Transportation Network Companies: Challenges and Opportunities for Airport Operators (2017)

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7 chapter one IntroductIon 1.1 Study PurPoSe and overvIew Transportation network companies (TNCs), such as Uber, Lyft, Wingz, and others, offer door- to-door, nonstop transportation and other transportation services at the request of customers through smartphone applications, or apps, that the companies offer and operate. The apps allow customers to connect with and pay drivers. The transportation services are provided primarily by independent drivers in their personal cars—UberX is an example—although some services, such as UberBlack, offer transportation services using commercially licensed limousines and drivers. UberX is considered a TNC, but UberBlack is not because UberBlack is licensed and regulated as a traditional limousine service. Outside of the airport industry, TNCs are sometimes referred to by a variety of terminologies, whereas this report uses “transportation network company” or “TNC” exclusively. Since the launch of transportation service by Lyft and UberX in 2012, TNCs have rapidly become a common transportation service across the United States and elsewhere. As their popu- larity increased, cities, counties, and especially state governments began to recognize the need to regulate this new service. As a result, more than 38 states have established regulations control- ling the manner in which TNCs operate. After their initial increase in popularity in downtown urban areas, TNCs began to drop off and pick up passengers at airports. In September 2014, Nashville International Airport became the first airport to have a signed agreement in place with a TNC, followed by San Francisco International Airport in October 2014. The TNCs did not sign an agreement with another airport until mid-2015, when TNCs began operating under permit agreements at airports around the country. As of December 2016, TNCs are permitted to operate at more than 90 U.S. airports—more than 20 large hubs, 20 medium hubs, 40 small hubs, and ten nonhubs. The introduction of TNCs has resulted in increased opportunities for airline passengers and air- ports because the TNCs have expanded the menu of ground transportation services available to airline passengers. These passengers recognize that TNCs offer door-to-door transportation that is considered safe, reliable, convenient, comfortable, and economical—often cheaper than tradi- tional airport ground transportation services. Further, TNCs are continuously expanding the services offered customers. In addition, TNCs represent a new source of airport revenue. The introduction of TNCs has also resulted in increased challenges for airports. TNCs are attract- ing airport passengers who would have otherwise selected taxicabs, shared-ride services, private vehicles, or in some communities, scheduled transit. As a result, TNCs are having an adverse effect on taxicab and shared-ride van operators as well as airport parking revenues, rental car revenues, and terminal building curbside operations. These adverse effects are expected to continue and potentially increase as TNC passenger and vehicular traffic volumes grow. Airport operators recognize the need to regulate these TNC services given the unique operating environment found at airports. To do so, airport operators often review how other airports manage, regulate, and enforce the operations of TNCs, and how TNCs affect the operations, revenues, and facilities of other airports. This synthesis has been prepared to compile the experiences and effective practices of airport operators in facilitating customer access to TNCs and the resulting effects of their

