July-August 2022 - 20

[
COVER STORY
AUTHOR Margaret Martin
[MARKET CONDITIONS]
Airport Strategies for
Thriving Concessions
AT THE 2022 ACI-NA Business of Airports Conference,
several sessions focused on how challenging it is to
successfully build-out, open and operate an airport
concession under current market conditions.
Key issues identified included
sky-rocketing construction costs,
continued supply chain woes, and
staffing shortages, all made even
more challenging by airport contracting
practices that have not
adjusted to any of these market
changes. Add to these issues a desire
of airports to increase the presence
of local brands or businesses in their
airports, and keep as close to street
pricing as possible, and you have a
perfect storm. Understanding the
hurdles facing concession operators of
all sizes can help an airport structure
a request for proposals and eventual
contract in such a way that all parties
are successful - both operationally
and financially. Ultimately, the goal
of successful airport concessions is
to provide the traveling public with
food, beverage, retail and service
options, in an operationally efficient
manner that brings revenue into the
airport. But since every concession
operator of which I'm aware, no
matter the size, is a for-profit business,
this goal needs to be balanced
with the need for the concession
operator to also make money. If
not, airports will face a future that
ABOUT THE AUTHOR
MARGARET MARTIN
Margaret Martin, CM, founder of
Martin Airport Law, LLC, a DBE/ACDBEcertified
firm, provides legal and
consulting support for airports, airport
businesses and public private projects.
Martin is the former chief development
officer for the Nashville International
Airport, where she led all revenue
generation functions, aeronautical and non-aeronautical, for
the BNA and JWN airports.
includes only concession operators
that are so large they can afford to
lose money in some markets, or
smaller operators that will not be able
to succeed for the full term of their
contract due to operating costs and
capital improvement requirements.
For airports interested in making
adjustments to their concession contracts
in order to better include local
businesses, whether operating independently
or in conjunction with a
larger concession operator, or for any
airport that wants to structure a concession
agreement that is considerate
of industry changes, it is important to
conduct an honest assessment of the
true costs of building out and operating
a concession in your particular
airport. Think about the differences
for the operator between being
in a street location and being in the
airport, and what those differences
may cost. Consider your airport's
leasehold improvement requirements
for concessions: do you require a per
square foot minimum spend on construction?
Do you adjust that downward
to reflect for cost efficiencies
for larger leaseholds? Additional contractual
requirements can also impact
operating costs, such as the required
use of distribution facilities, shared
janitorial services, trash removal, recycling,
marketing, repairs to common
areas, taxes, and utilities. It is important
to think through what costs you
may be inadvertently shifting to an
operator that an airport might be able
absorb or pay for some other way.
Consider other airport contract
that might have a
requirements
20 \ AIRPORT BUSINESS / JULY/AUGUST 2022
chilling effect on that small or local
operator - things like requiring a
security deposit to be provided in
cash vs. a letter of credit or a performance
bond, which both require
a smaller out of pocket cost for
the operator. Allowing a concession
operator to provide a security
deposit in a manner other than cash
also increases the operator's liquidity
for improvements and operating
expenses. As you're working through
concession opportunities, timing is
also critical. Airports want locations
open and operating as quickly as possible,
and so do concession operators,
because the only way anyone makes
any money is for the location to be
open. However, there are real-life
impacts to timelines due to supply
chain constraints and staffing shortages,
and both these factors are also
driving increasing construction
costs. Flexibility here is key - if an
airport believes that a delay is truly
within the control of the operator,
that is an appropriate time to levy a
contract penalty. For other timing
impacts though, an airport might
decide that a penalty isn't a required
punishment for an already frustrated
business partner.
Airports are dynamic, rewarding
places to operate a business, but they
are also expensive and complex. As
your airport considers how to make
practical changes to develop concessions,
pay attention to wording
in requests for proposals or contract
provisions areas that might
be increasing costs for operators
unnecessarily. Consider how your
airport might be able to be more
flexible and creative in achieving
your ultimate goal of providing
opportunities for passengers, and
making money.
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July-August 2022

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