Higher prices ahead for Miami travelers? MIA ready to drop retail rules in no-bid deals

Major airports in Florida limit shops from charging exorbitant prices on water, snacks and other staples of air travel, but Miami International Airport wants to drop those rules as part of a series of no-bid lease extensions for retailers that rarely face competition for their spaces.

Mayor Daniella Levine Cava’s administration negotiated the end of price controls as part of an airport-wide extension of leases with new living-wage rules for MIA tenants that is up for a final vote Wednesday before the County Commission.

It’s the latest round of COVID-19 relief for businesses that saw sales nearly vanish at the outset of the COVID pandemic. Miami-Dade waived minimum rent requirements during the pandemic, but tenants continued paying a percentage of sales to the airport.

As part of the new relief deals, MIA tenants must agree to immediately implement the airport’s $17-an-hour living-wage for private-sector workers, which won commission approval in 2018 but only goes into effect after spaces get put out to bid for new agreements.

In exchange for higher wages, airport retailers negotiated an end to the county’s “competitive pricing” rules that cap prices at 10% to 15% above market prices in the Miami area.

Inspector General to MIA: protect passengers

It’s a consumer protection the county’s inspector general wants retained, and one that Levine Cava’s top administrator recently said he mistakenly believed was rare in Florida and across the country.

“We also did some research and found we are one of the few airports in the country that even has this current requirement,” Jimmy Morales, Levine Cava’s chief operating officer and the mayoral deputy who oversees MIA, told county commissioners at a Nov. 10 committee meeting. “In most airports, the free market sets the terms.”

That’s not correct. Airports in Fort Lauderdale, Palm Beach, Orlando and Tampa have rules similar to MIA’s competitive-pricing cap, as does Atlanta’s airport, the closest major airport outside of Florida.

When the Miami Herald asked Morales last week to share the county’s research on competitive pricing, he said he misspoke, there was no research and that MIA staff told him he was wrong after he addressed commissioners at the Council of Policy committee meeting.

“I recalled having been told we were not the norm at some point during the course of negotiations with the concessionaires,” Morales said, referring to MIA tenants. “It is my intention to correct the record” at Wednesday’s commission meeting, where commissioners are scheduled to take a final vote on the new agreements.

At the Policy committee meeting, county commissioners endorsed the Levine Cava proposal, including the killing of price controls. They also voted for adding two years to the roughly three- and four-year extensions Levine Cava proposed.

The deals would be the latest no-bid extension for MIA tenants, where some businesses have gone 20 years or more without having to bid against competitors to retain their spaces at one of the country’s busiest airports.

MIA tenants want longer leases after COVID losses

Tenants argued for the extra time as a way to recover lost profits from 2020 and 2021, and have the security needed to spend more to upgrade their spaces. The deals require each tenant to spend $75 per square foot on upgrades for locations that can occupy thousands of square feet.

Wilkinson Sejour, owner of the six-location Chef Creole chain in Miami, said his small MIA storefront struggled not only with the loss of sales at the start of the pandemic but with the rising costs of labor and supplies in 2021 on top of the ordinary logistical challenges airport retailers face .

“It’s extremely difficult to run an ordinary operation inside the airport,” Sejour told the Policy committee. “We still have issues with labor. It is a problem just trying to find people to work.”

Before the pandemic, all MIA retailers and vendors generated about $450 million in sales, with about $97 million of that paid to the airport in rent. In the 12 months that ended in September 2020, sales dropped nearly by half, totaling just under $250 million.

Former airport director: Bids are unpopular

Emilio González served as Aviation director between 2013 and 2017 under then-mayor Carlos Gimenez. In an interview this week, González said it was an uphill climb to win approval for bidding procedures he wanted to launch to refresh retail space at the airport.

“You have the same people there for decades,” González said, “and they keep extending and extending and extending...”

González received heat from some commissioners in 2016 for two no-bid MIA leases he arranged, with board approval, for kiosks for Miami-based clothier Perry Ellis and a Miami restaurant owned by Emilio and Gloria Estefan as part of the airport’s new “Taste of Miami” area.

Black commissioners called the strategy exclusionary and won approval of no-bid leases for Black-owned restaurants, Jackson Soul Food and Chef Creole.

For González, the one-off leases for small locations were the best route to bring new brands to an airport where it’s rare for existing spaces to open for competition. “Personally I think [no-bid extensions] are anti-business,” he said. “Any resident who has a great idea for a concession is basically blocked from doing so.”

