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FlightCar Lawsuit Tests Regulations of New Business Models

The issue highlights the need to balance business fairness and consumer protections with the need for competition and to allow new business models to succeed.

June 12, 2013

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In concept, I’m all for peer-to-peer sharing businesses. We barely use our own stuff as it is, so why can’t we rent it out to other people, which would save us from producing more stuff that’s only used a fraction of the time?

However, the real world application of new peer-to-peer models has brought about legal and regulatory clashes as the powers that be figure out things like proper taxation, safety protections, insurance and assigning liability. Should these new models get a break?

Such a regulatory case is happening to FlightCar, a peer-to-peer rental company for airport travelers that has set up shop at San Francisco International Airport (SFO) and Boston Logan Airport. The City of San Francisco is suing FlightCar on the grounds that it is operating illegally at SFO. The lawsuit contends that FlightCar should be subjected to the same fee structure as other off-airport car rental companies, which is $20 per transaction and about 10% of its profits.

FlightCar argues that it is paying its fair share already. It picks up and drops off customers at the airport via black car, and for this privilege pays $3.65 in fees to the airport for every trip (or close to $15 for each rental transaction). Those black car companies are all approved and licensed by the California Public Utilities Commission and SFO.

Rujul Zaparde, co-founder of FlightCar, contends that other companies that pay this fee have advertising rights in the airport and get branding on the shuttles; these are benefits FlightCar won’t get even after paying the fees. Further, Zaparde says that 30% to 35% of FlightCar’s transactions do not even involve airport passengers, these are instead local rentals that use the lot for drop offs.

Unfortunately for FlightCar, the contention that it’s already paying enough does not have historical precedent at SFO.

I caught up with the president of an independent rental company that serves SFO from an off-airport location. The president, who asked to remain anonymous, says that his company had tried a similar shuttle scheme, working with an existing airport-approved parking shuttle company based at a hotel. Even though the shuttle company paid for the rental company’s trips, the airport did not approve the deal. The application process was not easy. “It took us a year to get approved,” the president said, and it included an advance payment based on projected airport contracts and revenue. “San Francisco Airport is one of the most difficult airports anybody could deal with,” he said.

And yes, this company is paying the $20 per contract plus 10% of revenues. It’s renters must use the train to reach SFO’s rental center, at which point they are shuttled to the company's lot. This seems like the path that FlightCar is destined to follow.

But whereas that case involved a traditional rental company, FlightCar says it is not. “We are not a typical, traditional car rental agency; we are a peer-to-peer car sharing company,” said Zaparde. “We are like any other company that regularly or semi-regularly uses limos to pick up and drop off people at the airport and pay the fees associated with the limos.”

This doesn’t hold water with Doug Yakel, public information officer for SFO. Yakel points to the larger regulatory picture of peer-to-peer transactions with other shared ride businesses such as Lyft, UberX and SideCar.

“The way we view it is there are peers involved in the transactions, but ultimately there is a company that is facilitating the interactions and the company is making money off the interactions,” Yakel said. “They are collecting fees and it’s a for-profit business.”

Yakel maintains that it isn’t up to the airport to decide how these businesses should be regulated; it’s up to agencies such as the California Public Utilities Commission. “Until those determinations are made, we come back to our existing rules and regulations as they are written today,” he said, “and we make definitions based upon those.”

In regards to the fees being onerous for a smaller company, Yakel replied that “This company is competing for the same customer base yet without incurring the costs of their competitors. We view that as an unfair business practice.”

Yakel says that off-airport companies only pay 10% of airport transactions. And he points out that traditional car rental companies have for years been asking for the ability to take customers in a car directly to a terminal. “To allow FlightCar to do that without permission when these other companies aren’t able to, it’s a fairness issue for us,” he said.

Interestingly, in Chicago O’Hare, one of the busiest airports in the world, off-airport rental companies are allowed to pick up customers from the Bus/Shuttle Center outside Terminal 5. They can even wait for customers there, and they don’t have to pay a fee to the airport. At Chicago Midway, companies are allowed to pick up in the lane used for limo service, with no fee either.

To that point, Yakel said that every airport has its own operating procedure that reflects their facility arrangement. “Something unique to SFO is the space constraint compared to other airports,” he said. “There is only a limited amount of available curbside real estate. This touches all forms of ground transportation.”

Certainly, FlightCar is facing an uphill battle. Indeed, traditional car rental companies play by the rules and pay the fees, so shouldn’t an upstart do the same?
 
We need to allow these disruptive business models a chance for the good of the public, but yes, they must be tempered with the need for regulation and fairness to existing businesses. Perhaps FlightCar should pull up stakes and set up shop in airports with less stringent regulations, such as O’Hare or Midway. There the renting public has greater choice, and can decide if the business model is to succeed.

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Author Bio

Chris Brown

Executive Editor

Chris Brown is the executive editor of Business Fleet Magazine and Auto Rental News for Bobit Business Media. Through these publications, online newsletters, trade events and associations, Chris covers all aspects of the fleet world, including fleet management, manufacturer fleet activities, the fleet leasing industry, vehicle remarketing, rental industry news, car rental taxation and legislation as well as automotive environmental initiatives and trends.

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