How Airports Became Ground Zero in the Rental Car Startup Wars

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any property regulated by San Francisco’s government.

And since the startup pays local car services to ferry customers to and from the airport, rather than running them to the designated rental car center on a shuttle bus, FlightCar is leaving airport officials no real way to track who is coming from or going to the startup’s location.

“If we were, say, an investment bank, and we regularly sent town cars to the airport to pick up our clients, would we have to run a branded shuttle and give you 10 percent of our revenue? That wouldn’t make any sense,” Zaparde says. “So, where does the airport’s jurisdiction really end?”

Zaparde points out that FlightCar isn’t getting off without shelling out any fees to the airport. Since SFO charges for-hire cars a $3.75 toll for using the property to collect customers, the startup often winds up paying $15 in fees—two for the renter’s rides to and from the airport, and two more for the car owner. On a “ballpark figure” average of $100 per rental, the company is already paying 15 percent of its take in fees, Zaparde argues.

Of course, as revenue goes up with more expensive and profitable rentals, that toll cost stays the same. But Zaparde says FlightCar is getting less for its lower fees, too—it can’t advertise in the airport since it’s not an officially blessed vendor, or run branded shuttles without paying for use of the rental car center, he says.

San Francisco airport officials don’t buy those arguments, of course.

In its lawsuit accusing FlightCar of unfair business practices, the airport said FlightCar’s move to an off-airport location didn’t matter, because “as an off-airport rental car company that catered primarily to individuals traveling to and from SFO, FlightCar was still subject to its regulations.” Other rental car companies operating outside the airport property had also paid the required fees, officials noted. 

Airport officials also say FlightCar’s town car service defeats the point of its $430 million AirTrain system, which is intended to cut down on traffic congestion and pollution by funneling rental car customers to and from the airport on automated people movers. There’s plenty at stake for SFO in this fight, even if FlightCar is a small company at the moment. As noted in its lawsuit, the airport collected about $94 million in fees from rental car companies in the facility’s 2012 fiscal year, which represents more than 10 percent of the airport’s operating budget.

If a scrappy upstart can find a way to dodge those fees, the bigger companies might seek to follow suit, unless SFO enforces the regulations they’d all agreed to. The airport is asking a local judge to shut down FlightCar’s operations, and fine it for the business it has already conducted.

Officials at Boston’s Logan airport, meanwhile, appear to be taking a wait-and-see attitude. The airport notes that FlightCar does not have a contract in place to operate at Logan or pay its share of rental car taxes, but it hasn’t moved as aggressively as San Francisco officials.

“They’re just waiting, I think, to see how the SFO lawsuit plays out,” Zaparde says. In the meantime, Logan officials quietly amended their regulations last fall to make clear that they consider “car sharing” or “peer-to-peer car service” companies the same thing as traditional rental car companies. 

Zaparde acknowledges that, like RelayRides, FlightCar could still compete with bigger companies even if it paid the fees that regulators want and followed all the rules. For him, the SFO battle is worth fighting because it could win car-sharing companies, with all their ostensible economic and environmental benefits, the right to be treated differently from the established industry.

“This sets the precedent of what happens at all the other airports,” he says. “We really do not believe that we should be treated just like a car rental company … that’s why we’re willing to go all out here to see what happens.” 

Rental car challengers aren’t the only sharing-economy startups getting sucked into these kinds of fights. Since their networks have the potential to grow at the exponential speeds previously seen only online, they can surprise regulators and established competitors by emerging at a substantial scale without getting their permits in order.

Startups like Uber, Lyft, and Sidecar, which let people use their cars as unofficial taxi cabs, are some of the most prominent examples. Uber, which has raised more than $300 million in investment capital from big-name Silicon Valley backers, has caused a ruckus in many cities by taking on traditional taxi and town-car services. That’s brought battles with regulators and lawsuits from taxi companies around the country, upset that the startup doesn’t follow the rules in a heavily regulated industry. 

Airbnb, a startup that has raised more than $325 million for its online platform that lets anybody rent out a room or their whole house to other consumers, has run into trouble with government officials who say the company is essentially operating an illegal hotel chain. New York’s state attorney general got serious about Airbnb’s operations, issuing a subpoena for the startup’s data last fall. 

The entrepreneurs behind these growing companies, inflamed by Silicon Valley’s libertarian-infused competitive attitude, have regularly rebelled against the regulators and competitors who want to rope them into the existing rules. But decisions like the one at RelayRides may also be signaling a new attitude of conciliation.

Just last week, Airbnb announced programs in New York and Portland, OR, in which the company would begin collecting lodging taxes from its hosts and sending the money on to state officials.

“This is new for us,” wrote Airbnb founder Brian Chesky, one of this generation’s iconic tech entrepreneurs. “And if it works well for our community and cities, we may replicate this project in other U.S. cities.”

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