Q&A: Mike Fogarty of Tristar Worldwide, David Seelinger of EmpireCLS, and Scott Solombrino of Dav El/BostonCoach

When we presented the State of the Industry at our show in South Beach, we knew that three of the industry’s biggest names—Mike Fogarty of Tristar Worldwide, David Seelinger of EmpireCLS Worldwide, and Scott Solombrino of Dav El/BostonCoach—would offer up invaluable insight and advice; what we didn’t expect was that we’d still be getting positive feedback about it well into the new year. And while nearly a thousand operators attended the hour-long session, which was moderated by CD’s Publisher Chris Weiss, many of our readers weren’t present for a discussion that explored end-of-the-year recaps and thoughtful predictions for the future of chauffeured transportation. Whether you’re revisiting the October conversation or are benefiting from our panelists’ expertise for the first time, read on for the highlights from our incredibly well-received State of the Industry.

Chris Weiss: Tell us how business is doing and what’s been happening in 2015.
David Seelinger: We’ve had some good growth this year—I won’t say that it’s like some of our previous years but we did have some growth toward the end of 2015. Our margins are up but it’s not easy to do.

Mike Fogarty: We’re seeing good growth, especially in the U.S. We’ve increased our profit margin and we’re also seeing the market expand. As much as we talk about the negative side of TNCs, I don’t think our industry’s ever been seen more in the news and it’s creating opportunity for all of us.

Scott Solombrino: Business is up, but we’ve done an analysis that found if TNCs didn’t exist, our business would have been up around 17 percent year over year. Profit margins are really solid and we think fuel has played a role in that: Gas is heading for a five-year low. We’re optimistic and we’re also in a consolidation phase—we’re buying companies where we see value because we want to see an expansion of our footprint. But I am concerned about the depth of which TNCs are infiltrating the corporate market.

L to R: David Seelinger, Mike Fogarty, Chris Weiss, and Scott Solombrino on stage at the 2015 Chauffeur Driven Show CW: Where are you seeing the biggest opportunities for growth?
SS: We’re stunned at the growth we’re seeing in the airline sector. People are realizing that chauffeured car service is a tremendous add-on when you’re already buying a ticket for $20,000—that’s what first-class from Dubai to New York costs—so what’s a couple hundred bucks for the car? It’s an interesting place we’re now focusing on more.

DS: We’ve have incredible growth in the airline sector from Middle Eastern carriers who now offer ground transportation within a certain radius, and we’re also seeing growth in the entertainment sector. I think regardless of what’s going on, this industry will continue to grow and that will never change. You can have growth in any sector you want, it just depends on what your company’s designed to do the best.

MF: We also do quite a bit of airline business and have seen some growth in that sector. But meetings and events has been a tremendous focus on our sales side, and we’re seeing good growth there. We are a little bit different in terms of having three hubs in the U.K., U.S., and Asia, so we’re very focused on international flows of business among them.

CW: What international markets are the biggest opportunities?
MF: We opened Tristar U.S. 10 years ago so we see the U.S. as a big area of focus and growth. The U.K. economy is starting to come along, Europe’s still a little slow, and, although there’s been a slowdown in China, we’re seeing high-net-worth individuals and the affluent middle-class traveling to the U.S. We’ve seen a great deal of inflow of business from Asia to the U.S. and we certainly want to capitalize on that.

SS: London’s always been a growth market for us but the sleeper has been Japan. They’ve been at zero growth for decades and suddenly popped. So we see some outbound growth coming from Asia, but we’re seeing more activity into Tokyo than I’ve seen in years.

CW: Is it technology or is it the inventory needed to truly provide ­on-demand service?
SS: It’s a supply-and-demand problem. In New York, if you want to be competitive when you’re using chauffeurs who are licensed, regulated, and tested, it’s not so easy—you have to have 20,000 cars available a day.

DS: The app isn’t the hard part: It’s the infrastructure behind it. You need incredible technological assets to be able to process that number of transactions. You have two challenges: how to do it, and finding the company that has the wherewithal from a technology perspective to pull it off. On-demand will have to happen but my personal feeling is that it’s not currently our core challenge.

