Posted on: Thursday, October 4, 2001
The September 11th attack
Airport vendors ask for reduced rents
By Andrew Gomes
Advertiser Staff Writer
Operators of shops and restaurants at Hawai'i airports have asked the governor and state Transportation Department to reduce their rent until sales return to normal, a change that would help their businesses survive but that could strain the airport's operating budget.
Relaxed rent is a pressing issue for airport-based businesses around the country in the aftermath of the Sept. 11 terrorist attacks that dramatically curbed air travel. Concession operators at Hawai'i airports have been among the hardest hit, with sales plummeting as much as 50 percent.
But the relief, if granted, would drain millions of dollars in revenue from the state airport fund's main source.
"It's a tough situation," said Alan Yamamoto, district general manager for HMS Host Hawaii, operator of food and beverage concessions at the Honolulu airport. "I don't think our request is unreasonable. I think it's reasonable and needed right now for us to survive."
Yamamoto and other concession operators want the state to accept rent based on a percentage of sales instead of a minimum annual guarantee. Under most airport concession contracts, the greater of the two must be paid. The waiver would be retroactive to Sept. 11 and end when sales return to normal.
Airport concessionaires made their request at a private meeting Monday with Gov. Ben Cayetano and Transportation Department Director Brian Minaai.
Concessionaires said they will make their case to a House transportation committee today in hopes that legislators will approve their request during a special session later this month. Legislative approval is required to alter existing contracts.
The governor's press secretary, Kim Murakawa, said Cayetano is evaluating the proposal and has yet to make a decision. But she said he is supportive of the idea and recognizes the hardships faced.
Transportation Department spokeswoman Marilyn Kali said the department also is considering the request.
"We obviously don't want anybody going out of business," she said. "We want to sustain the business and continue to operate the airport, but we have to do that with decreased income and increased expenses."
Airport revenues are already being strained by suspended landing fees, increased security costs and a plan to tap the airport's $390 million special fund to pay for other efforts to stimulate the local economy.
Kali said there is a limit to how much airport revenue and money from the special fund can be given up because Hawai'i airports are required to be financially self-sufficient and the special fund must maintain a certain balance to cover bond commitments.
"We're looking at how to balance all of that," she said. "We're trying to crunch the numbers. At some point, we're not going to be meeting our bond covenance."
Concession rent generates about two-thirds of all airport revenue and represented $181 million of $283 million in airport revenue in fiscal year 2000.
How much airport revenue would be lost under percentage rent is difficult to assess because the level of future sales is uncertain. But the amount would be in the millions of dollars, concessionaires said.
By the same token, the airport relies on the existence of concession operators who, if they went out of business, would leave the state with no rental income.
Recognizing that relationship, San Francisco's airport director announced yesterday that he will ask for a minimum annual guarantee suspension similar to the one being sought here.
DFS Hawaii is the main contributor to airport concession rents here. Last year, the company, which operates duty-free and regular retail stores at three Hawai'i airports, paid $120 million in concession fees.
DFS Hawaii under new contracts this year must pay a minimum $71 million to the airport fund based on lower sales in recent years. But paying even that will be a hardship, according to Sharon Weiner, DFS Group vice president.
She said duty-free sales dropped 55 percent the last week of September. Sales were down 48 percent at the 30-odd other retail shops that the company operates at the Honolulu airport.
"Your business can't be cut in half and still pay the minimum (guarantee)," she said. "You can't survive."
Weiner said deferring minimum guarantee payments, which are made quarterly in advance, wouldn't work because the liability would be just as hard to make up in the future.
Yamamoto of HMS Host said he has had to reduce restaurant hours and hours for much of his 400-member staff at the Honolulu airport. The company is also analyzing the need for layoffs.
The minimum guarantee, he said, would help restore cuts and possibly lessen the pressure to lay off employees.
"That would definitely help," Yamamoto said. "(Rent is) a huge part of our operating costs. We want to try and continue to provide the same level of service."
Peter Fithian, president of Greeters of Hawaii, has imposed a one-third reduction on his staff, who run 10 florist shops inside the Honolulu airport. He placed those employees on leave without pay but with medical coverage.
Fithian said business is down 30 percent to 50 percent because added security means longer waits and less time for travelers to spend in shops. There also are fewer customers because people without tickets are restricted from shop areas.
