Posts Tagged ‘FlightCar’

On Friday, I had the opportunity to speak with FlightCar CEO and co-founder Rujul Zaparde and get the latest on their battle with SFO, how the company has been doing and where he sees it going in the future. For those of you who aren’t familiar with FlightCar, it’s a peer-to-peer car sharing business that was started by three teenage college students in February which has been making waves and getting lots of attention thanks to its innovative business model and a suit recently brought against them by SFO airport.

One of the first things we talked about was how FlightCar went from idea to reality. There’s been quite a bit written about when the lightning first struck in February of 2012, but I was more curious about the time between then and when FlightCar actually opened its doors in February of 2013, and Rujul was happy to fill me in. Rujul and his friends Kevin Petrovic and Shri Ganeshram, had all been fascinated with the rapidly emerging sharing economy being spearheaded by companies like AirBNB, and it was one day in February, while talking about travel hassles over lunch at a Panera, that they had the idea to bring the sharing economy to traveling, specifically parking and car rentals. It made perfect sense; everyone going to the airport was leaving their cars there or a nearby parking facility, and many of the people arriving were renting cars to use, so why not kill two birds with one stone and rent out cars that people weren’t using while they were traveling? Rujul, Kevin and Shri, researched and played with the idea for a couple months, and Rujul says it was during the following May that the idea really went from a pipe dream to reality, when they all said “Let’s do it!”

What followed was a whirlwind of activity. The teens applied for and were accepted in a startup accelerator called Brandery, which gave them hands on training in creating and developing a brand, as well as $20,000 in seed money to get them started. Even more importantly, the program gave them connections to people throughout the business world, connections which helped them hammer out a solid business model and line up investors who were excited about this new entry in the sharing market. Rujul, Kevin and Shri went on to participate in another startup accelerator, one which was also very helpful, though not as hands on as Brandery. After that, it was a mad dash to line up investors, such as AirBNB co-founder Brian Chesky, and getting the business actually setup and ready to go. By February of 2013, only a year after having the idea, Rujul and his friends had officially opened FlightCar for business.

While the business is steadily growing, as I mentioned last week it has not been without some speedbumps, mainly the suit brought by SFO. Rujul was able to shed some light on the dispute and share some details that bolster their case far more than what was apparent until now. The crux of the matter gets down to whether or not FlightCar is defined as car rental business under SFO regulation. While on the surface FlightCar may seem to be just that, that’s an oversimplification of their business. Rujul thinks the best label for their business is peer-to-peer car sharing. Unlike the actual car rental businesses that operate at SFO, FlightCar, has no desk there, and in fact is prohibited from having any kind of advertising at the airport. On top of that, despite the fact that they pick up and drop off customers at the airport, this is all handled through a third-party car service, so no FlightCar employees are ever on the property; so in essence, their interaction with the airport is more like that of a taxi service or an offsite parking facility. Now here’s where the SFO case really falls apart: FlightCar has been paying the airport access fee the airport charges for each car that picks up or drops off a customer, meaning that SFO has already been charging and treating FlightCar like something other than a car rental service and that slapping them with the usual rental business fees would be essentially double-taxing them. The final nail in the coffin is that FlightCar doesn’t operate exclusively at the airport and will pick up and drop off customers anywhere within ten minutes of the facility.

While these facts severely undermine SFO’s case, Rujul said that they are still very much open to dialogue and negotiation, and they’d much rather come to a mutual agreement with SFO than have a court make a final decision that may not be amenable to both parties. Whatever the outcome, it will set the precedent for how other airports classify and respond to FlightCar as they continue to expand to new locations (they’ve already opened a Boston location and have one in the works for Los Angeles). If worse comes to worse and FlightCar is saddled with a host of new fees, Rujul doesn’t foresee the costs being passed onto customers. He points out that rental companies spend 25% or more of revenue on maintaining their fleets, a cost they don’t have to contend with, thereby dramatically lowering their overhead. The one change he is concerned may happen if the case doesn’t go their way I that they’ll have to switch from a car service to a shuttle service for transporting their customers, which he feels would detract from the customer experience. But all that said, Rujul and his friends aren’t sweating the SFO suit; “It doesn’t help us to start worrying about what the airport thinks and what these guys think,” says Rujul.

So what are they focused on? The future. FlightCar already overcame one of its first major hurdles last week with the 4th of July. One of the concerns about FlightCar’s model was whether they could deal with demand during a busy travel time such as a major holiday, and last week proved that they could manage that challenge easily. They had more than a 100 cars come in for the 4th, and they had staffed up in anticipation of the increased demand. The week went smoothly without any major hiccups and posting some of their best numbers yet. Down the road, Rujul hopes that FlightCar will be like a gateway to the sharing market for the general public. As he explains it, some like Relay Rides or AirBNB is big life impact, involving a lot of planning, logistics and trust, whereas FlightCar is a very minor impact, as most people are already used to leaving their cars or renting cars when they travel so using FlightCar is already a familiar process. As enthusiastic a Rujul is about the sharing market, he doesn’t foresee FlightCar trying to expand into other types of markets. As he puts it they want to “focus on one thing and do it really well.” From where I’m standing, I’d have to say that Rujul and his friends are doing exactly that.

