive Officer 
November 10, 2014 
Page 5 of 6 
STRATEGIES AND OBJECTIVES 
This request supports the Port's Century Agenda objective to advance the region as a leading
tourism destination and business gateway. Specifically, this agreement ensures that the Port has
uninterrupted common-use premium lounge services that will provide a key amenity in support
of making Seattle-Tacoma International Airport the West Coast "Gateway of Choice" for
international travel and support the goal to double the number of international flights and
destinations. 
This  request  supports the Aviation Division's strategic goal of operating a world-class
international airport. It allows the Port to continue to provide a high level of customer service to
airlines and their passengers and to keep airlines' cost per enplanement low by ensuring that they
have existing lounge service opportunities available to them without the need to construct and
operate their own lounges. It also supports the division's strategic goal of maximizing nonaeronautical
net operating income. 
In regards to promoting opportunities for small business participation, the project
manager/requesting department representative worked with the Office of Social Responsibility
throughout the RFP process to incorporate language encouraging small business participation,
both in the response to the RFP and in future procurement of goods and services associated with
the contract. In addition, staff will continue to work with the Office of Social Responsibility and
the selected operator throughout the contract term to identify opportunities for small business
participation in accordance with small business Resolution No. 3618. 
ALTERNATIVES AND IMPLICATIONS CONSIDERED 
Alternative 1  Do not execute a new contract. As the current contract with VIP for management
of the Airport's two common-use lounges expires in March 2015, the Port would need to close
the lounges. This would be a major disruption to several international carriers currently utilizing
the Airport's lounges for their premium passengers. This is not the recommended alternative. 
Alternative 2  Change the business model to have Port staff operate the lounges.  Operating a
passenger lounge is not a core competency of Port staff and is not ideal from a staff utilization
standpoint. In addition, there may not be sufficient time to hire and train Port employees prior to
March 2015, possibly leading to a temporary closure of the lounges, and thereby causing a major
disruption to several international carriers. This is not the recommended alternative. 
Alternative 3  Authorize execution of a new contract.  The new contract would allow for
continuation of lounge services potentially through the first quarter of 2020, thereby meeting the
demand for these services from the growing number of international carriers serving the Airport. 
This is the recommended alternative. 
ATTACHMENTS TO THIS REQUEST 
Exhibit 1: Map of the Airport showing the location of Club International and Club
Cascade

COMMISSION AGENDA 
Ted Fick, Chief Executive Officer 
November 10, 2014 
Page 6 of 6 
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS 
June 11, 2014  A 50% notification memo was sent to Commission indicating a spending
limit increase from $500,000 to $700,000. 
May 28, 2013  Commission approved execution of the Second Amendment to the
Management Agreement with VIP Hospitality LLC for operation of premium lounge
services at Seattle-Tacoma International Airport effective March 8, 2013, to increase the
contract cost for a five-year total not to exceed $500,000.
October 4, 2011  Commission approved an increase to the project budget for the
remodel of Club International by $740,675 and to advertise and execute a construction
contract for a total project cost of $1,061,000. 
March 1, 2011  Commission approved funding for design of the remodel of Club
International and competitive procurement of furnishings and casework in the amount of
$320,325 of a total estimated project cost of $971,000.