FROM: Karen Racek, Assistant Manager, Airside Leasing and Tenant Relations Commercial Management and Airline Affairs (612)

Transcription

1 Page 1 of 6 MEMORANDUM TO: Management and Operations Committee FROM: Karen Racek, Assistant Manager, Airside Leasing and Tenant Relations Commercial Management and Airline Affairs (612) Eric Johnson, Director - Commercial Management and Airline Affairs (612) SUBJECT: ON-AIRPORT RENTAL AUTO CONCESSION REQUEST FOR BID AUTHORIZATION DATE: May 26, 2017 Staff seeks authorization from the Commission to issue a Request for Bids (RFB) to select four companies to operate on-airport rental auto concessions in one of four predetermined blocks of space within the parking ramps of Terminal 1-Lindbergh (T1) and Terminal 2-Humphrey (T2) at the Minneapolis-St. Paul International Airport (MSP) for a term of ten years with two five year extensions at MAC s option. BACKGROUND At the May 2017 Management and Operations Committee meeting, staff presented airport rental auto rebid background information. In preparation for the construction of the new T1 rental auto facilities in the silver parking ramp structure, staff seeks authorization from the Commission to issue a RFB in 2017 for on-airport rental auto concession agreements effective the first day of the month following date of beneficial occupancy of the new facility. The current on-airport rental auto concession agreements expire on December 31, 2018 and will continue in monthto-month holdover through completion of construction projected to be spring of Unlike most concession contracts at the airport awarded through a Request for Proposal (RFP) process, on-airport rental auto concession terms are set forth in the bid or proposal documents. Rental auto companies submit a minimum annual guarantee (MAG) rent they are willing to pay. This is standard practice throughout the airport industry. In 2013, rental auto companies bid for on-airport rental auto concessions within one of four predetermined blocks of space at T1 and T2. The bid required parent companies submit one consolidated bid for all affiliated brands it desired to operate at MSP. The following table represents the on-airport rental auto companies, their brands operated, and 2016 MAG rent and concession fee under the current contract:

2 Page 2 of 6 PARENT COMPANY The Hertz Corporation: Hertz Dollar Thrifty Avis Budget Car Rental, LLC: Avis Budget Enterprise Leasing Company of Minnesota, LLC: Enterprise National Alamo Simply Wheelz, LLC: Advantage 2016 Gross Sales MAG $55,395,099 $5,619,800 Paid MAG $46,171,804 $4,624,512 Paid MAG Concession Fee Greater of Concession Fee or MAG 10% $5,619,800 10% $4,624,512 $79,357,733 $6,745,407 10% $7,935,773 Paid 10% Concession Fee $6,246,872 $901,000 Paid MAG 10% $901,000 On-airport rental auto concessionaires also have counter positions, office space, ready/return space and Quick Turn-Around (QTA) car wash positions in the parking ramp. Two off-site companies also provide rental auto services at MSP but with no rental cars in the parking ramp; rather, customers ride a shuttle to another location to pick up and drop off the rental car. These off-site companies are governed by Ordinance 122 and do not have concession leases with MAC; however, may lease a counter space position for a customer service presence within the terminals. The following table represents the off-site rental auto companies, their brands operated, and the concession fee governed by Ordinance 122: PARENT COMPANY 2016 Gross Sales Concession Fee Concession Fee Paid Auto Rental, LLC: $7,932,197 10% $793,220 Sixt Avis Budget Car Rental, LLC: Payless $3,041,659 10% $304,166 GOALS AND OBJECTIVES Through an open RFB process, staff s goals and objectives are: A. Provide an exceptional customer experience. B. Maintain competition amongst the rental auto operators. C. Provide any company wishing to serve the on-airport rental auto market the opportunity to bid for an on-airport rental auto concession. D. Maximize revenue to MAC. E. Maintain operational efficiency within the rental auto facilities.

