7a Exhibit H
item Number: 7a Exhibit H Date of Meeting: 12/13/2011 AIRPORT COOPERATIVE RESEARCH PROGRAM Resource Manual for Airpart Inu'i'erminal Concessions LEIGHFISHER Burlingame, CA IN ASSOCIATION VVI'I'H EXSTARE FEDERAL SERVICES GROUP, LLC Alexandria, VA Subscriber Categories Administration and Management - Aviation 0 Finance - Terminals and Facilities Research sponsored by the Federal Aviation Administration TRANSPORTATION RESEARCH BOARD WASHINGTON, DC. 2011 www.TRB.org 126 Resource Manual forAirport In-Terminal Concessions delegating contracting authority to 3 Leasing Manager ifthe basis for soliciting and selecting tenants is not transparent or ifthe costs ofthe Leasing Manager reduce revenues to the airport operator. 8.1.5 Hybrid Approach Practical considerations may result in the use of more than one contracting approach at an " airport. For example, at Seattle-Tacoma International Airport, multiple Prime Concessionaires are used for concessions on the concourses, and the Direct Leasing approach is used in the Cen- tral Terminal, which is themed as the Seattle Marketplace. Further, the Central Terminal mar keting, leasing, and development was performed by a Leasing Manager on behalf ofthe Port of Seattle. Airport management believed it could use a conventional Prime Concessionaire approach for its concourses, but the new Central Terminal, a major centralized postsecurity concession development, was intended to be a showcase, and a Leasing Manager was considered the best way to attract and contract with tenants who may be wary ofconventional public-sector contracting practices. The strategy at the Seattle airport was successful. After the Central Termi- nal was opened, airport staff assumed responsibility for its management. At some other large airports, a combination of leasing approaches is also used. For example, at Iohn F. Kennedy International Airport, a Master Concessionaire has executed a food and bev- erage agreement in letBlue Airways' Terminal 5, and Direct Leasing is used in the airport's Ter~ minal 4, where the concession program is managed by the terminal operator using Direct Leasing. A ThirdParty Developer manages the presecurity central terminal retail program at Orlando International Airport, while multiple Primes operate the concessions in other areas of the terminal complex. A ThirdParty Developer operates the concessions in the central terminal" areas at Miami InternationalAirport, and Primes and Direct Leasing are used in most other areas of the terminal complex. Two ThirdParty Developers operate at Boston Logan International Airport, each managing the concessions in two of the airport's four terminals. For these reasons, the Hybrid approach is more of a contracting strategy than an approach, with the airport operator using each approach as a tool to achieve the best overall program for its unique circumstances. ' 8.1.6 Summary of Concession Management Approaches No single concession management approach can or should be universally applied. Airport operators must decide which approach offers the best outcome in light ofthe opportunities and challenges it presents. This decision is best made after careful analysis ofthe costs and benets of each approach. Table 8-1 presents a highlevel summaryofthe relative strengths ofeach approach Table 8-1. Summary of relative strengths of major concession management approaches. Third~Paity Developer ' Medium Medium Leasing Manager ' . . Medium on. = Not applicable. Concession Contracting/Approaches 127 . in terms of (1) competition, (2) ability to invest capital, (3) the associated airport administrative costs, and (4) the nancial return to the airport enterprise associated with each approach. Table 8-2 presents a summary ofthe advantages and disadvantages of each concession man the airport agement approach. The following section presents a comparison of the revenue to enterprise produced under each approach. Table 8-2. Summary comparison of concession management approaches. THIRD-PARTY DEVELOPER Advantages: ' ' Lowest administrative burden, as Developer brings professionals with experience in marketing, leasing, developing, and