8 decisions on airport operations and finances. This synthesis attempts to summarize methods used by airport operators to: • Develop regulations and permit language governing TNCs; • Locate and establish the size of TNC passenger drop-off and pickup areas; • Locate and provide TNC vehicle staging or holding lots; • Establish fees to be charged to TNCs; • Define geofence boundaries; • Monitor TNC vehicle trips; • Collect and confirm fees from TNCs; • Establish and enforce regulations concerning TNC drivers and vehicles, and any penalties; and • Address other measures to ensure that airport customers can use TNCs safely and securely. There were several challenges encountered during the preparation of this synthesis. First, there are limited data available documenting the effects of TNCs on airport operations and finance because most airports have been permitting TNCs for less than 12 months, and only a few airports have col- lected before-and-after data. At some of these airports, the data are also considered proprietary or agreements were signed prohibiting the sharing of such information. Second, the practices airports use to regulate TNCs are evolving as the volume of passenger and vehicular traffic increases, the ser- vices offered by TNCs expand, new tools to monitor TNCs’ operations become available to airports, and in some locales the state and local jurisdictions change TNC regulations. Thus, the information presented in this report is current as of December 2016, or when the data shared by specific airports were collected. TNCs are rapidly changing how passengers travel to and from airports, and these changes are expected to continue, if not accelerate. 1.2 what IS a tranSPortatIon network comPany? In December 2012, the California Public Utilities Commission (CPUC) began proceedings to develop regulations for new transportation services, such as Lyft, SideCar, UberX, and Wingz, that had begun operating in California. These rules were adopted in September 2013, creat- ing the new category of “transportation network company” and becoming the first statewide regulations governing these types of services. In the rule making, the CPUC defined a TNC as “an organization [. . .] that provides prearranged transportation services for compensation using an online-enabled application (app) or platform to connect passengers with drivers using their personal vehicles.” The CPUC also clarified that although UberX is defined as a TNC, services that connect passengers with drivers operating limousines licensed by the state (e.g., UberBlack) are not considered a TNC. The CPUC also determined that because TNC customers must first download the application and enter their pickup location before being connected to a driver, TNC service is considered to be prearranged, rather than on-demand (California Public Utilities Commission 2013). Many other states and local jurisdictions have used the term “transportation network company” when developing their regulations (e.g., Colorado, Ohio, Virginia, and the cities of Minneapolis and Seattle), whereas others have developed their own terms for these types of services, including “ride share network service” (Georgia General Assembly 2015), “ridesharing service” (City of Jefferson 2015), “transportation network application company” (East Baton Rouge Parish 2014), and “trans- portation network provider” (City of Chicago 2014). Despite the differences, most jurisdictions use definitions that are similar to that originally created by the CPUC: a prearranged transportation service provided using a digital network, phone application, personal vehicles, and/or the exclusion of taxicab services, limousine services, and ride-sharing services (e.g., a car pool) that are elsewhere defined and not offered for compensation. As of October 2016, national companies Lyft, Opoli, UberX, Wingz, and multiple other local companies were categorized as TNCs by one or more state or local jurisdiction. (SideCar ceased providing transportation service in December 2015.) Examples of state and local definitions of TNCs are provided here.

9 BATON ROUGE, LA. A company operating in the City of Baton Rouge and Parish of East Baton Rouge that uses a digital network or software application to connect a passenger to transportation network services provided by a transportation network operator. Transportation network operator shall mean an individual who operates a motor vehicle that is: (1) Owned or leased by the individual; (2) Not licensed as a public vehicle-for-hire [. . .]; and (3) Used to provide transportation network services. Transportation network services shall mean transportation of a passenger between points chosen by the passenger and that is prearranged by a transportation network application company (East Baton Rouge Parish 2014). CHICAGO, IL. “Transportation network driver” or “driver” means an individual affiliated with a transportation network provider or with a person who is affiliated with a provider to transport passengers for compensation using a transportation network vehicle. “Transportation network provider” or “provider” means a person that offers or provides a transportation network service. “Transportation network service” or “service” means a prearranged transportation service offered or provided for compensation using an Internet-enabled application or digital platform to connect poten- tial passengers with transportation network drivers. The term “transportation network service” does not include a “ridesharing arrangement” (City of Chicago 2014). COLORADO. A corporation, partnership, sole proprietorship, or other entity, oper- ating in Colorado, that uses a digital network to connect riders to drivers for the purpose of providing transportation. A transportation network company does not provide taxi service, transportation service arranged through a transportation broker, ridesharing arrangements [. . .], or any transportation service over fixed routes at regular intervals. A transportation network company is not deemed to own, control, operate, or manage the personal vehicles used by transportation network company drivers. A transportation network company does not include a political subdivision or other entity exempted from federal income tax (General Assembly of the State of Colorado 2014). GEORGIA. Any person or entity that uses a digital network or Internet network to connect passengers to ride share drivers for the purpose of prearranged transportation for hire or for donation. The term “ride share network service” shall not include any corporate sponsored vanpool or exempt rideshare [. . .], provided that such corporate sponsored vanpool or exempt rideshare is not operated for the purpose of generating a profit (Georgia General Assembly 2015). JEFFERSON CITY, MO. A business utilizing drivers, driver owned vehicles, and a proprietary mobile phone app in which passengers connect with drivers, wherein an electronic transfer of funds is used to recover costs directly associated with the transportation of passengers and/or passengers and their property pro- vided through the use of location technology to quantify those direct costs (City of Jefferson 2015). State and local regulations are discussed in greater detail in Section 1.4.