3 Page 3 of 6 To achieve these, staff recommends limiting the number of concessions awarded to four. Four concessions will maximize operational efficiencies and functional layout of the rental auto facilities to provide an exceptional customer experience while also maintaining competition amongst operators. Parent companies wishing to serve the on-airport rental auto market will be required to submit one consolidated bid for all the brands it intends to operate within the leased premises. KEY BUSINESS TERMS The rental auto concession bid terms developed by staff are as follows: A. Proposed effective date: First day of the month following date of beneficial occupancy in the new silver parking ramp structure estimated to be in spring The current on-airport rental auto concession agreement expires on December 31, 2018 and will continue in month-to-month holdover during construction. B. Request for Bid (RFB): One on-airport rental auto concession agreement will be awarded to the highest qualifying bid for one of four predetermined blocks of ready/return space and set number of QTA car wash positions substantially as shown in Attachment A for the Committee s information and convenience. C. Qualifying Bids and Space Allocation: Minimum qualifying bids for each ready/return and QTA car wash positions block of space: Ready/Return Space & QTA Car Wash Positions Minimum Qualifying Bid Block 1: $7,100,000 Block 2: $5,000,000 Block 3: $5,000,000 Block 4: $900,000 The company that submits the highest MAG equal to or greater than the minimum qualifying bid gets the first selection of the ready/return blocks of space and QTA car wash positions. The company with the second highest gets second choice and so forth. If two or more companies submit the same bid, those two companies will be required to rebid. If more companies submit bids than the airport has space for the companies with the lowest bids will not receive on-airport locations, but rather may operate as an off-site provider under Ordinance 122. Once the number of each company s QTA car wash positions at each terminal is determined through the process below, the actual QTA car wash position location within the each terminal shall be mutually agreed upon between all successful companies. If the successful companies cannot come to a mutual agreement, MAC will assign the QTA car wash position locations. Block 1: At T1 includes approximately 355,788 square feet of ready/return space on levels 2 and 3 of the new silver ramp and 5 QTA car wash positions. At T2 includes approximately 93,956 square feet of ready/return space on level 1 of the purple ramp and 3 QTA car wash positions.

4 Page 4 of 6 Block 2: At T1 includes approximately 208,715 square feet of ready/return space on level 4 of the new silver ramp and 3 QTA car wash positions. At T2 includes approximately 64,725 square feet of ready/return space on level 2 of the purple ramp and 2 QTA car wash positions. Block 3: At T1 includes approximately 210,428 square feet of ready/return space on level 5 of the new silver ramp and 3 QTA car wash positions. At T2 includes approximately 52,723 square feet of ready/return space on level 2 of the purple ramp and 2 QTA car wash positions. Block 4: At T1 includes approximately 22,484 square feet of ready/return space on level 2 of the new silver ramp and no QTA car wash position. At T2 includes approximately 12,234 square feet of ready/return space on level 1 of the purple ramp and 1 QTA car wash position. 12 th QTA Car Wash Position at T1: The company who bids the highest MAG amount that exceeds its minimum MAG amount for the block of space they selected will be allocated one additional QTA car wash position at T1 for a minimum of three years. Counter and Office Space: Supporting counter positions and office space areas will be allocated by market share based on audited gross sales as of December 31, 2017 including any off-airport brands currently operating at MSP which are included in a successful bid. Whichever company submits the highest MAG equal to or greater than the minimum qualifying bid gets the first selection of the counter location and office space at each terminal. The company with the second highest gets second choice and so forth. Each successful company will receive a minimum of 2 counter positions at each terminal. D. Minimum Annual Guarantee (MAG): Companies shall bid the 2020 MAG floor covering both T1 and T2 operations. In 2020, the MAG will likely be prorated between the MAG bid and the then existing MAG for the period until the new contract is in effect. In contract years two through five, the MAG shall be the greater of the bid 2020 MAG or 85% of the previous year s concession fee. In contract year six through ten, the MAG floor will adjust to 90% of year five s concession fee. E. Concession Fee: In each agreement year, the concession fee shall be equal to the greatest of the MAG for that year or 10% of gross revenue. F. Additional Rent: In addition to the concession fee, concessionaires shall pay as rent to MAC the then current rate for the following (2017 rates are provided merely for reference): 2017 Rental Rates T1 Ground Rent Ordinance 120 $1.30 QTA Ground Rent Ordinance 120 $0.76 Non-Janitored Terminal Rent $38.12 Janitored Terminal Rent $48.96