managing food and retail spaces; single point of contact for airport management Coordinates all tenant design and construction Generally enters into subcontracts directly with subt'enants and is able to negotiate optimal business terms (compared with public procurement requirements) Does not compete with tenants; shares goal of airport operator in maximizing sales, service Develops food courts and other common areas; makes investment in common areas, i directories, etc. - Variety of shops, concepts, subtenants creates high degree of competition and choices for customers Disadvantages: Considerable potential sales volumes are necessary for Third-Party Developers to participate Requires longer tenn, typically 15 years, for Developer to earn satisfactory returns Developer takes out of concession sales, which may reduce airport operator's concession revenues below potential of other approaches LEASING MANAGER Advantages: Similar to ThirdParty Developer, brings professionals with experience in marketing, leasing, developing, and managing food and retail spaces; single point of contact for airport management Scope may include coordination of design and construction activities May (or may not) enter into agreements directly with subteliams; able to negotiate optimal business terms (compared with public procurement requirements) Variety of stores/concepts'operated by different concessionaircs creates distinct customer shopping choices and a high degree of competition Disadvantages: Airport operator has responsibility for common area buildouts Leasing Manager receives a fee for its services, which may reduce airport concession revenues Typically works on a fee basis and does not make capital investment in common areas, ' directories, etc. (continued on next page) 128 Resource Manual for Airport inTerminal Concessions Table 8-2. (Continued). DIRECT LEASING Advantages: ' Direct relationship between airport operator and concessionaires Variety of stores/concepts operated by different concessionaircs creates distinct customer shopping choices and a high degree of competition Airport operator controls overall scope of program Disadvantages: Requires the most airport staff time and expertise due to variety of individual concession agreements to award and manage Airport operator has responsibility for common-area build-outs Design and construction activities by many different firms increases workload for airport operator Greater risk of failure, as individual agreements must be self sufficient; greater exposure to trafc risks If local businesses are targeted, training will be required; there may be operating risks associated with inexperienced concessionaiues PRIME CONCESSIONS Advantages: ' Only a few points of contact for coordination of design and construction activities, depending on number of primes Primes typically handle common-area build out, such as food courts Requires less airport staff time (compared with Direct Leasing) with fewer, larger concession agreements to manage Prime snbleases to ACDBES and others on behalf of airport Disadvantages: Less competition titan other management approaches Variety of stores/concepts offered are often more limited due to pie-established agreements with certain brands Approach (on average) results in development of less space compared with other approaches Prime concessionaire may be in competition with subtenants Lower sales compared with other approaches, although percentage rents are typically higher a2 Finanelel @eeermence Esp Management Approach A number offactors are involved in the choice ofconcession management approach, but the one factor that is universally considered is revenue to the airport enterprise. In this section, the nancial performance of the various concession management approaches is analyzed in terms ofthe sales and revenue performance of airports where each management approach is in effect. Financial performance was analyzed using data for the busiest 35 airports in the United States, mostly largehubs (and a fewmedium hubs), regarding concession space, sales, and revenue data Concession Contracting Approaches 129 2008 (Airport Revenue reported