In response to Thrifty Car Rental's argument against airport gross receipts fees appearing in last September's issue, Hertz Chairman Frank Olson provides the counter-argument for the imposition of such fees on off-airport firms.

When the rhetorical smoke clears in the heated debate over the imposition of airport gross receipts fees on off-airport car-rental companies, one fact remains: this is first and foremost an issue of economic realities.

The arguments of off-airport car-rental companies against the imposition

of such fees, including that by Thrifty Car Rental in this publication's September issue, are both flawed and failed. Off-airport car-rental companies and the coalition they formed failed to gain support in either the U. S. Senate or the House of Representatives among Democrats or Republicans for federal legislation that would bind the hands of airports and prevent them from implementing such fees. Even a last-minute effort to circumvent the normal legislative process and achieve their objective through an appropriations measure failed. All of this despite intense lobbying by individual off-airport car-rental companies and the coalition as a whole.

The reason for this legislative failure is twofold. First, they were asking Congress to interfere with methods by which locally operated airports raise revenues and remain self-sustaining, a mandate for all airports. Second, they were asking Congress to protect an artificial advantage they have in the marketplace. Such protectionism is anti-free market and anti-consumer.

Ironically, the off-airport coalition used as evidence for their failed argument a report of the Consumer Federation of America (CFA). That report, however, was seriously flawed, as has been stated by no less than noted economist Dr. Paul A. London, who points out that the real intent of CFA's report was not to address gross receipts fees but the much larger issue of airport pricing and revenue-generation policies.

"CFA's campaign against a gross receipts fee on off-airport car-rental agencies is a small tail wagging a huge dog," said Dr. London. "The CFA paper shows that it wants (implausibly) to use a congressional prohibition on such fees to force wholesale policy changes in the aviation area. By blocking airports from using such fees, CFA wants to force the FAA (Federal Aviation Administration) and local airports to increase charges on general aviation and to adopt a whole panoply of time-of-day and other fee and pricing changes."

In effect, the off-airport issue served the CFA's much larger purposes and the CFA's undercutting of the airports' revenue-generating capabilities served the purpose of off-airport car-rental companies in protecting their artificial advantage at nearly everyone else's expense. Nowhere in the midst of this were interests of the consumer in evidence.

Similarly, the arguments against gross receipts fees have failed in court. In fact, four court eases have underscored the legal legitimacy of the airports' actions to date in imposing such fees on off-airport car-rental companies.

Even their argument that consumers will have to pay more if such fees are imposed fails. The reality is that consumers frequently have been paying more to off-airport car-rental operators though such companies enjoy a substantial cost differential in the 10 percent of revenues they do not pay to the airports required of on-airport operators. The illusion of lower pricing is created by the unbundling of mandatory fees not reflected in their advertised pricing. All of this was confirmed in the study conducted by the certified public accounting firm of Arthur Young for the Tampa Airport Authority.

In addition, airports are nonprofit organizations. Their revenue needs must be met by those who serve the airports, including airlines. What has occurred to date as a result of the free ride of off-airport car-rental companies is the cross-subsidy of off-airport customers by on-airport customers and airline passengers in the form of too high concessions and landing fees. If off-airport fees are exacted that properly reflect the economic value derived from the airport by car-rental concerns, the burden of airport support will be more fairly distributed among companies that serve the airport's customers.

Airport fees are not a tax and need not be added on as another cost for the consumer. In fact, the National Association of Attorneys General's Task Force on Car Rental Industry Advertising and Business Practices in its preliminary report dated June 19, 1988 stated, "It is deceptive and misleading for car-rental companies to represent airport access fees as taxes or surcharges which customers are required by law to pay."

On-airport car-rental companies pay for the privilege and opportunity to serve the airport and do not add on such fees as taxes. Off-airport operators too should treat such fees as a cost of doing business.

Underlying the repeated failure of all these arguments are the economic realities of today's airport operations and the contradictions in what the off-airport operators are saying.