10 1.3 how do tranSPortatIon network comPanIeS oPerate? Although each TNC uses a different business model and user interface to provide services, most TNCs operate in a similar fashion. Figure 3 illustrates the process used by prospective TNC custom- ers to request and pay for a ride, whereas Figure 4 illustrates the process used by TNC drivers. Wingz offers prebooking of rides multiple days in advance, whereas Lyft and Uber offer a similar service in some cities. The companies offer different services in different markets. These options include LyftLine and UberPOOL, which allow passengers to choose to be matched with other passengers FIGURE 3 How TNC customers request and pay for rides. Source: InterVISTAS Consulting (2016).

11 FIGURE 4 How TNC drivers receive a ride. Source: InterVISTAS Consulting (2016). heading in a similar direction at a reduced rate. There are also options for higher end vehicles, larger vehicles, and wheelchair accessible vehicles; however, when requested, wheelchair accessible vehicles were unavailable in most markets. Each of the national companies providing TNC service were privately owned as of December 2016, and as such are not required to publish or share proprietary information with airports or other

12 transportation regulators. Information that the TNC considers proprietary information and generally does not share with airports or regulators includes the identification of individual drivers (e.g., the names and driver’s license numbers of all drivers currently associated with the company), the iden- tification of individual vehicles (e.g., license plate number/vehicle identification numbers of all vehicles in their local fleet), and the gross revenues the companies or drivers earn from their airport- related trips. The reluctance of TNCs to share this information requires that airports authorize each TNC to serve the airport (i.e., issue an airport permit to the company) rather than authorize or permit individ- ual drivers and vehicles. As described in greater detail in subsequent sections, the reluctance of TNCs to share information about individual vehicles, drivers, and revenues limits the type and amount of fees an airport may charge TNCs and an airport’s ability to regulate drivers. The TNCs have demonstrated their ability to quickly introduce new and innovative services that respond to or anticipate market changes, customer preferences, and the regulatory environment they encounter in individual states and local jurisdictions. The companies often pilot test a new service in one community or state before introducing it nationwide. For example, as of December 2016, shared ride transportation (e.g., Lyft Line and UberPOOL) and the ability to reserve a trip in advance are available in some communities but not all. Other changes are expected in the next few years. Both of the major TNCs are investing in the development of self-driving cars, with Uber testing such vehicles in Pittsburgh, San Francisco (briefly in December 2016), and elsewhere. Both major companies are also introducing tools to help customers find their drivers. There are also rumored changes in the company’s ownership (e.g., potential public stock offerings and mergers) that could affect TNC operations and services at air- ports. Thus, although the descriptions of TNC services, operations, and business practices presented in this report are accurate as of December 2016, they are expected to change. 1.4 how do StateS and LocaL JurISdIctIonS reguLate tranSPortatIon network comPanIeS? States and local jurisdictions establish regulations governing the operation of TNCs that airport operators rely upon and supplement. As a result, it is important for airports to participate in the preparation of regulations by states and local jurisdictions to ensure that the safety and convenience of their customers are met. It is considered good practice for airport staff to work with state and local jurisdictions to have the regulations include language requiring TNCs to obtain an airport permit and pay fees established by the airport. For example, in Baton Rouge the following language is included in the city ordinance regulating TNCs: “Transportation Network Services and/or Transportation Network Operators cannot operate at the Baton Rouge Metropolitan Airport unless specifically authorized to do so by the Greater Baton Rouge Airport District” (East Baton Rouge Parish 2014). Similarly, Virginia’s legislation states, “No transportation network company or TNC partner shall conduct any operation on the property of or into any airport unless such operation is authorized by the airport owner and operator and is in compliance with the rules and regulations of that airport” (Virginia General Assembly 2015). The state or local regulations typically address minimum vehicle requirements to operate as a TNC, driver requirements including age, the type of background check that must be conducted, and measures for disqualification as a driver. Insurance coverage types and limits are generally also included in these regulations. If airports are not involved in the legislative process, state regulations may limit the airport’s ability to regulate the operations of TNCs on the airport or impose fees for the use of the airport, as may be required by FAA. For example, the state of Wisconsin allows for the imposition of “fees