in the Airport Revenue NWs Fact Book 2009 for calendar year News 2009). ofthe top 35 airports (i.e., below Airports with passenger trafc less than that ofthe least busy 5.5 million annual enplaned passengers) are considered too small for the Third"Party Developer is used at these air- approach; generally, the Prime Concessionaire or Direct Leasing approach are capable ofsupporting and implementing ports. Therefore, only the busiest 35 airports, which were considered in the analysis. any ofthe concession management approaches, was Because of incomplete reporting of sales data, Cleveland Hopkins International Airport eliminated from the analysis. At the time this analysis was conducted, the airport was in transi tion from the Prime Concessionaire approach to the Third-Party Developer approach. Pittsburgh International Airport (which has the highest spend rate per enplaned passenger in the United States) was also excluded from the analysis as it falls outside ofthe top 35 airports in terms ofnum bers of enplaned passengers. 8.2.1 Classification of Airports Each airport included in the analysis was classied according to its management approach. Air classica- are used were placed in the Hybrid ports where two or more management approaches tion. The Hybrid approach, as referred to in this section, shouldbe considered an eclectic approach and not an end in itself. Some airports classied as Hybrid have Third-Party Developer agreements, and Bush Inter including New York's John F. Kennedy International and LaGuardia airports, continental Airport/Houston. Miami and Orlando International Airpmts employ Direct Leasing, allows all Prime Concessionaire, and ThirdParty Developer approaches. Including these airports and revenue. , ofthe airports to be classied and compared in terms of average sales, space, The ThirdParty Developer and Leasing Manager approaches have many similarities, with the the lack of investment on the part ofthe Leasing Manager being the major difference. Therefore, ' two categories were combined for this analysis. Table 86 presents a summary of enplaned passengers, sales, and space by concession man in the analysis. Six airports used the Third Party agement approach for the airports included the Direct Leasing approach, 8 used Developer/Leasing Manager management approach, 9 used ' the Hybrid approach, and 11 used the Prime Concessionaire approach. A Table 84 presents a summary of revenue received by the airport operator from food and bev- , and effective percentage rentforthe airports erage and retail sales, revenue per enplaned passenger, included in the analysis (i.e., airports that provided revenue data to Airport Revenue News). 8.2.2 Summary of the Analysis Table 85 presents a summary ofsales per enplaned passenger for each concession management divided by total enplaned pas approach calculated using the total sales at airports in each category for all airports included in this analysis is shown. The highest sengers. Where indicated, an average sales per enplaned passenger for each sales category is indicated in boldface. Table 8-5 shows that, approach produced the highest total on average, the ThirdParty Developer/Leasing Manager and Hybrid approaches. The spend rate per enplaned passenger, followed by the Direct Leasing ' Prime Concessionaire approach had the lowest average sales per enplaned passenger. the Direct Leas~ In the food and beverage category, the highest spend rate was achieved under and the Hybrid ing approach, followed closely by the Developer/Leasing Manager approach the lowest spend rate. approach. The Prime Concessionaire approach again resulted in followed by the The Direct Leasing approach produced the highest specialty retail spend rate, air- on retail spending for two Developer/Leasing Manager and Hybrid approaches. Information is used was categorized by specialty and conven ports where the Prime Concessionaire approach 13D Resource Manual for Airport InTerminal Concessions Table 8~3. Summary of enplaned passengers. space. and sales by concession management approach-#2008. ' Food 81 beverage and retail (excluding duty free) . . 