PORT OF SEATTLE 
MEMORANDUM 
COMMISSION AGENDA             Item No.      6d 
Date of Meeting   September 11, 2012 

DATE:    August 28, 2012 
TO:     Tay Yoshitani, Chief Executive Officer 
FROM:    James R. Schone, Director, Aviation Business Development 
Deanna Zachrisson, Manager, Concessions Business 
SUBJECT:  Lease and Concession Agreement for Duty Free Operations at Seattle-Tacoma 
International Airport (Airport). 

ACTION REQUESTED:
Request Commission authorization for the Chief Executive Officer to negotiate and execute a
lease and concession agreement with the proposer selected in the Port's current Request for
Proposal process to operate three duty free/duty paid locations for a term of seven years. The
draft lease (Exhibit A) is not necessarily the final version and is subject to negotiation within the
stated parameters provided in the memorandum. 
SYNOPSIS:
The Airport views the duty free business as one with significant non-aeronautical revenue
growth opportunities. In 2011, the Airport's duty free business achieved record sales of $12
million. This year's revenues are forecast to top $14 million. This is the result of relatively
strong international and domestic enplanements, primarily at the South Satellite, the increase in
direct international flight services at the Airport, and upgraded merchandise and customer
service. Prior to 2011, duty free sales were relatively stagnant. 
Duty free operations at the Airport encompass more than just duty free sales of alcohol and
tobacco to international travelers. Duty free shops also offer duty paid or 'travel value' priced
merchandise such as cosmetics, perfume, luggage, handbags and other premium brand name
products available for sale to savvy domestic travelers and even Airport employees.
Additionally, Airport duty free shops offer local retail gift merchandise that appeals to both the
domestic and international traveler such as jewelry and confectionary. 
The Port issued a Request for Proposals (RFP) for a new duty free operator (on May 11, 2012) 
(additional detail below under "Background") to operate three new duty free stores located in
Concourse A, Central Terminal and South Satellite (Exhibit B). The Port received proposals
from five (5) well known, international duty free operators on August 2, 2012. In accordance

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
August 28, 2012 
Page 2 of 8 

with Port procedures, the evaluation of the proposals is being undertaken by an expert evaluation
panel, and it is clear from initial reviews of the proposals that the Port expects to earn
significantly higher revenues than the current operation has generated or historical trend lines
would predict. In the Port's preliminary 2013 revenue budget, the Airport has assumed a
conservative 25% increase in sales that, coupled with a more favorable rent structure, would
ensure at least a 50% increase in revenue to the Port. 
With three brand-new, modern duty free stores, totaling 6,925 square feet (nearly equivalent to
current square footage), Airport travelers will experience a greater choice of products, more
effective merchandising and promotional pricing. The minimum guarantees offered by the
proposals, which represent baseline revenues guaranteed to the Port, promise a substantial
increase over current revenue over the life of the seven year agreement. In addition, all
operators' proposals project the ability to increase sales significantly over current levels, and
with these increased sales, the duty free business will increase revenues to the Port as a
percentage of sales, and create many new local jobs (beyond the approximately 60 jobs in the
existing operations). 
BACKGROUND: 
Duty free and duty paid merchandise offerings to the traveling public were included in the
operations under the Airport's master concessionaire agreement until January 1, 2005. The
operator, HMS Host, was then awarded a non-competitive five year agreement for continued
operation of duty free and duty paid stores at the South Satellite, North Satellite and in the Main
Terminal (Concourse D). In mid-2009, due to a weak economic climate for an RFP issuance,
HMS Host received a one-year extension through 2010.
The Port issued a RFP for duty free operations in spring 2010; however, the RFP was withdrawn
before acceptance of proposals in late fall due to airline realignment uncertainty. HMS Host
remained in month-to-month holdover status into 2011. At that point, HMS Host had exited the
duty free business in the U.S., and the Airport opted to bring in a temporary operator of its duty
free stores beginning on August 15, 2011. Operations under this new operator, HG Retail, a
subsidiary of Hudson Group, have improved the Port's return on the duty free business
significantly and drawn synergies from the news/gift and retail operations of Hudson Group at
the Airport. 
The Port reissued its RFP for the duty free business in May 2012. Five (5) well known,
international companies submitted proposals on August 2, 2012. The evaluation panel is
currently evaluating the proposals, all of which are very comprehensive. The evaluation panel
consists of upper level professional staff in Aviation Business Development, Corporate Real
Estate, Aviation Planning and Airport Operations. None of the panelists have any relationships
with representatives from any of the proposer companies. Every effort has been undertaken to
assure an unbiased and thorough evaluation of the proposals. The evaluation panel is expected to

