The travel sharing economy and air transportation

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The most exciting recent development in the travel industry has been the growth of disruptive business models based upon an Internet app bringing together travelers who need short-term accommodations and ground transportation with local residents willing and able to provide them. As we have noted in several articles traditional travel suppliers such as hotels and taxi and limousine companies along with some local government regulators have vigorously challenged the business models of Airbnb, Uber and Lyft and similar companies. Now, the travel sharing concept has migrated to the provision of U.S. domestic air transportation by private aircraft owner/pilots as evidenced in a recent appeal brought before the U.S. Court of Appeals for the District of Columbia Circuit by Petitioner Flytenow, Inc. against the Federal Aviation Administration (FAA) (No. 14-1168) (see Petitioner’s Opening Brief (filed 1/5/2015) at goldwaterinstitute.org/article/flytenow-v-faa) (“Flytenow Brief”).

Statement Of The Case

The Flytenow Brief states that “Flytenow, Inc. operates a website for the exclusive use of…FAA certificated pilots and their passengers to communicate in order to identify a common purpose to share a planned flight. Once a common purpose between the pilot(s) and passenger(s) is identified for a specific planned flight, the website facilitates a pilot’s right to defray operating expenses of the flight with passengers under 14 C.F.R. 61.113(c) (‘Expense-Sharing Rule’)”.

The Expense-Sharing Rule

“In February 2014, Flytenow requested a formal Letter of Interpretation from (FAA) regarding the Expense-Sharing Rule”…For decades the FAA has recognized the rights of pilots and passengers to share the operating expenses of flights…Pilots and passengers have been able to connect with one another for purposes of identifying a common purpose for flights using a wide variety of platforms. For example, one such customary practice involves pilots posting their planned flights on local airport bulletin boards, or in other community spaces, so that a passerby who has a common purpose in the destination of the flight can contact the pilot, request to join the flight, and share the costs pursuant to the Expense-Sharing Rule…(‘Ware Interpretation’)(‘For instance, if you plan to go to St. Louis for a weekend, there would be nothing wrong with your advertising on the school bulletin board for the students to defray your costs’)”.

A Modern Bulletin Board

“Today, the power of collaborative consumption-systems of organized sharing through digital technologies-continues to transform the way we live and communicate. Communication is no longer limited to physical bulletin boards, as was the case when the Ware Interpretation was issued in 1976, but rather, has expanded to the Internet, and by virtue, to social media and websites. Flytenow has effectively created an online bulletin board to facilitate the genuine sharing of expenses between pilots and passengers who have a demonstrated common purpose in a flight”.

The Common Purpose Test

“The Expense-Sharing Rule ‘allows a private pilot to receive a pro rata reimbursement from his passengers for fuel, oil, airport expenditures, or rental fees, so long as the pilot and passengers share a bona fide common purpose for conducting the flight’ (‘Haberkorn Interpretation’)…Indicia of common purpose include: (1) the destination is dictated by the pilot, not the passenger, (2) specificity as to date or points of operations and (3) the pilot is flying to a destination where the pilot has particular business to conduct”.

The Flytenow Business Model

“Keeping the forgoing in mind, Flytenow designed its website to permit pilot and passenger participation only if the following requirements are met:

1. Pilots and passengers (collectively, ‘members’) apply for membership to the website.

2. Flytenow only accepts a pilot who has a verifiable FAA pilot certificate to act as pilot in command of an aircraft and carry two or more passengers.

3. Upon acceptance to the website, members have access to an exclusive, non-public network.

4. The website allows a pilot to unilaterally post a planned flight, if and only if, such flight contains: (a) the specific date and time, (b) the points of operation, and © the purpose of the flight. Passengers are prohibited from requesting a destination.

5. The website allows a member to view a pilot’s planned flight that adheres to the requirements in point 4 above.

6. The website then permits a member to select and request to share expenses of the planned flight.

7. Flytenow allows pilots to accept or reject such member’s request to join the planned flight, for any or no reason, and at any time.

8. At the conclusion of the flight, pilots are required to reconcile the actual operating expenses of the flight. Only then, does Flytenow transfer the pro-rata reimbursement of operating expenses from the passenger to the pilot in compliance with the Expense-Sharing Rule”.

FAA Opposition

“Flytenow launched its Internet-based platform in January 2014. Shortly thereafter, several pilot-members indicated that the FAA insisted participation on Flytenow was illegal…(As a result) Flytenow (requested the FAA to determine) whether the Flytenow website, as used by pilots and passengers, ran afoul of Federal Aviation Regulations (to which the FAA responded) ‘We concluded that pilots participating in the [Flytenow] website required a [14 C.F.R.] Part 119 certificate because they were engaged in common carriage….[W]e conclude that, with regard to pilots using the [Flytenow] website, all four elements of common carriage are present. By posting specific flights to the [Flytenow] website, a pilot participating in the [Flytenow] service would be holding out to transport persons or property from place to place for compensation or hire’”.

Flytenow’s Challenge

In its appeal before the District of Columbia Court of Appeals Flytenow asserts that the FAA’s analysis of Flytenow’s business model “(1) declares that all pilot participation on Flytenow constitutes a commercial flight operation requiring an air carrier or commercial operating certificate under 14 C.F.R., Part 119, (2) extinguishes the ‘traditional right’ of a pilot to share the operating expenses with his or her passengers under the Expense-Sharing Rule and (3) creates a new substantive rule, by interpretation or otherwise, without the notice-and-comment rulemaking process required by the Administrative Procedure Act…All that has changed between activities that the FAA has historically considered a ‘traditional right’, existed for decades-even before the Expenses-Sharing Rule was codified…and activity (i.e., participation on the Flytenow website) which the FAA now prohibits, is the means of communication between pilots and passengers. Specifically, the FAA has now ruled that pilot participating on an Internet based communication platform to share expenses with passengers amounts to an unlawful commercial flight operation”.

Conclusion

Flytenow’s Brief is the opening salvo in the potential expansion of travel sharing concepts to U.S. domestic aviation. Stay tuned for the FAA’s response and continuing developments.

The author, Justice Dickerson, been writing about Travel Law for 38 years including his annually-updated law books, Travel Law, Law Journal Press (2014), and Litigating International Torts in U.S. Courts, Thomson Reuters WestLaw (2014), and over 300 legal articles many of which are available at www.nycourts.gov/courts/9jd/taxcertatd.shtml .

This article may not be reproduced without the permission of Thomas A. Dickerson.