1 ' ' Square feet 'Enplaned ' Sales per Enplaned . Average sates .. . . .. -- . 1'otal sales Concessron management approach ~.. passengers , . per 1,000 , ~. ,. ; passengers ~ .- . a . . . . . " . enpianed " :1 per square, . . " . g ; " (mIllions) > ~ v (mitIIons). . rank. . .. enplaned ; , . . . 2 .V , V , V . , passenger ' I . ., .1091 .' .p passengers DEVELOPERILEASING MANAGER - Newark 17.7 12 $10.57 $ 187.1 8.3 $1,278 Philadelphia 15.3 19 $8.60 $ 136.3 7.3 $1,178 Boston 1 3.0 20 $1 0.19 $ 132.3 1 1 .7 $866 Washington Dulles . 11.9 21 $8.48 $ 100.5 13.0 . $654 Baltimore 10.2 25 $8.41 $ V86.1 8.3 $1 ,007 Washington Fleagan 9.0 29 $9.01 $ 80.8 7.1 $1,269 Total I Average 77.6 ' $9.32 35 723-1 9-2 $1.008 DIRECT LEASING . DallaleorI Worth 29.0 4 $3.39 $ 243.1 7.7 $1.090 ' Denver 25.7 5 $8.42 $ 216.0 6.1 $1,371 Las Vegas 22.1 7 $10.10 $ 223.1 ' 5.9 $1.721 Phoenix 1 9.8 9 $8.57 $ 169.8 7.6 $1 ,123 San Francisco 18.5 10 $11.70 $ 216.8 8.2 . $1,422 Detroit 1 7.5 13 $9.07 $ 158.6 7.4 $1 ,219 Minneapolis 17.0 16 $8.98 $ 152.3 9.2 $974 Portland ' 7.2 33 $10.44 $ 74.7 10.6 ' $971 Kansas City 5.5 39 $4.97 $ 27.5 11.1 $449 Total] Average 162.3 $9.14 $ 1,481.9 7.6 $1,196 HYBRID . . Chicago O'Hare . 34.0 2 $8.56 $ 291.9 3.5 $2.453 New York - Kennedy 23.9 6 $11.84 $ 282.8 ' 9.2 $1.286 Houston Bush Intercontinental 21.6 B $4.73 $ 102.2 4.1 $1,152 Orlando 18.2 11 $9.29 $ 169.4 8.6 $1,082 Mlaml 17.0 15 $9.92 $ 169.0 ' 9.3 $1,073 Sealile . 16.1 18 $9.60 $ 154.4 7.1 $1 .854 New York LaGuardia 11.6 23 . $8.79 $ 101.7 7.7 $1 .140 Chicago Midway B.2 31 $8.24 $ 67.8 5.2 $1,573 ' Total 1 Average 150.6 $8.89 $ 1,339.2 6.6 $1,355 PRIME CONCESSIONAIRE ' 1 Atlanta '45.1 1 $7.55 $ 340.5 4.2 $1,812 Los Angeles . 29.9 3 $8.93 $ 267.2 ~ 4.9 $1,817 Charlotte . 17.4 14 $8.1 2 $ 141.0 4.6 $1 .775 Fan Lauderdale 11.6 22 $6.77 $ 78.5 6.6 $1,020 Salt Lake City 10.4 24 $7.39 IS 76.8 5.8 $1,275 Tampa 9.1 26 $8.66 $ 79.2 . 103 $840 Houston Hobby 9.1 27 $3.04 $ 27.7 2.3 $1,067 San Diego 9.1 28 ' $8.02 $ 72.7 55 $1.470 St. Louis 7.2 32 $7.70 $ ' 55.5 100 $771 Cincinnati 6.8 34 $7.28 $ 49.5 16.1 $453 Oakland 5.7 37 $6.26 $ 36.0 3.1 $1,992 Total I Average ' 161.4 $7.59 $ 1,224.6 5.7 $1,330 " ' Count " DEVELOPE/LEASING MANAGER 77.6 6 $9.32 $ 723.1 9.2 . $1,008 DIRECT LEASING 162.2 9 $9.14 $ 1,461.9 7.5 ' $1,196 HYBRlD 150.7 8 $8.89 3; 1.3393 6.6 $1,355 PFIIME CONCESSIONAIFIE 1 61.4 11 $7.59 $ 1,224.6 5.7 $1,330 Total I Average 551.9 34 $8.64 $ 4,763.9 6.4 . $1,347 Note: Cleveland Hopkins airport reported on food and beverage sales but not retail and is excluded from the analysis. Source: Top 34 airports reporting data to Airport Revenue News for food and beverage and retail Calendar Year 2008. (Airport Revenue News 2009). ience retail; therefore, the analysis does not show either category for the Prime Concessionaire approach. (Excluding those two airports, the other airports where the Prime Concessionaire approach is used had specialty retail sales averaging $1.09 per enplaned passenger). The Devel- oper/Leasing Manager approach produced sales per enplaned passenger that were $0.68 or 8% above the average for all approaches and $1.73 or 23% above the Prime Concessionaire average. The Developer/Leasing Manager approach resulted in the highest average total retail spend per enplaned passenger, followed by the Hybrid and Direct Leasing approaches. The results for the Concession Contracting Approaches 131 _ ; Table 8-4. Summary of revenue, revenue per enp'laned passenger. and average effective percentage rent by concession management approach2008. Food & beverage and retail (excluding duty free) :Enplaned Enplaned Revenue to Revenue per Effective " Total sales . . Concessron management approach passengers . passenger . . alrport enpianed percentage (ITIIllIOl'lS) . . . . (mIllIons). Rank - (mIiIIons) passenger rent DEVELOPERILEASING MANAGEH Newark 1 2 $ S ' Philadelphia 1 9 - - ' Boston 20 ~ Washington Dulles ' - - 21 . Baltimore 10,242,269 25 86,089,458 11 ,662,602 $1 .14 Washington Reagan 8,976,979 29 80,842,249 10,283,012 $1.15 ' Total I Ave rage 19,219,248 $ 165,931,707 5 21,945,614 $1.14 DIRECT LEASING . A Dallas/Fort Worth 4 $ $ - $0.00 Denver 25,650,243 5 216,042,542 30,394,834 $1.18 14.1% Las Vegas 22,086,022 7 223.1 00,666 28,427,558 $1.29 12.7% Phoenix 1 9,816,493 9 1 69,782,675 23,162,937 $1.17 13.6% San Francisco 1 8,528,274 10 216,789,473 30,127,331 $1.63 13.9% Detroit 17,495,850 13 158,602,837 24,355,204 $1.39 15.4% Minneapolis . 