"Airport concessionaires feeling squeezed by fees"

Saturday, March 17, 2007

Airport concessionaires feeling squeezed by fees
Businesses say costs go up while passenger traffic goes down
BY SHERYL JEAN
The St. Paul (MN) Pioneer Press


Running a shop or restaurant at the airport seems like a retailers' dream:
Thousands of captive consumers pass by each day, with many of them paying
for a meal or buying books or other items as they wait for a flight.

The reality is much different, say some of the companies that operate dozens
of popular outlets like Ben & Jerry's, Caribou Coffee and Creative Kidstuff
at the Minneapolis-St. Paul International Airport. They say that rising
expenses are making it more difficult to run a profitable business and that
if costs continue to rise, staffing and customer service could be affected
and they may have to raise prices.

Some businesses expect double- and triple-digit cost increases this year.
Last year, rent and fees for terminal concessions totaled 19 percent of
sales, or $21.8 million.

Concessionaires also note that their costs are rising as airport traffic is
falling: Passenger traffic fell about 5 percent last year as airlines flew
less. Some of them also say the cost structure is unfair given that the
airport is providing $279 million in financial aid to help airlines.

Creative Host Services Inc. and HMSHost Corp., the two largest
concessionaires, say their Twin Cities' operating costs are higher than at
dozens of other airports where they do business.

"The current model charges us for services we typically handled ourselves,
such as debris removal and cleaning. These costs are well above industry
average," said Rana Florida, a spokeswoman for Maryland-based HMSHost, which
operates Starbucks, Rock Bottom Brewery and more than 50 other outlets at
the Twin Cities airport.

On Monday, the Metropolitan Airports Commission, the board that oversees the
airport, is expected to decide whether to lower two terminal concession fees
- one for utilities and one for trash, loading dock and pest control
services - and next month it will consider changing other rents and fees
that concessionaires pay.

Revenue for concessions at the airport terminals accounts for about
one-tenth of the airport's total operating revenue.

Under the proposal, terminal concession utility fees would be cut from $8 to
$3.45 per square foot for newsstands and $4.48 for retailers; food-court
utility fees would go from $14 per square foot to $3.45 for food and
beverage operators. The fee for trash, loading dock and other services could
go from 0.5 percent to 0.33 percent for retailers.

Some businesses say the proposed reductions are not enough.

"There's still more that needs to be done with the MAC," said Roddy McOwan,
vice president of business development for San Diego-based Creative Host,
which operates several restaurants such as Wok & Roll and Stage Deli at the
airport. "We're not crying foul. What we're saying is please work with us
when not everyone is seeing the growth expected."

Concession costs changed in 2004 when the Twin Cities airport overhauled its
retail program, bringing in more than 100 new tenants, remodeling spaces and
raising rents and fees. Airport Revenue News magazine this month named the
Twin Cities' airport as having the best overall concession program and the
best concession design.

Last month, five concessionaires sent letters to the MAC, questioning why
they pay a separate utility rate when airlines and other tenants do not, why
they pay part of utility costs for the main food court, how utility costs
are measured and the need for a service fee.

Susan Warner-Dooley, the MAC's deputy executive director for finance, said
it's common for airports to charge concessions separately for utilities
because their use tends to be higher. But she said audits found that some
businesses were paying more than twice the amount of the utilities used.

The rising costs may be hardest on small-business owners.

Gregory Hugh of Minnetrista, who operates Gourmet 360 Burrito at the
airport, said in a Feb. 8 letter to the MAC that he expects utility costs to
jump to $19,945.64, more than double what he paid last year. He declined to
be interviewed.

Any additional increases in operating expenses would "make it very difficult
for us to operate profitably," Hugh wrote in the letter. "We can only cut
labor costs and other expenses so far before quality and customer service
will be compromised."

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