REPORT TO THE CITY COUNCIL
October 9, 2014
FROM: KEVIN R. MEIKLE, Director of Aviation
Airports Department
SUBJECT
Title
Actions pertaining to On-Airport Non-Exclusive Rental Car Concession Agreements at Fresno Yosemite International Airport (Council District 4) - Airports Department
1. Adopt a finding of Categorical Exemption pursuant to Article 19, Section 15301(a) and (d)/Class 1 (Existing Facilities) of the California Environmental Quality Act (CEQA) Guidelines to authorize Concession Agreements with Avis/Budget Car Rental, LLC, Enterprise Rent A Car of Sacramento, LLC, and The Hertz Corporation at Fresno Yosemite International Airport (FAT)
2. Approve On-Airport Non-Exclusive Rental Car Concession Agreements between the City and Avis/Budget Car Rental, LLC (Avis), Enterprise Rent A Car of Sacramento, LLC, (Enterprise), and The Hertz Corporation (Hertz)
Body
RECOMMENDATION
Adopt a finding of Categorical Exemption to authorize Concession Agreements with Avis, Enterprise and Hertz (RACs) at FAT and approve Concession Agreements between the City and RACs.
EXECUTIVE SUMMARY
The new RAC concession agreements were negotiated with the three parent companies that are currently operating seven brands at FAT. The new agreements will enable additional brands to be brought in to the airport without the need to expand facilities, which will provide customers more choices and is expected to enhance revenues to FAT. The new agreements will be for a term of five (5) years and include a mutual option for a second five-year term. Leased space at FAT will be rented at City of Fresno adopted Master Fee Schedule (MFS) rates, and the concession privilege fee will be 10% of gross revenues subject to a Minimum Annual Guarantee (MAG) of $542,965.95 for Avis, $731,886.46 for Enterprise, and $859,488.47 for Hertz. The previous concession agreements with Avis, Enterprise and Hertz expired on August 31, 2014, and are in a holdover status.
BACKGROUND
The existing RAC concession agreements are with the three incumbent parent companies (Avis, Enterprise, and Hertz) that collectively operate seven brands at FAT. These brands are Avis, Budget, Dollar, Enterprise, Hertz, Alamo, and National. They initially operated at FAT under individual agreements that were executed in 2009. Industry consolidation has since reduced to three, the number of parent companies operating these and several other RAC brands. These three parent companies (RACs), along with their various family brands, represent 95% of the airport rental car industry nationwide.
A Request for Proposals (RFP) conducted by Purchasing was canceled when it was verified that only these RACs expressed an interest in proposing. A direct negotiation process was then conducted with the RACs as a group. The outcome of the negotiation was a changed agreement model, from single brand agreements to multiple brand agreements, wherein the RACs will be able to operate more brands out of the same physical space to better serve the market. This concept enables an expansion of customer choices and price points without the need for physical expansion of space. In addition, revenues to Airports will be protected at current levels through MAGs and 100% rental of space. The percent of gross revenue paid to Airports, which is guaranteed at the low end by the MAG, has increased above the current level. The space rental rates remain unchanged as approved in the MFS. The benefits of these changes will be to provide greater choices for visitors to Fresno and other customers, while increasing revenue potential for Airports.
The decision to cancel the RFP and negotiate directly was made in consultation with Purchasing, the City Attorney's Office and an industry consultant. Consideration was given to, (i) reducing the number of airport rental car operators to just three parent companies, all of whom are incumbents; (ii) increasing the potential for improved customer services by providing for the opportunity to add additional brands; and (iii) enhancing Airports Department revenues. In addition, prior to canceling the RFP, a solicitation for letters of interest from any rental car company desiring to operate at FAT was advertised nationwide to verify that there were indeed no other potential proposers or interest. No responses were received and the verification was made. This process validated that FAT already has essentially the entire rental car industry represented at the airport, and a desire by the RACs to stay and provide additional choices for the traveling public.
The concession agreements have been reviewed and approved as to form by the City Attorney.
ENVIRONMENTAL FINDING
This lease falls within the Class 1 Categorical Exemptions set forth in California Environmental Quality Act (CEQA) Guidelines, Sections 15301(a) and (d) (Existing Facilities), as it involves minor or no alteration of existing leasehold structures with no expansion of use, and will not result in any significant negative effects relating to traffic, noise, air quality or water quality. None of the exceptions to Categorical Exemptions set forth in the CEQA Guidelines, Section 15300.2 apply to this project.
LOCAL PREFERENCE
The City's Local Preference Ordinance (FMC 4-108) does not apply because this item did not go through the competitive bidding process.
FISCAL IMPACT
The first year revenue from these concession agreements is anticipated to be; (i) $62,350 for counter rental space (which is subject to future MFS adjustments); (ii) $304,460.50 for the rental car ready/return area (which is subject to annual adjustments based on the Consumer Price Index (CPI)), and; (iii) at least a concession MAG of $2,134,340.88 (which is subject to annual adjustments), for a total estimated first year revenue of at least $2,501,151.38. Total projected revenue for the full five (5) year term is $12,505,756.90, not including CPI and MAG adjustments. All revenue will be deposited into the Airports Enterprise Fund and will contribute to the operation and maintenance of FAT. In addition, this business activity will continue to provide an economic benefit to the City and FAT through increased brand selection for airport patrons. There is no impact to the General Fund from this item.
Attachments:
- Rental Car Concession Agreements