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
August 28, 2012 
Page 3 of 8 

complete its scoring just prior to the anticipated award announcement date by the end of
September 2012. 
Evaluation Criteria 
The duty free proposals are being evaluated based on the following criteria: 
Revenue to the Port:                                     30 points 
Based upon percentage of gross dollar sales proposed, the Minimum Annual Guarantee
proposed, and the total amount of revenue the Port expects to receive under the proposal. 
Experience and Qualifications:                             30 points 
Demonstration of experience and expertise in managing and operating multiple duty free
concessions in an airport environment and capability to adapt to the unpredictable transportation
environment. 
Specialty Retail Merchandise:                             25 points 
Demonstration of ability to include specialty retail merchandise as part of the duty free
operations that fits the demographics of the Airport domestic and international traveler, promotes
quality and produces incremental sales. 
Design and Implementation:                             20 points 
Design and features of the stores, efficient use of space to accommodate duty free and specialty
retail merchandise and its ability to complete build-outs in a timely fashion. 
Financial Capacity:                                      10 points 
Demonstration of financial capacity to meet the requirements of the Agreement and the
assurances in the submitted Proposal. 
Small Business/Community Commitment:                   10 points 
Outline of efforts to support the local small business community through merchandise
procurement and/or other strategic partnerships. 
Total: 125 points 
In addition, the financial projections are being analyzed for reasonableness by the Port's
concessions consultant, AirProjects, Inc.

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
August 28, 2012 
Page 4 of 8 

Potential Risks 
The successful conclusion of the duty free RFP process with an award to a new operator by the
end of September 2012 is critical to the Airport's ability to provide a new duty free offering for
passengers in time for the peak summer travel season in 2013. 
The majority of international departures take place at the South Satellite, and this new location
will generate the highest sales. The issuance of the duty free RFP earlier this year was carefully
timed to dovetail with the construction work at the South Satellite that is needed to create the
new vacant shell space for the selected operator. There are many challenges to this schedule due
to the constrained space of the satellite and high passenger volumes during peak seasons. The
construction of the new duty free shell is slated to take place in the fall of 2012, at the same time
as the current duty free store remains operational. The space constraint created by this
construction is only operationally feasible during the slower time of the year, not in the peak
summer months. The South Satellite shell space is scheduled for completion in early 2013. The
future operator will have approximately 16 weeks to build out the shell space, and open for
business before the 2013 peak season beginning in June 2013. If the Airport is unable to award
the duty free business expediently, the consequence will be a one-year delay in construction and
a necessary re-phasing of the project so that construction of the shell would take place in the fall
of 2013 instead. While difficult to estimate precisely, another consequence would be a loss of
additional projected revenue to the Port due to an inability to take advantage of much better lease
terms in a new duty free business. 
There is also a risk of proposer protest, which is inherent in an RFP process for a coveted new
business opportunity. Most recently, duty free awards were challenged in Atlanta, Orlando and
Los Angeles. Although there have been no instances where an evaluation panel decision was
reversed due to a protest, nonetheless, there is the risk of airport staff time required to defend
such a protest, which could challenge the schedule further. 
PROJECT JUSTIFICATION: 
Approval of this lease will allow the Port to dramatically improve its offering of duty free/duty
paid merchandise to the Airport's domestic and international travelers. After the realignment of
air carriers in early 2013, this lease will provide for the offering of merchandise in new locations
in proximity to international departures. 
Project Statement: 
Negotiate and execute a Lease and Concession agreement for three new duty free stores in
Concourse A, Main Terminal and at the South Satellite to commence business in June 2013.

