Item Number:   73 Exhibit B
Date ofMeeting: 12/13/201 1


Sea-Tat Airport Concessions
DRAFT PRINCIPLES AND PRACTICES GUIDANCE DOCUMENT
Revised 7.1.11

Vision Statement

All who come to Sea-Tao International Airport will be delighted by shops and restaurants that exceed
their expectations for customer service, variety, affordability and quality with 0 Northwest air.  in
following a "triple bottom line" philosophy that values the concurrent pursuit ofpositive economic, social
and environmental outcomes, the Airport and its tenants will enjoyfinancial success while embracing the
principles of equal opportunity, environmental leadership, accountability and ethical practice.


- Background
Port of Seattle
Strategic Objectives         Seattlefiacoma  International  Airport (Sea-Tao)  offers the
traveling public a wide range of goods and services through a
0  Creating economic opportunity
variety  of vendors,  who  lease  space. through  different
0  Moving cargo
contractuai agreements. In that capacity SeaTac is similar to a
9'   Moving people
shopping district or mail, but also must operate
Attracting Next Generation                                            in, the public
0
industries                    interest. SeaTac seeks a financial return through its leases; but
Achieving our environmental       it must also comply with Federal and local regulations and with
'
values                     the social and environmental policies of the Port of Seattle.
Achieving our community values
Putting real estate to work         Concessions are one of three majOr non-aeronautical sources of
Funding our strategic goals        revenue  for Sea~Tac,  the  others  being  car  rentals  and
parking/ground  transportation.   Airport  revenues  from
Y
restaurants and shops reached $22 million in 2010.  This
represents a 142% increase over the last decade. Sales per
.                  enplanement  (SPE)  reached  $9.98  in  2010,  placing Sea~Tac
among the best performing airports in North America. Concession profits are used to reinvest in airport
operations and infrastructure. No tax dollars are used to support Sea-Tac.

There are currently 80 concession units airport-wide, under numerous concession agreements. In 2015,-
12 direct lease units in the Central Terminal will expire and, airport-wide, 36 units in 2016 and 22 units
in 2017.  In total, nearly 90% of Sea-Tac's leases will expire between 2015 and 2017. The fact that so
many leases expire in a simultaneous manner creates a significant economic risk for the Port, especially
during times of economic downturn. A strategy of continual renewal of concession contracts would
allow the Port to introduce new concepts as customer needs evolve, as well as grow sales. The
renegotiation of these leases presents a challenge and an opportunity to consider how to best serve the
interests and'needs of the traveling public, the vendors who serve them, and the residents of King
County. Contracts have been negotiated in a variety of ways~some are negotiated directly, while
others have been solicited through competitive proposals, and some through a third party leasing
consultant.

SeaTac Airport follows a "hybrid" management model, which includes contracts with prime
concessionaires (operating more than three units) and direct leasing. This approach gives SeaTac the
flexibility to rely on the management infrastructure of larger operators, while also providing access to
local independent, small and disadvantaged businesses. This approach also allows Sea-Tac to manage its
concessions program with a modest FTE requirement.

Operators at SeaTar: Airport fall into the following maior categories:

- 0   Prime concessionaires (HMSHost, Hudson, Concessions International and Seattle Restaurant




'
Associates)
0  Direct lessees (About 30, including advertising, luggage carts, vending, etc.)

o  Disadvantaged business operators (10 total, 6 su btenants to primes)

The concession's workforce has grown from approximately 700 employees to 1,400 over the last 10

years contributing to the growth and success of the program. Concessions employees serve in a variety
of retail and restaurant occupations including sales clerks, cooks, wait staff, supervision and
management. About 70% of the concession workforce is represented under union contracts between
their employer vendors and Hotel Employees Restaurant Employees (HERE) Local 8 or United Food and
Commercial Workers (UFCW) Local 21. Regardless of representation status, turnover among concession
employees is relatively highbetween 20%~50% annually, depending on the state of the economy.
Turnover among both represented and non~represented employees is typically within this range, in
2010 averaging 20%.

Policy Framework

The SeaTar: concessions policies fall into four major categories:

Customer Experience

We are, above all, customer-driven, and our customer-driven approach is fundamental to all Aviation
Division activities. SeaTac's concessions exist in order to serve its customers, and customers are the
most valued asset of the concessions program. Our customers have varied needs that range from
storage rentals to sit-down dining to spa 'services and casual shopping. SeaTac Airport strives to create
a sense of place, so that travelers can experience a retail environment that is uniquely Northwest. The '
rapid, changes require that we maintain flexibility-in how we develop and manage'the concessions
business in order to meet changing customer needs and desires.

Our customer service priorities are based on, thefol/owing principles:
0  The mix of venues at Sea-Tac should support a strong sense of place.

0  A variety of operators promotes higher quality products and excellent customer service in
'
competition for the traveler's dollar.
'
0  There should be a wide variety of quality offerings available to SeaTac customers.

SeaTac has a strict street pricing policy. The Airport should strive to win the customer's
confidence in our pricing, particularly through the selection of street-side brands with directly
comparable pricing.
0  There should be a combination of national brands and local offerings at Sea~Tac, determined by,
customer feedback and chosen based on customer needs and desires. SeaTac should seek to
eliminate "white brand," airport~only concepts. > .,
0  We will continually monitor customer satisfaction in order to make appropriate adjustments-in
the quality and type of offerings at Sea-Tac. .
0  Customer service alsa means providing passengers with opportunities to make environmentally
friendly choices both in their selections for purchase and opportunities to minimize their
'
environmental impact through recycling, composting and other airport programs.