MF: I see technology as a bigger issue than we’re giving it credit for. There are a number of software providers in the industry, and connectivity between systems and those different providers has varying degrees of success—an on-demand app that overlays industry reservation/dispatch software offers an added degree of complexity. We’re talking about reservations in minutes, not hours, and we’re going to need a lot more collaboration amongst the technology people in this industry.

CW: How are regulators and politicians viewing and dealing with TNCs now, and what messages resonate with them?
MF: Regulators and legislators are looking at TNCs differently: public safety, consumer protection, avoidance of fees, and employment issues. We’re lobbying, we’re communicating, we’ve really had great partnerships this year, and it’s all helped get out a cohesive message that TNCs are transportation companies. The rules that we all adhere to as licensed companies, they’re not there just there to be rules: They’re there to protect the public. We don’t have TNCs’ same frequency of assaults amongst licensed fleet. And that’s starting to resonate with legislators.

SS: It’s simple: TNCs are in violation of the Fair Labor Standards Act. They’re breaking the law. We’ve made huge headway at the state level by meeting with numerous governors’ offices, and we believe the government at the state and federal levels will declare that TNC drivers are employees, they’re entitled to overtime, workers’ comp, health insurance, the right to unionize, and every other thing that everyone in this room has to provide. We’re going to fight this battle to the death because it is a matter of life and death to how this industry will look in five years.

DS: I think classification is key to the whole thing. I spent a lot of time with the local governments in several states working on this issue. But here’s what you’re up against, and I’m sure everyone knows this: Whoever’s got the most money gets what they want.

SS: I had a senator say that it’s never good when you have 26 lobbyists coming to you on the exact same issue because it starts to smell like somebody’s trying to buy public policy. I think their 462 lobbyists, their 36 different law firms, their 22 PR firms are now a hindrance.

CW: TNCs have implemented strategic alliances with numerous travel and hospitality industry giants. How do you respond when they are approving, authorizing, and using TNCs?
DS: I’m sure they’re still the greatest thing in the world to some people, but corporations are starting to see that a TNC ride is actually twice the amount of the contracted rate they have with traditional chauffeured companies that are well-qualified and vetted.

SS: I think we’re going to win the corporate battle. After David and I spoke at GBTA, we were threatened by TNCs—and some actually went to sponsors and said, “We want you to stop doing business with the association.” And let me tell you something: That doesn’t play well. Corporate America’s woken up to see that TNCs are not following regulations. I’m not as concerned about partnerships because I think they’ve reached their peak and people are saying, “We have an expense problem on top of a compliance problem now.” We’ve had corporations tell us point-blank, “If you give us on-demand, charge what you normally charge us on contracted rates. We don’t care about the pricing, we care about the delivery system.” They want to be able to watch the car. If you do that, you can charge your own rate structures. We’re getting no pushback on pricing. It’s about usability and convenience.

MF: I think the issue has been with the corporate travelers themselves, more so with younger travelers who want to point, click, and get a ride. Enough incidents have happened and the message in the media is changing, so people are taking note and travel managers, risk managers, and purchasing folks have more information to push back. When I speak to these travel managers, I point them to online resources, like TLPA’s whosdrivingyou.org, the NLA’s Ride Responsibly campaign, and I know AFT does a great job in getting that message out to corporate travelers, too.

CW: How do you see classification of TNC drivers playing out?
SS: Oh, we’re gonna win. The law is on our side. We just have to keep the pressure on. It takes time and money and you just have to keep plowing away at it.

DS: One-hundred percent agree. I got away with my chauffeurs being independent operators for a very long time. We all got away with a lot of things. Those days are over. I was forced to convert or pay $4 million to the state of New Jersey. If you’re paying chauffeurs on 10-99s or on a commission basis and you’re not figuring out their overtime—you might be under the radar right now but it will catch up. You’re better off dealing with it when you’re first starting out. We have a question if you apply to be an affiliate with us: How do you compensate your chauffeurs? And we will make a decision based just on that because we can be dragged into your case.

