Airport retail stores will have to compete for their current space via an upcoming tendering process.
The retailers were notified of the decision in memos sent in late September that also indicated the Cayman Islands Airports Authority will not approve standard five-year contract extensions for concessions businesses until it is finished with an upgrade of the terminal.
“We will be renewing all concessions leases for one year,” a letter sent from Bianca Moore-Downey, the Airports Authority’s acting chief of customer and commercial services, indicated in the memo. “Upon expiration, the renewal term will be reviewed again. This will allow us to position ourselves to implement our new business strategy to coincide with the completion of the [new] departure hall.“
At the moment, businesses that sell food, gifts, alcohol, tobacco and other retail items in the departure lounge of Owen Roberts International Airport usually have five-year options for lease renewal and pay a monthly flat fee to rent the space.
According to the memo, that practice will change to a “revenue-based business model” to include a minimum annual guarantee from the concessionaires, likely to be expressed as a percentage of profits.
This is the norm “for the majority of airports around the world.”
“This model provides mutual benefits to both landlord and tenant, such as a direct economic relationship between sales and rent and shared financial risk,” the airports memo stated. Current concessions tenants would be invited to participate in the bidding process once it gets under way, airports officials said.
The switch to a revenue-based model is not a big deal, according to Airport Tenants Association vice president Robert Hamaty, who is president of the Tortuga Rum Company, one of the airport concessions businesses. Mr. Hamaty said similar agreements exist with Tortuga’s operations at Bahamas, Jamaica and Barbados airports.
However, he said his company has concerns about a competitive bid process, if it is opened up to major multinational companies that could significantly underbid smaller local and Caribbean-based operators.
“I’m all for airport redevelopment,” he said. “But the previous tenants should be given grandfathered rights.”
According to a press release from the Cayman Islands Airports Authority issued earlier this month, the concessions bidding process sought to improve the passenger experience and provide “amenities expected of a first-world destination.”
The release noted that the airports management and board of directors was excited by the prospect of tendering all concession spaces.
“The objective is to ensure that all interested retailers, including the existing concession holders, will have an equal opportunity to submit a response to the [request for proposal] in a fair and transparent manner,” said airports chief executive Albert Anderson.
According to time lines set forth in the airports redevelopment master plan, construction of the new terminal is expected to begin in mid-2015. The project will be completed in phases over a five-year period.