16,955,473 16 152,343,897 21,983,508 $1.30 14.4% Portland 7,150,857 33 74,669,450 8,643,246 $1.21 11 .6% Kansas City 5,527,549 39 27,459,508 2.91 3,361 $0.53 10.6% Total I Average 133,210,761 $ 1 238,791,048 3 170,007,979 $1.28 13.7% HYBRID Chicago O'Hare 2 $ $ - $0.00 . V New York - Kennedy 6 - $0.00 . Houston Bush lnterconlintal 21,623,261 8 102,230,762 12,923,227 90.60 12.6% Orlando 18,238,277 1 1 169,404,326 24,108,082 $1.32 14.2% Miami 17,035,400 15 169,021 .114 21 ,752,300 131.28 12.9% ' Seattle 16,084,939 18 154,428,491 20,828,036 $1.29 13.5% New York - LaGuardia 23 _ $0.00 Chicago Midway - 31 $0.00 Total / Average 72,981 ,877 $ 595,084,693 3 79,61 1 ,645 $1.09 13.4% PRIME CONCESSIONAIRE ' Atlanta 45,090,314 1 $ 340,549,351 $ 46,098,718 $1.02 13.5% Los Angeies 29,928,1 50 3 267,21 9,61 6 43,891,036 $1.47 16.4% Charlotte 14 - , $0.00 Fort Lauderdale 11,566,568 22 78,464,793 -14,990,435 $1.29 19.1% Salt Lake City 24 - $0.00 Tampa 9,142,879 26 79,203,61 5 14,800,410 $1.62 1 8.7% Houston Hobby 9,120,970 27 27,720,844 4,652,298 $0.51 1 6.8% San Diego 9,066,343 28 72,708,235 10,487,922 $1.16 1 4.4% 81. Louis 7,207,890 32 55,470,330 6,678,414 $0.93 1 2.0% Cinoinrrati - 34 - - $0.00 1 Oakland 5,749,093 37 35,993,456 5,928,517 $1.03 16.5% Tota! I Average . 126,692,207 5 957,330,240 $ 1 47,527,750 $1.16 15.4% Count DEVELOPER/LEASING MANAGEH 1 9,21 9,246 2 $ 166,931,707 $ 21 ,945,614 $1 . 14 1 3.1% DIRECT LEASING 1 33,210,761 8 1,238,791,048 170,007,979 $1.28 1 3.7% HYBRID 72,981 ,877 4 595,084,693 79,611 .645 $1.09 1 3.4% PRIME CONCESSIONAIRE 125,892,207 8 957,330,240 147,527,750 $1.16 1 5.4% Total] Average 352 304,093 22 $ 2,958,137.668 $ 41 9,092,988 $1.19 1 4.2% Note: Cleveland Hopkins airport reported on food and beverage sales but not retail and'Is excluded from the analysis. Source. Top 34 airports reporting data to Airport Revenue News fer food and beverage and retail Calendar Year 2008 (Airport Revenue News 2009). Prime Concessionajre approach were again last, trailing the Developer/Leasing Manager approach by $1.07 per enplaned passenger The Prime Concessionaire approach also resultedin $064 per enplaned passenger below the overall average for all concession management approaches. Table 86 presents a comparison ofthe average spend rate per enplanecl passenger for the 34 air ports included in the analysis for each concessionmanagement approach. The highest spend rate per passenger for each sales category is indicated in boldface. The Prime Concessionaire approach had lower than average rates for total spending, food and beverage spending, and retail spending 132 Resource Manual forAirport ln-Terminal Concessions Table 8-5. Passenger spend rates by concession management approach2008. 1 Food and Specralty retail Convenience Total beverage [1) retail'(1) Total retail Direct leasing $ 9.14 $ 5.60 $ 1.99 $ 1.54 $ 8.53 Primeooncessionaire $ 7.59 $ 4.89 n.a. n.a. $ 2.69 Developer/teasing manager $ 9.32 $ 5.56 $ 1.82 $ 1.94 $ 3.76 ' Hybrid $ 8.89 $ 5.32 $ 1.56 $ 2.00 $ 3.56 Averageail airports $ 8.64 $ 5.31 $ 1.53 $ 1.80 $ 3.33 g n.a. = Not available. (1) Two airports in this category do not break out specialty retail from total retail. Source: Airport Revenue News 2009. Data for 2008. per enplaned passenger. All other approaches resulted in above average total rates for food and beverage and total retail. Table 847 summarizes the ranking of concession management approaches in terms of sales per enplaned passenger for each category (food and beverage, specialty and convenience retail, and total retail). ' 8.2.3 Space Comparison The data suggest that differences in the performance ofthe concession management approaches may result, in part, from the differences in the quantity ofconcession space developed under each approach. Figure 5-2 in Chapter 5 presented the relationship between the amount of concession space (per 1,000 