Contrary to what has been stated by off-airport car-rental spokespersons, Hertz has expressed its opinions on the issue of gross receipts fees because we and our customers are bearing a disproportionate burden, not in an attempt to limit competition in any way. We have spoken out for clear economic reasons.

Over the next five years airports face capital requirements of approximately $30 billion. They have a mandate to remain self-sustaining in meeting those capital needs.

On-airport car-rental operators stand as the second largest sources of concessionaire revenues for airports.

As airports' capital budgets grow, so does the pressure on on-airport car-rental companies to fund that growth. Yet, our ability to do so has been diminished by the diversion of concessionable business to competitors who pay nothing or next to nothing.

Moreover, the gross receipts fees that on-airport operators pay, averaging 9.7 percent of our revenues, are only part of our on-airport costs. For counter space, we pay rents as high as $60 per square foot. For ready/return lots, we pay as much as $1,200 per space per year. And because those lots are often at the periphery of the airport property, we must operate bus fleets to transport our customers. For Hertz, the annual operating cost of our bus fleet is on the order of $20 million.

Then there are construction costs: $150 to $200 per square foot for the facilities we must build on airport to service the increasingly sophisticated needs of our customers.

There are two lessons here: gross-receipts fees, like those that are being implemented for off-airport operators, are only a part of the cost we realize for the supposed advantage of being on the airport. Second, we are already shouldering tremendous cost. There is no more elasticity for further cost increases. We are stretched to the breaking point.

Thus, while we have shouldered increasing cost for the benefit we derive from the airport which provides car-rental companies with deplaning customers - and while we have supported the continuing economic vitality and growth of airports - off-airport operators have enjoyed the benefits without paying their share of the cost.

In testimony before the Senate Subcommittee on Aviation last year, the Airport Operators Council International and the American Association of Airport Executives reported on a 1986 study of the top 30 airports that showed off-airport operators paying only 3/100ths of one percent of their revenues to the airports, amounting to $215,000. Certainly that amount is so negligible as to be meaningless in assisting airports in meeting their substantial capital needs. Contrast that amount with the $300 million in fees paid annually by on-airport car-rental companies, and the unfairness of the free ride is obvious.

Off-airport operators, of course, say they're more than willing to pay their fair share so long as it is based on use, not revenues. That certainly ducks their responsibility to help airports remain fiscally healthy. What off-airport operators are suggesting is a dual standard. Fees based on the value of access for the on-airport operators and fees based on the cost of access for the off-airport operators. This dual standard lacks either logic or merit and again serves only to protect the interests of the off-airport operators at the expense of the airport, on-airport operators, and consumers.

Whether on- or off-airport, all car-rental operators derive benefit from the airport's existence. To that extent, it is in both our self-interests to see that the airport remains economically sound, capable of the growth necessary to serve a growing number of traveling consumers. The more customers the airlines and airports service, the more customers we all receive.

Gross receipts fees for both on-and off-airport operators are a fair way to compensate the airport for the benefits derived and to ensure the continuance of those benefits. Those fees do not mean that the off-airport operator is paying the same as the on-airport operator for less access. Our in-terminal presence comes with additional costs - rents and construction - as do our remote ready/return lots, costs that no off-airport operator pays.

The bottom line of economic reality is this: if off-airport operators are not required to pay, as do on-airport operators, for the benefits of access, that cost will fall to the airports' concessionaires, among whom are the on-airport car-rental companies. Faced with this inequity, we will be forced to move off airport. The resulting loss of revenues to the airports will necessitate increases in fees charged to airlines, notably landing rights, which will find their way into higher airfares. So the flying consumer will pay for the protection of the off-airport car-rental company's artificial advantage.

So it is an economic issue with hard realities that will be played out one way or another.

The claim by off-airport car-rental companies that they would move on airport were there space is simply not true. Additional on-airport space has been available and has gone unclaimed. In fact, on-airport space is available at most major airports. The plain truth is that they want a free ride. We simply don't think it should be at everyone else's expense.