Rental Car Co. Run by Teenagers Undercuts Hertz, Avis

Tiny upstart run by teenagers sued for not playing fair with Avis, Hertz.

June 18, 2013 -- Said three teenagers to themselves last year: "Yeah, sure, we could go to college. But wouldn't it be more fun to up-end the airport rental car business?"

They opted for the latter.

So positive were they that they had happened on a better business model than Hertz or Avis, that they turned their backs, respectively, on Harvard, Princeton and MIT -- the three institutions to which they had gained (or been offered) admission.

The idea was this: At every major airport, acres of cars sit idle, left parked by owners who have jetted off. Why couldn't these same cars be rented to arriving travelers? Rates could be dramatically cheaper than those charged by traditional car rental companies, since, under this model, the rental company wouldn't have to pay for or maintain the fleet.

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Owners would have a fourfold incentive to participate: free parking, a free car wash, a cut of the rental fee and a guarantee their car would be waiting for them when they returned.

With financing from angel investors, FlightCar, the trio's brainchild, began renting cars in February to passengers arriving at San Francisco International Airport (SFO), for rates start as low as $21 a day, depending on the make and model of the car.

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CEO Rajul Zaparde, 18, one of FlightCar's co-founders, tells ABC News the company already has signed up 1,400 owners and has arranged 1,500 rentals.

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Until Zaparde hit rental car paydirt, he had been headed to Harvard. Now he and co-founders Shri Graneshram, 19, and Kevin Petrovic, 19, have launched a second operation at Boston's Logan Airport.

"We're shooting for one more airport before the end of this year," says Zaparde.

Foes of FlightCar, however, have started to shoot back.

It's easy to see how traditional rental companies might not be amused to have their prices undercut. But San Francisco International is crying foul, as well.

Doug Yakel, public information officer for SFO, tells ABC News that FlightCar refuses to play by the rules that govern other rental car companies. It doesn't pay the same fees, he says, and it doesn't abide by the same regulations.

SFO's objections have taken the form of a complaint filed last month against FlightCar by the city attorney of San Francisco.

Zaparde says the airport's lawsuit stems from a disagreement over how to define FlightCar.

"They want to put us in the same bucket as traditional rental companies," he says.

FlightCar is a different animal from Avis or Hertz, he adds, and thus not subject to the same strictures.

For example, SFO wants FlightCar to pay it 10 percent of its gross profit and a $20 fee for each rental car transaction -- the same as what the airport gets from every other rental car company.

The fact that FlightCar operates from a base outside airport property, Yakel says, makes no difference: SFO has three other rental companies that also operate off-property. According to the complaint, those three paid SFO over $2 million in fees in 2012. FlightCar, too, should pay, thinks Yakel.

The fact that it does not gives FlightCar "an unfair advantage over similarly situated businesses that are forced to charge higher prices in order to operate lawfully and fairly," according to the complaint.

Deputy City Attorney Jennifer Choi tells ABC News that FlightCar's response is due July 1, and that, if no resolution is reached by then, a court will decide if the company is in violation of California's Unfair Competition Law. If found to be in violation, the company could be fined and/or shut down.

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