5 Page 5 of Rental Rates (cont.) T2 Ground Rent Ordinance 120 $1.30 Mezzanine Level Ready/Return Ordinance 120 $1.30 QTA Ground Rent Ordinance 120 $0.76 Non-Janitored Terminal Rent $21.02 Janitored Terminal Rent $53.39 G. MAC Ordinance Credit for Operating and Maintenance Costs: This ordinance allows a credit, as designated by the Executive Director/CEO, for a portion of the T1 and T2 operating and maintenance costs to be financed through the Rental Auto Facility Charge (RAFC). MAC staff is recommending that this credit will be adjusted to $250,000 per year, effective January 1, Currently this credit is $750,000 per year. H. MAC Ordinance Payment or Reimbursement of Extraordinary/Moving Costs: This ordinance allows the Commission to provide a reimbursement, financed through the RAFC, to the rental auto companies for improvements to the overall operation of the rental auto facilities including approved relocation/moving costs in excess of $50,000. MAC staff is recommending an amount of up to $5 Million be allocated for relocation/moving costs, to be split by market share among the incumbent successful companies. I. Term: Ten years with two five-year options at MAC s option. MINIMUM REQUIREMENTS The minimum bidder requirements are as follows: A. Submit a five thousand dollar ($5,000) deposit. B. Present evidence that it is qualified and has the necessary facilities, experience and financial resources to fulfill the conditions of the General Terms and Conditions Lease Agreement, and the Supplemental Lease Agreements Terminal 1-Lindbergh and Terminal 2-Humphrey. C. Submit an affidavit of non-collusion with bid proposal. D. Submit properly executed proposal documents. AIRPORT CONCESSION DISADVANTAGED BUSINESS ENTERPIRSE (ACDBE) An ACDBE goal of 5% has been established for this concession. This is a requirement of 49 CFR Part 23, Subpart D, 23.41(a). MAC recognizes that the auto rental business structure makes it difficult to subcontract. If a bidder cannot meet the 5% ACDBE requirement, good faith efforts to identify and seek out ACDBE participation will be sufficient. Good faith efforts include documentation of holding informational meetings about opportunities and a summary of collaboration with ACDBE firms in the past. ADVERTISING AND DISTRIBUTION OF THE RFB The RFB will be advertised in the Minnesota State Register, American Association of Airport Executives (AAAE) and Airports Council International North America (ACI-NA) websites, Airport Revenue News (ARN) and other publications as appropriate. The RFB will be mailed

6 Page 6 of 6 directly to all existing on-airport rental auto companies and any other companies having expressed an interest in the concession. Information will also be posted on the MAC website. TIMELINE June 2017 July 2017 July 2017 August 2017 September 2017 December 2017 December 2017 December 2017 April, 2020 Public RFB Notice Issue RRB Mandatory pre-proposal meeting for the RFB RFB questions deadline Bid proposal deadline Management and Operations Committee recommendation of concession agreement awards Commission approves Management and Operations Committee awards recommendation Execute agreements Projected agreement effective date MAC reserves the right to adjust the schedule as necessary. COMMITTEE ACTION REQUESTED: RECOMMEND TO THE FULL COMMISSION TO AUTHORIZE THE ISSUANCE OF BID FOR ON-AIRPORT RENTAL AUTO CONCESSIONS CONSISTENT WITH THE TERMS ABOVE; AUTHORIZE UP TO $5 MILLION IN EXTRAORDINARY COSTS BE ALLOCATED FROM THE RENTAL AUTO FACILITY CHARGE FUND FOR MOVING/RELOCATION COSTS; AND THAT THE EXECUTIVE DIRECTOR/CEO OR HIS DESIGNEE BE AUTHORIZED TO EXECUTE THE NECESSARY DOCUMENTS.