enplaned passengers) and the average spend per enplaned passenger. The data show that, on average, airports at which the Developer/Leasing Manager approach is used have considerablyinore concession space in service for food and beverage and overall retail services. Table 88 shows the average concession space per 1,000 eananecl passengers organized by con cession management approach and major category. At airports using the Developer/Leasing Man ager approach, there is typically less Convenience retail space, but more specialty retail space in operation, and the most overall retail space in service. At airports using the Prime Concessionaire approach, the lowest total concession space was allocated for food and beverage and specialty retail, and the highest was allocated for convenience retail. In terms of total retail space, Prime Conces Table 8-6. Sales per enplanecl passenger by management approach as percent of group average2008. Total ' da beverage. retail (1.) Direct leasing 106% 105 86% 106% Prime concessionaire 88% 92% n.a. n.a. 81% . Developer/leasing manager 108% 105% 119% 103% 113% Hybrid 103% 100% 102% 111% 107% Averagewall airports 100% 100% 100% 100% 100% n.a. = Not available. (1) Two airports in this category do not break out specialty retail from total retail. Source: Airport Revenue News 2009. Data for 2008. Concession Contracting Approaches 133 Table 8-7. Ranking of sales per enplaned passenger by management approach 22008. 9" Oggtvaipijgce ma retail, Direct leasing 2 1 1 3 3 > Prime concessionaire 4 4 ' max. (7.3. 4 Developer/leasing manager 1 2 2 2 1 Hybrid 3 3 3 1 2 n.a. = Not available. (1) Two airports in this category do not break out specialty retail from total retail. Source: Airport Revenue News 2009. Data for 2008. sionaires had only 61% and 69% of the total retail space compared with the Developer/Leasing Manager and Direct Leasing approaches, respectively. Table 89 presents a comparison of concession space per 1,000 enplaned passengers with the overall average for the concession management approaches on a percentage basis, with the val~ of the overall airport average. The highest ues presented in Table 8-8 expressed as a percentage percentage for each sales category is indicated in boldface. The data suggest that the airports Where the Developer/Leasing Manager apprbach is used have, on average, more space than the where the Prime Concessionaire average ofthe 34 airports analyzed. 011 the other hand, airports approach is used have less space than the average ofthe airports analyzed. ' The data presented in Tables 8-8 and 89 suggest that o ThirdParty Developers/Leasing Managers are incentivized to develop the most concession sales and revenue to the airport enter space at airports, as additional space maximizes overall prise, and these concession managers share in the revenue. As private companies, ThirdParty Developers (and Leasing Managers) have more latitude in negotiating bnsiness terms and entering into leases. Airports where the Third-Party Developer/Leasing Manager approach is used performed slightly below airportswhere the Direct Leasing approach is used in sales per enplaned passenger in the food and beverage category, but performed better in the retail cat is egory. On the Whole, airports where the ThirdParty Developer/Leasing Manager approach used performed only about 2% better in sales per enplaned passenger than airports Where the. Direct Leasing approach was used, or about $0.23 per enplaned passenger. Table 8-8. Concession space per 1,000 enplaned passengers by management approach2008. - i V Direct leasing '7.6 4.8 1.9 1.0 2.9 Prime concessionaire net. 2.0 n.a. . 5.7 3.7 Developer/leasing manager 9.2 5.9 2.0 1.3 8.3 as Hybrid 3.9 1.5 1.1 2.6 Averageall airports 7.0 4.4 1.5 1.1 2.6 n.a. = Not available. , (1) Two airports in this category do not break out specialty retail from total retail. Source: Airport Revenue News 2009. Data for 2008. 