13 or charges established for use of an airport. Such fees and charges may not exceed fees or charges imposed by the city, village, county, or town for the use of an airport by other for-hire vehicles” (State of Wisconsin 2015). At Wisconsin airports where taxicabs pay only a small annual fee rather than an activity-based fee (e.g., a fee per trip), TNCs cannot be required to pay a higher fee than do taxicab services. Because increasing taxicab fees may be difficult because of the local political environment, some Wisconsin airports are unable to charge TNCs fees equivalent to those charged at peer airports. According to a 2016 study by Texas A&M University, 13 states currently include language allowing airports to impose rules, restrictions, and fees on TNCs (Moran 2016). 1.5 current reguLatory ISSueS TNCs have consistently opposed or resisted certain regulatory requirements proposed by local juris- dictions. Currently these regulations concern: 1. Driver background checks: Most jurisdictions allow the TNCs to perform their own back- ground checks of drivers based on the driver’s name, driver’s license number, and social security number. Often these background checks are performed by a private company using a database containing criminal backgrounds and driving records. These private companies are limited by the Federal Fair Credit Reporting Act to reporting records from the past 7 years. A number of jurisdictions have attempted to require that the background checks be performed by the police or other government employee based on the driver’s fingerprints. These jurisdic- tions argue that, compared with the methods used by the TNCs, fingerprint-based background checks are more reliable and comprehensive, and ensure that the driver is indeed the person he or she says. In Texas, where there is currently no statewide regulation of TNCs, several cities such as Austin, Corpus Christi, and Houston have required fingerprint-based background checks, resulting in Lyft, Uber, or both companies ceasing operations in those cities. Other less widely known TNCs have used the lack of Uber and Lyft service as opportunities to grow their businesses in these markets. 2. Vehicle inspection: Most jurisdictions allow individual TNCs to inspect their own vehicles, but some jurisdictions (e.g., the city of Seattle and states of California and Kentucky) require that the vehicle inspection be performed by a licensed automotive technician. 3. Service for passengers using wheelchairs: Some states and local jurisdictions require that the TNCs provide wheelchair-accessible vehicles or, if they are unable to do so, which is frequently the case, refer the customer to an alternate transportation provider (e.g., a paratransit opera- tor). TNCs are prohibited from discriminating against customers, including those with special needs or traveling with service animals, which must be allowed to accompany passengers in the vehicle. 4. Peak period surcharges: Most TNCs increase fares when and where there are insufficient drivers available to accommodate customer demands, to encourage drivers to work these hours and locations. Some jurisdictions have restricted fare increases by TNCs during “abnormal disrup- tions of the market,” typically emergencies and natural disasters (A. G. Schneiderman 2014). 5. Classification of drivers as employees: TNCs currently classify drivers as independent con- tractors; however, some drivers say they should be considered employees. If classified as employees, drivers would receive state-required minimum wages and benefits (e.g., holidays, vacation, and medical insurance if they are full-time employees), and would be reimbursed for their expenses. A class action lawsuit was filed by TNC drivers claiming they are entitled to be classified as employees, not independent contractors. As of December 2016, the case, which is being heard in San Francisco at the U.S. Court of Appeals for the Ninth Circuit, was pending appeals of arbitration agreements between the drivers and one of the TNCs (O’Connor v. Uber Technologies, Inc. et al. 2016).