At MIA, 16 years without bids on shops, restaurants

A summary provided by Miami-Dade’s Aviation Department shows the average MIA tenant has gone roughly 15 years without having to bid again on its airport locations, despite many agreements having 10-year or 12-year expiration clauses. Some major tenants have gone much longer.

Host International, a Bethesda, Md., restaurant operator that runs Pizza Huts, Budweiser and Sam Adams bars and other places to eat and drink at MIA, won its contract in a 1998 bidding process.

The 10-year agreement has been extended since then by commissioners, most recently in 2013. That agreement expired in 2015, but MIA has allowed Host and other tenants to continue occupying their spaces on a month-to-month basis.

Host has gone nearly 24 years without having to compete again for the MIA spaces awarded in 1998, which in 2019 generated more than $4 million in airport rent on $30 million in revenue, according to an MIA summary of gross sales by tenants. Another set of Host spaces at MIA, awarded in 2010, generated nearly $23 million in sales and $3 million in rent for MIA.

Under the proposal up for a vote this week, Host and other month-to-month tenants would receive four-year extensions. Tenants holding leases with future expiration dates would also receive four more years, plus an extra 22 months as credit for the time that overlapped with the pandemic.

Air traffic rebounding, but international still soft

The extensions would mean the average tenant would go at least 22 years between winning its original MIA lease and having to bid again for the space, according to airport figures.

Duty Free Americas, which sells liquor, cigarettes, perfume and other items to international travelers, won its last MIA bid in 2005 with an expiration date of 2017, according to the airport summary.

Its current lease expires in 2024, a date set by a string of no-bid extensions and recalculation of terms offered Duty Free and other MIA tenants over the years.

Commissioners approved extra time in 2010, citing disruptions from construction delays in the South Terminal; and again in 2014, citing construction delays in the North Terminal.

Duty Free’s rent in 2019 was more than $22 million. Like all MIA retail revenue, Duty Free’s rent offsets what passengers pay airlines in landing fees. The stores in 2019 generated about $75 million in sales, but that’s down this year nearly 50% to $39 million.

Brian May, a lobbyist representing Duty Free Americas, said that while MIA was expecting record holiday traffic over the winter, the heavy-spending international segment remains well behind pre-pandemic levels. That’s disrupted business plans for Duty Free and other MIA retailers.

“Every time we have a new variant, it just sends another chill to the international traveler,” he said.

May said the occasional lease extensions at MIA stem from Miami-Dade leaders never deciding on a long-term strategy for the airport’s retail structure, with some camps wanting commissioners to approve all agreements and others in favor of letting developers take over entire concourses and subleasing locations.

“That’s really tied up the conversation of pulling [a request for proposals] together and putting something out to bid for the last six years,” he said. “Obviously that was compounded by the pandemic.”

May said Miami-Dade’s retail program has been a national success, pointing to MIA’s recent high score in the annual J.D. Power survey on customer service. It ranked Miami and New Orleans as home to the North American airports with the most satisfied travelers.

The county leases give tenants access to the more than 50 million passengers that travel through MIA on a typical year.

Through August, traffic hit 21 million passengers, about 33% behind 2019 levels at the same time of the year. Before the omicron variant of the COVID-19 virus sparked more alarm about the pandemic, airlines were predicting record holiday ticket sales to Miami.

If no-bid extensions are the norm at MIA, dropping the current competitive-pricing restriction on tenants would be a change from past practice. The rule has been in place for 20 years, according to a Nov. 9 report from the county’s inspector general.

Florida’s other major airports have similar rules, according to spokespeople for the facilities. In Palm Beach, the airport requires “street pricing” on food and beverages, plus retail goods considered staples. The Orlando airport requires “reasonable prices,” defined as comparable to nearby areas, excluding theme parks. Tampa maintains a 10% ceiling on increases over retail prices, and Fort Lauderdale-Hollywood International’s cap is 11%.

Without pricing rules, Miami-Dade’s Inspector General report warned MIA retailers will charge more, at the expense of both travelers and airport employees.

“Ending this long-standing policy will only provide relief to concessionaires if they charge higher prices,” the report stated. ”Such results would seem to undermine the historic objective of making MIA a more ‘passenger-friendly’ airport.”

This story was originally published November 30, 2021 at 1:35 PM.