Financial Stewardship

The concept of financial stewardship translates into the management of Sea-Tao assets over the long
term for sustainable growth. Although the concessions program has enjoyed significantly increased
revenues in recent years, the program's financial viability can be impacted by' economic fluctuations,
airline instability or strategic missteps. The Port must structure its financial policies in a manner that
provides enough resilience and flexibility to allow it to maximize return over the long term and minimize
risks to Sea-Tac as well as its tenants. Success of the concessions program is critical to the Port's ability
'
to fund its other strategic objectives.

It is the Airport's responsibility to help keep tenant costs of operations as low as possible, to. support
financial success, business reinvestment, job creation, and street pricing. Another important factor to
consider is allocating risk related to the financing of base infrastructure. Under best industry practice,
the airport assumes the cost of base infrastructure, while the unit build-out is the responsibility of the
tenant. This approach reduces the likelihood of unnecessary midlease contract renegotiations.

Principles that guide ourfinancial stewardship of SeaTac include:
e  As owner, operator and steward of Sea-Tac, we will continue to maintain control of concessions
development at Sea-Tac.

a  Quality, variety and northwest flavor in the program's offerings will allow Sea-Tac to be among
the top 10 performing airports, as measured by sales per enplanement (SPE) in the annual
industry ranking determined by Airport Revenue News.
0  Sea-Tac Will assume responsibility for base infrastructure, while tenants will be responsible for
build-out within unit lease boundaries.
0  Terms of leases should be made consistent with industry standards of 10 years for food and
beverage and 5 to 7 years for retail. Some exceptions will be necessary in the coming years in
order to stagger contract expirations to insure continuity of customer service
as well as proper
fiscal management
9  Rent structures should take into account factors such as Port regulatory and lease requirements
(construction requirements, street pricing, etc.), costs of operation (labor costs, environmental
'
and security requirements, etc.), quality Of space and/or location.
6  Rent structures should be tiered in accordance with the sales levels of tenants to provide risk
mitigation for both tenants and the Port.

Selection Process

To serve our customer needs, our concessionaires range from multi-national retail conglomerates to
small, independent and disadvantaged businesses. The concessions program's selection processes are
critical to the creation of a llevel playing field' in the selection of
new concessionaires These processes
must accommodate a wide variety of businesses  large and small  while maximizing revenues for the
Port. As a result, a number of processes, such as Requests for Proposals, Letters of Interest, direct
negotiation and thirdparty leasing, must be used to meet the goals of each specific business
opportunity. Different Selection processes take into account the significant organizational and financial
differences among potential concessionaires. These processes allow us to support our triple bottom line
commitment to economic, socialand environmental outcomes.

Our selection practices and procedures are based on some clear principles:
0  The selection process should be timely and efficient, with clearly articulated selection criteria.

a  The choice of the type of selection process should be tailored to the goals for a particular
business opportunity. -
o   The Port will actively solicit quality tenants that can be financially succeszul, provide excellent
customer service, products and services, and support the Port's social and environmental goals
a  The operator mix must include a good representation of local and small business ownership,
whichIs distinct from "local" concepts owned and operated by national companies.
a  Prospective operators must demonstrate financial stability, experience and a commitment to

serve the needs ofthe traveling public.
.
0  Our tenants must comply with all applicable employment, environmental and other regulations.

Social and Environmental Responsibility

To embrace a "triple bottom line" philosophy means that we value social and environmental outcomes
along with our financial success. The Port of Seattle lives up to its reputation as the Green Gateway by
encouraging best practices in waste management, green building and mitigation of environmental
impacts. Sea~Tac aims to be the national leader among peer airports in demonstrating environmental
stewardship and reducing the environmental impacts of airport operations. At the same time, the Port's

policies support job creation and the advancement of local, small and disadvantaged (ACDBE)
businesses. The Port strives to create an entrepreneurial environment that aIIOWS forjob grewth and the
success of employees who work at Sea-Tac. Asa result of its commitment to social and environmental
responsibility, the Port has nearly doubled the number of employees in its concessions program in the
last seven years, provided access to local, small and ACDBE businesses to ownership opportunities in the
program, and received numerous awards for reducing environmental impacts from concessions activity.

Principles that guide our policies in the area ofsocial and'environmental responsibility include:
SeaTac and its tenants are committed to creating. a sustainable airport that minimizes the
environmental impacts of our operations.
We will strive to be industry leaders in continuous improvement in its environmental practices,
using specific metrics to monitor compliance and measure improvement.
Due to the unique requirements of working in a secure airport facility, concessionaires often
compete keenly for employees, and Sea-Tac will support their recruiting efforts through
innovative job training and enrichment programs in order to attract new employees and reduce
annual turnover to 15% or less.
_

.
The Airport .will support workforce development and worker retention in the Concession
program through legally supportable and Port sanctioned programs and initiatives.
The Airport will increase the percent of gross concession sales from ACDBE operators from less
than 20% today to 25% by 2020; 25% of gross sales through ACDBEs is about the average
participation at comparable airports. To the degree possible, we will achieve this goal through
direct leases with ACDBEs.
Sea-Tac will assure that its concessions selection process actively reaches out to local, small and
disadvantaged businesses and will strive to create a level playing field for business opportunities
between large and small operators. '