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
August 28, 2012 
Page 5 of 8 

Project Objectives: 
Improve non-aeronautical revenues significantly from the duty free operation at the Airport 
Place duty free offerings in new locations to meet airline realignment schedule 
Create the world-class duty free offering that travelers expect at a major international airport 
Reinforce a desired 'sense of place' with new duty free store design 
Maintain the Airport's competitive position as an airport of choice for new international
airlines and routes 
PROJECT SCOPE OF WORK AND SCHEDULE: 
Scope of Work and Schedule: 
Milestone                       Schedule 
Commission Approval               September 11, 2012 
Contract Award                   September 2012 
Execution of Agreement              October 31, 2012 
Design Approvals Complete            February 28, 2013 
Construction  South Satellite            March  June 2013 
Construction  Concourse A            March  June 2013 
Construction  Main Terminal           March  June 2013 
* Schedule assumptions based on no protest delay 
LEASE TERMS: 
The lease term will be seven years with no option to renew. The Minimum Annual Guarantee
(MAG) and rent will be negotiated with the winning proposer.
FINANCIAL IMPLICATIONS: 
The initial non-competitive lease term awarded to Host International at the end of the master
concessionaire era maintained a rent level of 16%. Sales achieved during the five year term and
subsequent one year extension ranged from $8.5 million to $11 million. The highest level of
sales achieved was in 2008. At this sales level, annual Port revenues reached a maximum of $1.7
million. The minimum annual guarantee was 90% of the previous year's rent payments to the
Port, typically in the range of $1.1 to 1.6 million. 
Under the temporary operation by HG Retail, the Port was able to negotiate more favorable rent
terms, despite the short lease term and start-up costs associated with Customs requirements. HG
Retail pays 18% of gross sales up to $10 million, 20% up to $15 million and 21% over $15
million. With only one duty free operator for near ly 50 years, it has been difficult to estimate the 
potential to increase sales in the Airport's duty free business. Under a new operator for the last
year, there has been a strong increase in sales to a record level of $7.5 million in 2012 year-to-

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
August 28, 2012 
Page 6 of 8 

date through July. The Airport estimates that this operation will reach year -end sales of $14.4
million. With this forecast, the Port will earn an estimated $2.6 million in revenue from the duty
free business. The increase in sales is remarkable due to the outdated and worn store locations
and severe construction impacts in front of the main South Satellite duty free store during the
peak travel season (April  September). Evidence from this past year bolsters the Airport's
confidence in being able to achieve significantly higher sales in the new duty free operation. 
The Airport is still in the evaluation stage of proposal review; however, all of the financial
proposals are significantly more favorable to the Port than the current terms. In the Port's
preliminary 2013 revenue budget, the Airport has assumed a conservative 25% increase in sales 
that, coupled with a more favorable rent structure, would ensure at least a 50% increase in
revenue to the Port. 
ECONOMIC IMPACTS AND BUSINESS PLAN OBJECTIVES: 
This lease and concession agreement will contribute to the achievement of the Airport's business
plan objectives of "maximizing non-aeronautical net operating income" by generating new non-
aeronautical revenues. 2013 revenue budgets will be built upon the assumptions of significant
additional revenue generated by the Airport's duty free business. 
STRATEGIC OBJECTIVES: 
The approval of these lease and concession agreement meets the following Airport concessions
strategic objectives: 
Maximizes financial performance by meeting current customer demand as well as spurring
new incremental spending with an upgraded offering, including duty paid and local retail. 
Elevates the duty free offering to a level expected by international travelers in a major U.S.
airport by bringing in a worldwide operator of duty free with experience from major duty
free markets in Europe, Asia and South America. 
Supports the economic vitality of local businesses with locally procured specialty retail
merchandise. 
Reinforces a desired local "sense of place" with new, updated store designs consistent with
Airport design guidelines that provide direction to architects and designers on Pacific
Northwest design characteristics. 
May provide opportunity for proposed new ACDBE joint venture partners. 
Creates new job opportunities for employment in the new, expanded duty free operation.