134 Resource Manual for Airport InTerminai Concessions Table 89. Concession space per 1,000 enplaned passengers as a percent the of overall management approach average2008. Direct leasing 5 109% 108% 123% 92% 110% Prime concessionaire 81% 84% n.a. n.a. 77% Deveioper/leasing manager 132% 135% 129% 124% 127% Hybrid 94% ' 90% 1 00% 1 01 % 1 00% Averageall airports 100% 100% 100% 100% 100% n.a. = Not available. (1) Two airports in this category do not break out specialty retait from total retaii. Source: Airport Revenue News 2009. Data for 2008. 0 Airports utilizing the Direct Leasing concession management methodology are also incen tivized to develop more space as the additional space maximizes overall sales and revenue to the airport enterprise. With more specialist food and beverage and retail tenants competing for business, airports that utilize the Direct Leasing management approach perform better than airports where either the Hybrid or Prime Concessionaire approach is used. Airports where the Direct Leasing approach is used ranlc second in terms ofdeveioped concession space. - Airports Where the Prime Concessionaire approach is used had the lowest ratio of space to passengers. In most cases, the operators ofthese airports must Work through the Prime Con cessionaiie to develop additional space. A rightofrstretinal clause 13 typically includedIn agreements with Prime Concessionaires, which gives the Prime Concessionaire rst choice on developing space. HOWever, the airp01t operator must convince the Prime Concessionaire that the marginal contribution from additional concession space will exceed1ts marginal cost, that is, it will not leduce the Prime Concessionaire'5 return on investment, particularly 1fthe new space Will compete with existing space The additional1nvestment may also lower the overall return on investment under the Prime Concessionaire agreement. 8.2.4' Sales per Square Foot Sales per square foot is a measure of the productivity ofconcession space, and can be an indi cator of or surrogate for assessing concessionaire protability, as the measure relates investment (square footage) with sales. Sales per square foot is not a measure of protability for the airport enterprise, however, as airports with very limited concession space may have high sales per square foot and at the same time 316 likely to have low sales per enplaned passenger Sales per enplaned is the best measure ofovelall concession performance. passenger Table 8 10 shows the sales per square foot for each concession management app1oach, by cate g01y. The highest sales pe1 square foot for each sales category is indicatedin boldface. The Prime Concessionaire approach produces the lowest overall sales per enplaned passenger (see Table 85) and the highest sales per square foot. High sales per square foot may be good for concessionaires, in that it indicates good retu111 on investment, but1t is not necessarily good for the airport opera~ tor, which could maximizetotal sales and revenue bydeveloping more space. For example, Newark Liberty, John F. Kennedy, Boston Logan; and Portland International Airports have some of the highest total spend rates, While their average sales per square foot are near orbelow the Overall aver- age (see Table 83). 8.2.5 Percentage Rents Ofthe 34 airports included in the analysis, 22 reported net revenue data. Based 011 the reported data, the average effective rent can be calculated. The effective rent is total revenue divided by total Concession Contracting Approaches 135 Table 810. Sales per square foot by concession management approach2008. 1 Direct leasing $ 1,196 $ 1,1701 1$ 1,051 $ 1,577' .$ 1,230 Prime concessionaire $ 1,330 $ 1,323 n.a. n.a. $ 1,343 Developer/leasingmanager $ 1,008 $036 $ 917 $ 1.467 $ 1,136 ' Hybrid 3; 1,355 $ 1,351 $ 1,014 .