Title
Airport Concessions Relief
Description
This report requests that the Transportation, Infrastructure and Innovation Subcommittee (TI&I), recommend to the Phoenix City Council approval of continuing concessions relief to tenants at Phoenix Sky Harbor International Airport (PHX) through continued charge of percent rent in lieu of Minimum Annual Guarantees (MAG) from Jan. 1, 2021 through Dec. 31, 2021 with additional stipulations.
- Stipulation 1: When passenger enplanements at PHX reach 70 percent of the 2019 levels for a period of two continuous months, concessionaires will pay an additional 2 percent of rent.
- Stipulation 2: When passenger enplanements at PHX reach 80 percent of the 2019 levels, concessionaires will pay MAG or percent rent, whichever is greater.
- Stipulation 3: If the airport receives funds from the federal government to provide rent relief for the concessions program, the airport shall apply those funds consistent with the guidance provided by the Federal Aviation Administration (FAA). Concessionaires will be required to comply with all applicable provisions established by the FAA.
Additionally, staff recommends that the term of the Terminal 3 and 4 food, beverage, and retail concessionaires be extended for three years.
THIS ITEM IS FOR DISCUSSION AND POSSIBLE ACTION.
Report
Summary
The COVID-19 global pandemic created a downturn in airline passenger travel by over 93 percent at PHX. In direct correlation to the reduced passenger activity, concession sales plummeted for PHX's concessionaires. As a result, established rents were unsustainable for the concessionaires in the Terminals. On April 4, 2020, the Federal Aviation Administration (FAA) provided guidance to airport sponsors encouraging them to consider the business circumstances created by the public health emergency and assist tenants in staying solvent so they can resume normal operations when the emergency ends. The Aviation Department requested approval to provide financial relief for concessionaires which included prime operators and Airport Concession Disadvantaged Business Enterprise (ACDBE) business partners (Concessionaires) to mitigate the effects of the decrease in passenger activity related to COVID-19.
On June 3, 2020, Council approved relief from paying MAG for concessionaires at PHX and percent rent only effective April 1, 2020 through June 30, 2020. On July 1, 2020, Council approved an extension of the percent rent only through Dec. 31, 2020. All concessionaires that received relief were required to adhere to the following requirements:
- Pass financial relief on to all joint venture partners and sub-concessionaires;
- Recall and reemploy furloughed or laid off employees;
- Provide two months medical benefits for furloughed or laid off employees (applicable only April 1-June 30,2020);
- Work with Community Economic Development on other relief and employment opportunities;
- Submit weekly sales reports; and
- Provide notice of any Coronavirus Aid Relief and Economic Security Act relief received.
As a result of the pandemic:
- Travelex closed all operations in North America;
- Approximately 50 terminal advertising contracts were cancelled;
- Host furloughed 756 associates and has recalled 347 employees based on seniority, 253 of which have accepted;
- SSP furloughed 550 associates and has recalled 131 employees based on seniority; and
- Stellar furloughed 72 associates and has recalled 25.
As passengers loads have gradually increased, the Concessionaires have started re- opening closed units, extending hours of operation, and recalling furloughed personnel. Of the 136 total concessions operating out of PHX, 53 (39 percent) are currently open for business. This is up from 31 percent in May of 2020. While passenger traffic is picking up, it is not tracking at the same rate it was prior to COVID-19 and as a result, Food & Beverage and Retail gross sales remain down by approximately 50 percent compared to 2019, and Terminal advertising gross revenue is down by approximately 25 percent.
Financial Impact
If approved by Council, the Minimum Annual Guarantee (MAG) will be temporarily waived and tenants will pay percent rent based on their lease agreement and terms outlined in this report.
Concurrence/Previous Council Action
The Phoenix Aviation Advisory Board was updated on this item on Nov.19, 2020.
Location
Sky Harbor International Airport - 3400 E. Sky Harbor Blvd.
Council District: 8
Department
Responsible Department
This item is submitted by Deputy City Manager Mario Paniagua and the Aviation Department.