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
August 28, 2012 
Page 7 of 8 

ENVIRONMENTAL SUSTAINABILITY AND COMMUNITY BENEFITS: 
The current duty free locations, including materials and supporting infrastructure, are very
outdated. The new locations will be energy-efficient and built with materials durable and wellsuited
for an airport environment. 
The current temporary duty free operator, HG Retail, hired 18 additional employees when it 
assumed management of the duty free operation last year, in addition to retaining all of the
existing sales associates and support staff. This investment in personnel has led to record sales
levels for duty free operations in Seattle. The more recent hires, as well as the employees
present during the HMSHost tenancy, are a valuable asset to an incoming operator. Although
not required by the Port, staff believes that a new operator is very likely to retain experienced 
employees. All proposals outline extensive employee benefit, training, and incentive programs
to create an attractive workplace that can attract and retain skilled, customer service-oriented
employees. 
TRIPLE BOTTOM LINE: 
The 2011 concessions stakeholder process examined the concessions program from a triple 
bottom line perspective. Stakeholders reinforced the value of a concurrent pursuit of positive
financial, social equity and environmental stewardship outcomes in the selection of new
concessionaires. The evaluation criteria for the duty free opportunity are clearly consistent with
these values. 
ALTERNATIVES CONSIDERED AND THEIR IMPLICATIONS: 
1.  Delay Approval: The Port stands to lose significant revenue if approval of the
agreement is delayed, and preliminary 2013 revenue budget assumptions would need to 
be revised downward. Duty free operations will continue at the South Satellite and Main
Terminal locations; however, duty free operations at the North Satellite will cease in
2013 due to the relocation of United Airlines. The new Concourse A location will not be
available to serve those passengers and to generate additional sales. Remaining duty free
operations would continue at the existing (lower) rent levels. Costs to the Port will be
incurred in the delay of the construction project at the South Satellite as the contract for
construction has been awarded and scheduled for starting this fall. Additionally, there is
significant risk of exposure to lobbyist and/or legal efforts by unsuccessful duty free
proposers in order to influence/change the RFP process outcome if lease approval is
delayed until after the award announcement by the end of September 2012.

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
August 28, 2012 
Page 8 of 8 

2.  Do Nothing: Failure to award a contract has the same implications as delay indicated
above. The current short-term agreement with HG Retail transitioned to month-to-month
status on its one-year anniversary on August 15, 2012. Business will continue where
duty free operations remain needed in current locations. However, the need will still
exist to identify a long-term solution. The Port's RFP process has been widely publicized
in the travel retail industry, and failure to award a contract after a completed process with
multiple reputable proposers may damage the Airport's long-term industry reputation as a
viable business partner. 
3.  Approve Lease and Concession Agreement: Approval will make it possible to meet
the schedule to open the most critical duty free shop at the South Satellite by summer
2013. The Port also will begin to realize a much greater financial return on the duty free
business in 2013 if this alternative is selected. This is the recommended alternative. 
OTHER DOCUMENTS ASSOCIATED WITH THIS REQUEST: 
Exhibit A: Draft Lease and Concession Agreement 
Exhibit B: Map of New Duty Free Locations 
Exhibit C: Power Point Presentation 
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS: 
March 8, 2011  South Satellite Concessions Project (CIP#C800412), authorization to
design. 
March 27, 2012  Staff Briefing about Interim Concessions Leasing, 2012-2014. 
June 5, 2012 South Satellite Concessions Project (CIP#C800412) authorization to
advertise for construction bids (combined with CIP#C800466). 
July 24, 2012 South Satellite Concessions Project (CIP#C800412) Authorization for
additional funding and award of construction contract (combined with CIP#C800466).