A new business with a new model of travel parking has emerged at SFO within the last few weeks, and already it is shaking up the industry. That business? FlightCar, a brand new parking company founded by three California teenagers who came up with an innovative, if controversial, way to bridge the travel parking and car rental industries, and already industry giants and airport municipalities are scrambling to catch up and either protect their market share or get their cut.

FlightCar was started in February of this year, and operates on a new car rental/travel parking model that is closest to the Meet and Greet model that is popular in England (where travel parking locations valet you to and/or from the airport in your own car rather than a shuttle), but even that is a tenuous link. Here’s how it works: when you want to park your car at FlightCar, you bring it to the facility, fill out some quick paperwork, get handed a check, and get valeted to the airport. That’s right, they pay you, not the other way around. The reason is because while you’re on your trip, your car may be rented out as a rental car by FlightCar. Their insurance covers any potential damages, and your car will be cleaned and washed before you return to claim it. When you do return, you’re picked up at the airport in your car. Not only is this model more convenient than the traditional model of travel parking, it actually helps subsidize travel costs rather than adding to them.

There are catches of course. First and foremost of course is the fact that a stranger may be renting your car. While FlightCar is well insured, that’s a small comfort if you return to find mysterious damage to your car after a long trip; that said, there have been no reported incidents of damaged cars in the four months FlightCar has been operating. And while uncommon, if for some reason a trip was cut short and you returned early, it’s possible your car could still be rented out. Overall though, there’s very little that the consumer has to worry about. That’s a different story when we talk about the future of FlightCar.

Not surprisingly, there has been pushback from the industry and airports, and the first major effort to check FlightCar has come from the SFO management. SFO levies a host of fees on car rental and airport parking businesses. While the shuttle-less system FlightCar employs would seem to allow them to bypass the usual airport access fee assessed on shuttles, it’s the car rental fees the airports normally collect that are at issue. Normally, rental companies pay 10% of their profit and $20 per rental transaction to SFO (don’t even get me started on how that’s double-or triple- taxation). SFO alleges FlightCar has not abided by those and other regulations laid out by the airport to govern car rental companies and has filed an injunction against FlightCar. FlightCar has countered by saying that they have complied with all applicable rules and regulations from SFO, and have been contributing income to SFO, which they claim the SFO brief admits (having read through the summons issued on May 31st I found no mention of FlightCar having paid anything to the airport or complying with airport regulation).

The devil is in the details here, and the one that is going to make or break FlightCar is whether they legally qualify as a car rental company. The basis for FlightCar’s claims of compliance lies in their belief that they are not a car rental company, but a car sharing company. This, they claim, means they are not covered by standard car rental company rules. SFO contends that they are a car rental company, pointing to FlightCar’s numerous ads billing itself as such and mentioning SFO, and points out that even rental companies that don’t have counters at the airport are required to acquire permits and pay fees to the airport. While the current information available does appear to support SFO’s case, it’s easy to see why FlightCar wants to carve out a special exemption for themselves; with rental rates (or “sharing” rates if you will) as low as $21 a day, paying $20 per rental plus 10% of their income to SFO will destroy their bottomline as well as the business itself if it didn’t dramatically change their pricing. Of course both SFO and other rental companies argue that that is a price that all the car rental companies pay and incorporate into their business model, and that FlightCar dodging those costs while still competing with car rental businesses directly is a huge unfair advantage. SFO states this directly in their suit, as well as pointing out that federal law requires certain permitting and regulation of businesses based on airport access if they are to receive federal funds for infrastructure improvements to the airport.

So all in all, it’s a legal mess, one partially brought on itself by FlightCar, but which will determine the company’s future as well as the future of the car sharing model at airports. If I had a crystal ball to look into, I’d wager that FlightCar can’t win this case and will be forced to settle instead, with the ultimate outcome probably being FlightCar falling under some airport fees and regulations while carving out some new rules and exemptions for the car-sharing business model. Either that, or if there’s enough pressure on the airport from other, larger businesses, they’ll go for an admission of guilt, hit them with a giant fine ($2500 per violation is what’s listed in the SFO summons in addition to paying damages equal to any lost revenue by the airport or other injured bodies), have FlightCar shut down until they comply, and open them up to all kinds of lawsuits from competitors who were “damaged” by FlightCar’s non-compliance.

Either way, with government and big business interests aligned against them, FlightCar has an uphill battle ahead of them. Still, they are confident they will weather this storm, and that their business model will evolve and survive; in fact, they just recently opened a new facility in Boston. Of course, Boston-Logan airport claims to have had no interaction with FlightCar, and has publicly stated that they are paying close attention to how things play out in the courts in San Francisco to figure out how they’ll deal with FlightCar.

FlightCar is looking at a rocky road ahead, but regardless of the outcome they’ve introduced a new travel business model that even if it doesn’t take root now will surely be back and will become a bigger and bigger part of the travel parking and car rental industry in the future, and that for the time being still means a great deal for any travelers that can take advantage of it.