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Disruption or Disobedience? Airport Car Sharing Service Hit With Permit Suit

BY Sam Roudman | Wednesday, June 12 2013

SFO. Photo: Franco Folini

Sometimes sharing is caring, other times it’s grounds for a lawsuit.

Peer-to-peer car sharing company FlightCar is the target of a lawsuit filed last week by the City of San Francisco filed a alleging the service engages in “unfair and unlawful operation of a rental car company and parking lot” targeted to patrons of San Francisco International Airport.

FlightCar works by offering car owners free parking at SFO or Boston's Logan International Airport. In exchange, their cars become eligible for rent by people flying into San Francisco or Boston to visit, and they may get small checks — up to $10 each — if someone rents their cars. (Presumably, they also get their cars back). The company insures the cars, checks the driving history of potential drivers and works to make sure the car is returned on time. Town cars ferry both renters and owners between the airport and FlightCar's parking lot. The company is thus able to undercut the pricing structure that supports major car rental companies like Avis and Enterprise. Its website advertises savings of up to 50 percent.

The lawsuit says FlightCar needs to obtain the same licenses and pay the same fees as 12 other rental car companies that operate out of SFO. The fees include 10 percent of gross revenue and $20 for each rental transaction. The airport says that FlightCar is circumventing regulations, and that the lawsuit is a last recourse to enforce compliance after a series of previous overtures went unheeded. FlightCar contends that it’s already playing by the rules and that it’s a disruptive business falling prey to outmoded regulations.

The lawsuit is the latest instance of friction between increasingly popular car sharing apps, like Uber and Sidecar, and a regulatory framework that was never built for the sharing economy.

The lawsuit “came out of the blue,” says FlightCar CEO Rajul Zaparde. He says the company has met with airport management a number of times, and changed its model in response to a cease and desist letter after the company began operating in February.

Jacob Yakel, the public information officer for SFO, says FlightCar came out of the blue as well. He says typically a company looking to do business at the airport will have preliminary meetings with officials to get up to speed on how to comply with regulations.

“We really didn’t have any of that with FlightCar,” says Yakel. Instead, he learned about the company from a story in the San Francisco Chronicle.

After FlightCar started operating in February, SFO sent the company a cease and desist letter, asking that they comply with rental company regulations.

In response, FlightCar moved off SFO property to nearby Burlingame so that it would no longer be operating on SFO’s turf.

“All of our employees are based in that parking lot in Burlingame,” says Zaparde, “they don’t ever leave the city of Burlingame during work.” The cab companies that take customers for the 10-minute drive between their lot and SFO are licensed to work at the airport, he adds.

Zaparde says that FlightCar is still paying fees to the airport, because every time one of their livery car picks up or drops off a passenger or renter, the car has to pay a $3.65 airport fee. Since FlightCar provides both renter and passanger livery cars to and from the airport, each car rental from FlightCar ensures the airport over $14.

“An average rental for us is between $90 and $100,” says Zaparde, “that’s already 15 to 18 percent of revenue that we’re already paying to SFO."

The move “didn’t really solve the problem,” says Yakel. Three of SFO’s 12 car rental services already operate off-site, and are still subject to regulations. Even though FlightCar motivates people to use its service by offering free parking (which Zaparde says could cost $18 a day otherwise), he says the company still “facilitates rental of cars between individuals,” and since those individuals come from SFO, FlightCar should be subject to the same rules as everyone else.

Over the last few months SFO sent a series of cease and desist letters to FlightCar. Each included a request to get permitted and an invitation to meet with SFO officials to facilitate the process. SFO never heard back. Yakel calls the lawsuit a “last measure.”

“Without being properly permitted, it allows their cost to be lower than competitors,” he says. Beyond the fees rental companies must pay, they’re also required to have their customers use light rail to get to the terminal. Yakel calls FlightCar’s curbside pick-up another “unfair advantage.”

FlightCar argues that the fees of the airport are there to offset the resources taken up by an Avis or a Hertz, like the use of airport parking garages or the congestion coming from rental shuttles moving between terminals. Since FlightCar doesn’t tax the airport infrastructure that way, it shouldn’t be charged that way, the company argues.

“If we were an investment bank in Palo Alto and we sent a town car regularly to pick up clients from the airport, we would pay the three dollars and sixty five cents, but we sure as hell wouldn’t be giving the airport 10 percent of our revenue just because we’re going to pick up somebody from the airport,” says Zaparde.

The lawsuit cites a precedent from 1990 stating that airports can charge an off property rental company, since their passengers are supplying the company with their income.

FlightCar hopes it won’t come down to a lawsuit.

“It’s better for both parties to not have to go to court over this,” says Zaparde. FlightCar needs to respond to the lawsuit by July 1.

Change might be near on the horizon for car share companies like FlightCar. After more than 18 months, California’s Public Utility Commission will release a decision on regulations for car sharing companies on July 9 that could help clarify some of the issues at stake in SFO’s lawsuit.

“Somewhere down the road there may be a new definition that changes the game” says Yakel, “but we have to enforce the rules as they currently stand.”