$ 1,353 s 1,361 Averagemail airports $ 1,234 $ 1.210 $ 991 $ 1,685 $ 1,275 ' n.a. 2' Not avaiiable. . (1) Two airpons in this category do not break out specialty retail from total retail. Source: Airport Revenue News 2009. Data for 2008. sales, and takes into account different rent structures for tenants in the same category. The results are shown in Table 81 1. Only the total retail average percentage rent is shown for the Prime Con- cessionaire approach as two airports did not break out their space and sales into specialty retail and convenience retail subcategories. The average effective rent for all airports was 14.2%. Airports using the Prime Concessionaire above the group approach had the highest effective rent, 15.4% overall, or 1.2% percent of sales effective rent of 13.1%, or 1.1% below the group average. Third-Party Developers had an average overall average. Ifthe or about 0.5% below the average. Direct Leasing airports averaged 13.7%, sales for each approach were equal, this might suggest that the Prime Concessionaire approach would yield the highest revenue. However, the sales are not equal for each management approach. Adjusting the average percentage rent shown in Table 8 1 1 forthe difference in sales per enplaned Table 8-5 results in the following effective percentage rent for each manage passenger shown in a category ment approach, as shown in Table 8-12. The effective percentage rent for an airport or the airport by the sales. Note that it is possible that can be calculated by dividing the rent paid to MinimumAnnual high Minimum Annual Guarantees may result in high effective rents as the total Guarantee may exceed the percentage rents that would be due under the concession agreement. When the difference in sales performance for each management approach is factored in, the dif ference in the effective rent narrows considerably. Direct Leasing results in the highest overall Concessionaire approaches. return on sales (14.5%), followedby the Developer, Hybrid, and Prime The Prime Concessionaire approach, which results in the highestaverage rent, compares less favor In the food andbev~ ablywhen the difference in sales performance for each approach is considered. produces the highest return on sales, erage category, the Developer/Leasing Manager approach Table-841. Average percentage rent by management approach and category2008. V i 13.7% 12.5% 115.7% 15.7% 15.7% Direct leasing 'Prime concessionaire 15.4% 14.1% n.a. n.a. 17.9% Developer/leasing manager 13.1% 12.7% 13.1% 14.6% 13.8% ' Amazon Hybrid 13.4% 12.1% 13.8% 16.4% 15.2% i Averageall airports 14.2% 13.0% 15.6% 16.6% 16.1% .1 4:. n.a. = Not available. . retail. (1) Two airports in this Category did not break out specialty retail from total Source: Airport Revenue News 2009. Data for 2008. 1313 Resource Manual for Airport In-Terminai Concessions ' 1 Table 8-12. Effective percentage rent by management approach adjusted for sales performance2008. V Direct teasing 14.5% 13.2% 20.4% 18.5% 16.7% 8 Prime concessionaire 13.0% 13.0% n.a.' n.a. 14.5% 8 Developer/leasing manager 14.2% 13.3% 15.6% 15.7% 15.7% 2 Hybrid 13.8% 12.1% 14.1% 15.3% 16.3% 4 Averageail airports 14.2% 13.0% 15.6% 16.6% 16.1% 14 me. = Not available. (1) Two airports in this category did not break out specialty retait from totai retail. Source: Airport Revenue News 2009. Data for 2008. - with Direct Leasing a close second. In the total retail category, the Direct Leasing approach pro duces the highest return on sales, followed by the Hybrid, Developer, and Prime Concessionaire approaches. The Prime Concessionaire approach would produce the highest return on sales ifall manage ment approaches resulted in identical sales. However, this is not the case. The Direct Leasing and Developer/Leasing Manager approaches, each of which creates incentives to develop the most space and the highest sales, produce higher revenues, as shown in Table 8 12. Figure 81 presents a comparison of the average sales per enplaned passenger and average effective rentby concession management approach. The columns represent the average sales per enplaned passenger (labeled on left axis) and the diamonds represent the average effective per- centage rent (labeled on right axis). $12.00 18.0% - $11.00 16.0% Rent Enplanement $10.00 1 4.0% 12.0% $9.00 Percentage per 10.0% Sales as90o 8.0% Effective Average $7.00 69" Average 4.0% $6.00 2.0% $5.00 0.0% Developer Direct Hybrid Prime Average Concession Management Approach Source: Airport Revenue News 2009. Figure 8- 1. Comparison of averagevsales per enplaned passenger and average effective rent by concession management approach (food and beverage and retail)-2008.
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