The boy who cried wolf: San Francisco is (still) suing FlightCar for preposterous reasons

By Carmel DeAmicis , written on January 24, 2014

From The News Desk

Today, FlightCar filed its latest appeal in its ongoing lawsuit with the City of San Francisco. The car sharing company, which lets people park for free near SFO in exchange for letting visitors "rent" their car while they're gone, was hoping to get the whole suit dismissed.

"[W]e don't have relevance to SF County so the city of San Francisco should have no right to regulate us," CEO Rujul Zaparde explained on the phone. Unfortunately, the judge did not agree, and the lawsuit trudges on with its first hearing likely to take place in summer.

This is a pivotal suit for ridesharing in general, one that tests the bounds of city control for mandating company fees when their drivers enter property like the airport. It's one of the many battlegrounds where car or ride sharing startups believe their business models are different enough to warrant exception from the fees paid by taxi or rental car companies.

Airport officials disagree and have reportedly arrested both Lyft and UberX drivers transporting travelers to and from SFO and charged them with trespassing. The ridesharing companies dispute that fact and say they have no record of such arrests. Furthermore, the airport hit six ridesharing companies, including FlightCar, with cease-and-desist letters back in April.

In the case of FlightCar, SFO is frustrated that it doesn't get to collect on the 10 percent of revenue and $20 flat fee per rental that it takes from traditional rental companies like Avis and Herz. The City of San Francisco got involved and filed a lawsuit against FlightCar back in May, much to the shock of FlightCar's founders. "The lawsuit came out of the blue," Zaparde says. "A week before we had met with some of the folks at the airport. We thought we would continue to have a dialogue but they weren't open to that."

FlightCar's argument for why it shouldn't have to pay that fee is valid.

  • It isn't paying the airport for parking and its lots is nowhere near airport property or jurisdiction. In fact, its lot isn't even in the same county.
  • FlightCar does not own the black cars that transport FlightCar customers too and from the airport. Instead, it partners with black car companies, which themselves are legal and regulated and pay fees to the airport every time they pick up travelers.
  • Those surcharges get passed down to FlightCar, and the company estimates it pays SFO $15 per rental through the black car companies.
  • FlightCar employees don't step foot in airport territory.
The analogy being: Would a day spa that's located outside airport jurisdiction have to pay the airport fees if it calls a black car service to take its customers to or from the airport? No. It would only have to pay the black car fee itself.

In contrast: Car rental companies own shuttles staffed by car rental employees that take customers to and from the airport. So they're paying for that privilege.

It makes sense that airports are highly uncomfortable with a new type of company that doesn't fit predefined boxes. After all, although airports get some financial assistance from the federal government, they're expected to be largely self-sustaining. In fact, one such federal grant term mandates the airport charge for its facilities and services:
It (the airport sponsor) will maintain a fee and rental structure for the facilities and services at the airport which will make the airport as self-sustaining as possible under the circumstances existing at the particular airport, taking into account such factors as the volume of traffic and economy of collection.
As a result, to support the business airports rely almost entirely on things like fuel sales, the money they charge for hangar use, and, for some airports, the fees they extract from rental car companies. As the Federal Aviation Administration says itself, "The airport business is a real estate business, and if the airport is prime real estate, it commands a premium."

Even with these profit sources, airports are struggling to break even. Furthermore, a recent industry report said that airports across America need $71.3 billion worth of critical infrastructure built in the next three years. Unfortunately, it also explained, "The available funding for airport infrastructure projects falls far short of that amount."

So airports are struggling, and SFO in particular doesn't want to lose a single penny to pesky, disruptive startups.
Should SFO be able to charge FlightCar, despite the fact that the company doesn't interact with the airport at all? That seems preposterous, and it's the sort of position that gives old entrenched institutions a bad rap. They're so intent on protecting their profits, that they'll go after any company that threatens it. Or could threaten it. At this point FlightCar has like -- what -- fifteen shareable cars at a time? It's not exactly taking on the $11 billion rental airport sector just yet.

It's frustrating on another level too. When taxi commissions, airports, and government branches deliberately obstruct new sharing economy business, the public's trust in them erodes.

It becomes easy for people to write them off, saying, "Of course these groups don't want car or ridesharing. They're just afraid of losing money or pissing off powerful interest groups."

Then, when these organizations call out startups for truly legitimate concerns, like bad background check procedures that put criminals on the road, everyone ignores them.

It's the classic case of the boy who cried wolf.

The FlightCar founders are young, having conceived of the company idea at the ripe old age of 18. They have the backing of Airbnb's Brian Chesky and SoftBank, among others, and the pedigree stamp of Y-Combinator. But FlightCar is their first foray into big world of business. They're learning a lot -- and it's not all peaches and roses.

As Zaparde says, "It's amazing to see at what lengths parties who benefit from the status quo will go to shut you down."