NORTH AMERICA. The Airport Restaurant & Retail Association (ARRA) has illustrated the depth of the sales decline among North American airport concessionaires, and reiterated its urgent call for financial support, led by rent suspension, from airport partners.
As reported, ARRA and its counterpart organisation the Airport Minority Advisory Council (AMAC) have jointly urged US airports and Congress to ensure financial relief measures for their members, airport restaurateurs and retailers.
ARRA estimated that March concession sales in the US fell by more than -60% to US$340 million, with the closure of larger restaurants, limited alcohol sales and reduced speciality retail sales. In April, this figure is estimated to have fallen to just US$38 million, compared to US$825 million a year earlier.
This came as passenger traffic fell sharply; security screenings through the US Transportation and Security Authority at airports were just 3% of normal levels on 31 March.
In a briefing to industry colleagues, ARRA Executive Director Rob Wigington said: “As March was coming to an end, operators focused on how much cash they had on hand. With sales slowing to a trickle, there was no cash coming in.
“Each business grappled with how to make payroll, pay vendors and sort rent payments for April. Businesses reluctantly furloughed employees and negotiated with distributors about payment terms. Our members turned off utilities and tried to sort their contracted parking costs and metro expenses along with a myriad of other details, including badging and securing closed units. Each of these efforts leading to a simple question: how long can the business last at its reduced operating levels?”
He said that members could scale back their operations, but noted two hurdles to “successful hibernation”.
The first is capital and debt. Wigington said: “The capital required to build airport concessions has skyrocketed in recent years with major cities hitting US$1,000+ a square foot for airport concession construction. Principal and interest payments for an operation are typically 10‐12% of the sales of a business.”
The other factor is Minimum Annual Guarantees and rent. “Rent can be 15%‐20% of sales during normal circumstances. Rent is transformed from a normal expense to an insurmountable mountain when passengers disappear. The financial deficit numbers grow geometrically, and there is no way to survive. The negative impact of minimum rent without passengers, and thus revenues, is more damaging to our companies than having to pay the mortgage on the build out.
“If operators are required to pay rent with no sales for any period, ALL operators will eventually fail. The only differentiating factor will be the exact moment when each company drains its cash resources.”
ARRA and its members say that rent abatement (suspension) is required to make it through the crisis. Wigington said: “There is no way for our businesses to survive if we are forced to pay rent without passengers, and thus, sales.
“Without abatement, businesses both small and large, will not survive this pandemic. Our industry is relatively small. The frontline managers and employees, design and construction teams, merchandisers and marketers, culinary teams are in a highly specialised business and possess a unique set of skills and experiences.
“ARRA members chose a business path which contributes mightily to the travel experience—an experience which is critical to the economic viability of the US. Our member companies and employees only want to be a part of the recovery of American aviation. To achieve that goal, we ask for our airport partners to support rent abatement and engage in a meaningful conversation designed to collaboratively create a new future for our industry.”
*ARRA Executive Director Rob Wigington featured recently in our Podcast series, In Crisis – Travel Retail Voices, in which we speak to industry executives around the world to see how they and their businesses are coping with the COVID-19 crisis.
Click on the icon above to listen to Rob Wigington in conversation with Dermot Davitt. Click here for the latest episodes in the series.