SS: It creates liability issues for companies like the three of us if we’re doing business with you. So if you don’t pay your taxes, you get audited, and you go out of business, they’re then coming to us because we gave you the business. You need to think about your model because we’re pushing the Department of Labor on this issue and they think that the whole chauffeured car industry is compliant. Their focus is on the TNCs where it belongs, but you need to clean up your own act because, at some point, the plaintiff’s lawyers are going to find you.

CW: Do you think that TNCs are eventually going to conform to our standards as it relates to insurance, licensing, and background checks?
DS: Do I think they will just because they want to? No. Even if they do realize that they need to, they still won’t do it. There are a lot of laws on the books in this country that aren’t enforced. They’re still operating illegally in New Jersey. The mayor of a certain city in the Midwest’s brother is a big investor in Uber so they changed everything just for the TNCs. You only have to have a license that will cost you, I think, $10,000 and you can put as many cars on the road as you want there.

SS: So, the Chicago taxi strike: Pandemonium. They shut down the whole city. That kind of stuff is going to happen more and more and more. Think if every chauffeured car company in America went on strike and blocked an entrance way to an airport. You would have no flights taking off and it would take the cops hours to figure out what to do. And then hold press conferences at the same time saying, “We’re doing this because we’ve had enough.”

DS: If we band together and pool our resources, we can stop anything. That’s why you have to support the NLA and TLPA and the associations in your states. Those are the people out there every day working with and educating federal and state officials. Education is the key. You have to educate people in public office and make them think twice about what they’re doing.

MF: I’ve spent the past year fighting this issue. Public acceptance has changed—it’s not doom and gloom out there. In NYC, TNCs are licensed. So as you talk to your regulators and local markets, point to New York, where TNCs meet the same requirements as every other for-hire vehicle—commercial plates and insurance, fingerprint background checks, drug testing by the TLC. We did that in Massachusetts. One popular TNC caught themselves in a web of lies, and it was very refreshing to see a senator and representative turn red when they realized someone was lying to them. It’s unbelievable how they spin the truth.

SS: I testified at that hearing. And I had said that in New York, all TNC drivers are fingerprinted and background-checked by the city. They said, “We don’t operate in New York City.” But then a lawyer from New York who’s a former judge said, “I want to correct the record: They just lied. You can look on my cellphone and see all 16,400 registered drivers.” And the committee went berserk. They lied! They had the audacity to lie in front of 2,000 people! They completely blew their credibility and now the tide has turned.

CW: Do you think we’re going to see more consolidation?
DS: I think some of the large companies out there are looking to acquire companies in the U.S. and abroad. I do hear some small and midsize companies are merging and expanding.

SS: If TNCs stay, there’ll be fewer chauffeured car companies and valuations will go down. You have to hedge your bets: Somebody’s going to be in that market, so let’s buy while values are low. Let’s find good, quality companies that are making money every day, and let’s expand. That’s what we’re doing. If I’m right, we’ll own a lot more companies, and hopefully they will be profitable.

MF: I certainly see some consolidation. It’s difficult to have the scale of technology you need and implement it unless you have that larger footprint. So I do see a play in the licensed for-hire industry for larger companies providing consistent service under one brand, whether that’s through acquisitions or franchises.

CW: What are your predictions for 2016 and beyond?
DS: I think this industry will continue to grow, I’m very confident of that. There are segments of our market that no TNC could ever do: road shows, touring bands, private aviation, event business. Some TNCs now have an event app—there’s no way they can do what we do. As long as you’re proving quality service with good equipment and you’re providing that with chauffeurs and not drivers, you’ll succeed.

MF: I, too, see continued growth. I do see some of the sectors we talked about as growing a little faster and customers pushing our industry to adopt more and more technology. Corporate customers are going to demand tracking technology, which we’ll have to integrate into our operations, whether it’s on-demand reservations or advanced booking. I see us growing, and the key to growth is going to be quality service because all of us are only as good as our last ride.

SS: There are a lot of outside forces that we have no control over—it doesn’t mean they always come to fruition but they deserve a close watch. My big prediction is that there’ll be collaborations in this industry that will blow people’s minds. We’ve all come to the mindset that working together is important—that’s a complete change from the previous 50 years. [CD0116]

Visit chauffeurdrivenshow.com/CDMedia for the complete recording of our State of the Industry.