Startups

FlightCar Follows the Peer-to-Peer Playbook—Including Legal Woes


A customer picking up a rental car from an attendant at Flightcar in Burlingame, Calif.

Photograph by Eric Risberg/AP Photo

A customer picking up a rental car from an attendant at Flightcar in Burlingame, Calif.

(Corrects the spelling of Alex Ohanian's name in the sixth paragraph.)

Having drawn both inspiration and funding from Airbnb’s founder, the three 18-year-olds behind FlightCar are now facing Airbnb-style problems, too. On Wednesday, the airport car-sharing startup launched a new app and service at Los Angeles Airport, just a day after the Millbrae, Calif., City Council voted to revoke the company’s permit and shut down its San Francisco-area headquarters.

FlightCar Chief Operating Officer Kevin Petrovic says the vote will just accelerate FlightCar’s move to bigger facilities in nearby Burlingame or South San Francisco. “We went into this knowing it was not really possible to change their minds,” he said, in part because the location was not a bad fit. “The city had approved our operation with a bazillion different restrictions, and we felt forced to move to the site pretty early, where it was tough to meet those conditions.” The council raised issues from “unwarranted electrical generators” to “poor maintenance of shrubs.”

Still, the vote illustrates the friction that peer-to-peer companies such as FlightCar, Airbnb, and RelayRides face in helping people rent out their cars and homes or offer paid rides to strangers. San Francisco is also suing FlightCar over lost fees, taxes, and practices such as curb-side drop-off that seem to give it an edge. The startup also operates at Boston’s Logan Airport, where officials say they’re watching how events unfold in San Francisco. Airbnb faces similar scrutiny from regulators, who say the site enables consumers to run illegal hotels while depriving the government of tax revenue.

Meanwhile, insurers say the people who use FlightCar’s car-sharing services may discover they’re not covered when something goes wrong. FlightCar, for one, had three cars stolen by users; they were later recovered.

For FlightCar fans, that’s a small risk next to its promise of free parking, cleaning, and a ride to the airport in exchange for allowing access to your car as a low-cost rental. The company guarantees fees ranging from $150 to $400 for owners who leave their cars for a month. Even so, Petrovic says three-quarters of the vehicles come from people dropping them off for shorter stints in return for 5¢ to 20¢ per mile. If the car isn’t rented, the owner just gets the free parking and spruce-up.

To renters, the lure is lower rates, free GPS and infant seats, and free insurance. The combination clearly appeals to such backers as Ryan Seacrest, Reddit’s Alex Ohanian, and Airbnb’s Brian Chesky. San Francisco, where FlightCar gets 65 percent of its revenue, has been decidedly less enthusiastic. Less than four months after three teenagers launched the service, San Francisco City Attorney Dennis Hererra sued the company for violating airport regulations around pickups and refusing to pay appropriate fees. While the company actively promotes its association with the airport, it allegedly set up shop without obtaining the appropriate permits before moving to Millbrae.

One optimist is FlightCar Chief Executive Officer Rujul Zaparde, who turned down Harvard last year to start the company with Petrovic (who rejected Princeton) and Shri Ganeshram (who forwent MIT). To the young chief executive, the issues being raised by regulators seem small bore. “Right now, we pick people up from the curb. They want us to pick people up at the rental car center, but that means you have to take the air train, so it’s less convenient,” he says. “We just want the service to be as good as possible for the user.”

At any given time, the company has about 180 cars available in San Francisco and Boston. Los Angeles could be even bigger. What’s next? Perhaps Seattle, Zaparde says. “People want this. That’s what matters.”

Brady_190
Brady is a senior editor for Bloomberg Businessweek in New York.

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