Wrapping up a tumultuous year in the airport concessions business, speakers on the latest webinar hosted by the Airport Restaurant and Retail Association say challenges remain as the industry looks to 2023.
ARRA executive director Andrew Weddig gathered a panel of experts this week to discuss the way forward in a webinar titled “Revisiting the Ideal RFP.” Panelists were John Cugasi, vice president marketing at Paradies Lagardère; Mookie Patel, chief officer business and finance, Austin-Bergstrom International Airport; and Stuart Holcombe, managing partner at Travel Retail Partners.
Patel noted that while his concessions contracts at Austin don’t expire for several years, he believes airports need to rethink parameters when they do embark on new agreements. He said changing the rules in the middle of a contract is difficult and some airports, like AUS, chose to stick to the contracts. But he suggested airports should make changes in new contracts.
“It’s easier to provide flexibility in a new RFP,” he said, adding, “I believe when there’s an opportunity to set the pins up correctly, you can bowl a strike every time. We do have an opportunity now where airports can pull those certain levers to reduce the risk for the industry, for [operators] who are investing hundreds of millions of dollars into a program.”
Holcombe also urged a reset, and said he was surprised by the lack of change in today’s RFPs, as compared to those pre-pandemic.
“With some of the ones that I’ve read… it seems like it was left off in 2019, dusted off and just released back in 2022 with no real significant change,” he said. “It’s kind of disheartening, for all the trials and tribulations that each one of the stakeholders has gone through.” Holcombe suggested that airports “hit the pause button, re-look and then redo these RFPs so that they are truly meaningful to all stakeholders.
Change comes slowly, Cugasi noted, particularly with government contracts. “The nature of the beast with large government-controlled procurements is that even with the very best of efforts, you can’t change things as quickly as you could with a business on the street,” he said. “That doesn’t mean that the wheels are not turning. I see things being better. I think there’s more room for opening up business-friendly terms and being progressive.”
Cugasi noted that he’s seen rumblings of consideration of change at some airports, including more outreach, new approaches to minimum annual guarantees (MAG), ranges of percentage rents and other moves, although those early efforts have not necessarily resulted in markedly different RFPs.
Cugasi says it “feels like things are getting a little bit more logical” when it comes to MAGs, with some consideration of delayed MAGs or no MAG at all, or the MAG being tied to enplanement levels.
MAGs provide stability in income to the airport, Holcombe acknowledges, but he says airports need to “make sure that it’s reasonable and it’s based on the actual performance abilities” of the specific category or brand involved.
From the airport perspective, Patel said there is no one solution. “Every airport is so different in their business plan and their business model and where they need to drive this business and solidify this revenue stream,” he said.” And if they’re using it to guarantee long-term debt…then it sets a different set of expectations for every airport.”
Broader picture, Cugasi noted the importance of modeling a program to not only offer the right number of concessions to serve passengers in the terminal or airport, but also to ensure that both operators and airports can be successful, and that passengers are satisfied with the offer.
At AUS, upcoming construction work will cause upheaval to concessionaires currently operating at the airport, Patel noted, and he said the airport tries to anticipate changes that will impact its tenants. I think airports need to be almost looking into a crystal ball with the language of ‘if this, then that,’ and we do have some of that language, for example, if traffic drops lower than certain percentage and there’s a scale down in your responsibilities. But that’s in general.
“I think there’s a strong lever level of jitteriness amongst the industry partners today,” Patel continues. We know that there are more partners than there are airports so there’s always multiple bidder on the one RFP, but the goal is to eliminate the common anxiety.
“We have to work on addressing some of the larger issues,” he continues. “We can’t get into the microeconomics that happen real time, but we can at least … start setting boiler plate language.”
Holcombe agreed that the industry should work toward some universal language for RFPs, but noted that it needs to take into account the smaller players as well as the large, prime operators that dominate the industry.
RFPs could also include language that gives airport leadership the discretion to make changes, Cugasi suggested, a move that would allow the entities involved to more quickly make changes.
“It’s a simple statement that says the general manager of the airport has the discretion to do the following,” he said noting the potential parameters. “That can be allow price changes, allow floor plan changes, allow brand changes. Put into the procurement is the ability for the airport leadership to make those changes and not have to go through an act of God to get things done. Once you have that language, then you need the leadership at airports that are about how do we work together to drive sales.”