Flight-sharing
is one of the latest services to emerge within the new “sharing economy.” Flytenow,
a flight-sharing company, connects passengers with pilots who have empty seats
on private flights for a fraction of the flights’ costs. Like Airbnb and Uber,
which connect travelers with shelters and passengers with drivers,
respectively, Flytenow can provide valuable services at the touch of a
smartphone.
Sharing services,
like these, provide additional consumer choice by disrupting traditional business
models, and the emergence and popularity of such services has signaled to
entrepreneurs that additional innovations are in demand. The new sharing
economy services lead to increases in productivity for the overall economy and
cost savings for consumers. For example, according to an Airbnb report
on its impact in NYC, the company’s low prices have led to guests staying longer
than they would have in a hotel. The average NYC Airbnb guest stays 6.4 nights,
while the average NYC hotel guest stays 3.9 nights. These longer stays within
the five boroughs have led to an additional $632 million in economic activity in
one year in NYC alone.
Airbnb and Uber
have come under regulatory scrutiny from many state and local governments (see here).
Now, Flytenow is currently being regulated at the Federal level. According the Wall
Street Journal, Flytenow is challenging the Federal Aviation Administration
(FAA) in Federal court over the agency’s effective ban on its flight-sharing
services.
Flytenow argues
that it is not breaking any Federal laws or regulations because the FAA has
always allowed private pilots to advertise flights and attract passengers as a
means to cut down on expenses. But instead of using bulletin boards or
newspapers, which apparently was legal in the past, users of Flytenow are
advertising through the Internet. The FAA says that flight-sharing companies,
such as Flytenow and Airpoolers, are subject to the regulatory standards that
apply to commercial flights.
But Flytenow specifically
sets forth the FAA regulation on its website: “Federal Aviation
Administration regulations prohibit a pilot from accepting compensation from
passengers. We help you split the costs, but you are not allowed to compensate
the pilot further than that.” Flytenow argues that this cost-splitting
operation makes flight-sharing services completely legal under Federal law.
It is
understandable for regulators and government agencies to be cautious with
regard to emerging technologies in order to protect consumers from certain
identifiable risks. But preemptive
regulations often end up harming consumers by eliminating valuable services. As
discussed in a Perspectives from FSF
Scholars entitled “The
Sharing Economy: A Positive Shared Vision for the Future:”
If purveyors of sharing applications engage in
harmful, unhealthy, or unsafe activities, competition is probably the most
important regulatory mechanism to address any real problems. In competitive
markets, poor consumer satisfaction generally means that a company will lose
market share, or even fall out of the market. If a company is not operating
safely or if it is putting its users in unhealthy conditions, a competitive
market allows for unsatisfied consumers to choose alternatives.
It should not be
unreasonable to think that flight-sharing services could operate in a similar
manner to ride-sharing and shelter-sharing services. Hosts, drivers, and pilots
should be able to price their services based on supply and demand. In the “The
Sharing Economy: A Positive Shared Vision for the Future,” Free State Foundation President Randolph May and I
suggested the following:
If the laws or regulations applicable to the
existing incumbent businesses no longer make sense today, they should be
changed. It always harms consumers when public policymakers attempt to “level
the playing field” by subjecting entities to regulatory restrictions that are
not needed. The proper way to respond to “level the playing field” claims is to
remove unnecessary regulations wherever they apply, not to expand them to new
entities.
It is important
for regulators to consider the costs and benefits of sharing services before
restricting or outright prohibiting them. Preemptive regulations often lead to
less consumer welfare than light-touch regulatory regimes that promote market-driven
solutions that satisfy consumer demand while still providing redress for
identifiable consumer hams.
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