TAXICAB FIRMS PAY MILLIONS TO HOTELS CITY OFFICIALS CONSIDERING CRACKDOWN.

Byline: Beth Barrett Staff Writer

Taxi companies - in violation of their city franchise agreements - have kicked back up to $3 million a year to premier Los Angeles area hotels for exclusive rights to pick up passengers, the Daily News has learned.

Los Angeles officials have long known about the back-room deals but only now are starting to consider a crackdown.

The deep slump in tourism since Sept. 11 has dramatically driven up the cost of exclusive deals and led to a bidding war among the largest taxi firm, Yellow Cab, and smaller competitors.

Cabbies accuse the hotels of ``extortion'' in fueling the bidding war that has some taxi companies facing up to $1 million a year in costs and being squeezed for more. Ultimately, the exclusive fees are passed on to passengers as rates are fixed by the city based on costs.

Hotel officials defend the practice as a means of making sure their guests get quality service.

But in the face of growing complaints, the Board of Taxicab Commissioners has named a subcommittee to look into the banned practice.

``It is not legal, that's what I think,'' said board President Joseph A. Czyzyk. ``We understand it goes on. It's always been a problem, but it's become more acute because of the financial despair the drivers are in.''

The Daily News obtained copies of checks to hotels, reviewed taxi companies' financial ledgers, agreements with hotels and letters from hotel managers, in addition to extensive interviews with cabbies, company officials and others familiar with how the system works.

``The hotels realized they had a gold mine and let the taxi companies compete for the exclusives,'' said Jerry Qonsul, general manager of LA Checker Cab Cooperative Inc. in Lennox, a company that pays out about $500,000 a year for hotel exclusives.

``It's a war. There is no stop to it.''

Yellow Cab's attorney, William J. Rouse, defended exclusives, saying that ``in spite of some problems'' they are the best way for hotels to hold taxi companies and their drivers accountable for service.

``Yellow Cab has quite a few exclusives,'' Rouse said, but added it has less than its market share compared with other taxi companies.

Rouse said he didn't know how many exclusives involved payments, nor did he have first-hand knowledge of taxi companies bidding against one another.

``Of course, I've heard of it,'' Rouse said.

``Right now there's too many cabs on the road in the city. Each has a lot to lose in this discussion. It's going to be hard to reach consensus.''

Los Angeles Area Hotel and Lodging Association president and CEO Scott Blech acknowledged the practice, but defended the right of hotels to enter into exclusive arrangements with cab companies to guarantee the quality of the service provided to their guests.

Blech vigorously denied taxi companies' characterization of the practice as ``extortion,'' saying the payments are ``strictly a business decision'' on the taxi companies' part.

``They certainly would not pay if they're not making a profit on that piece of business,'' Blech said. ``My understanding is that a cab company has decided on a certain amount (to spend) on marketing, and rather than flood (an area) with coupons or advertising, it's better to concentrate on an office complex or hotel.

``If any money is changing hands, it's the cab companies that have done it and initiated it.''

Blech said the association ``doesn't want to know'' the financial or pricing issues of specific hotels, to avoid any ``anti-trust'' issues.

Century Plaza Hotel & Spa's general manager Tim Loughman, for example, described the roughly $20,000 per month total paid by United Independent Taxi and Independent Taxi Company to service the Century City hotel and surrounding area as payment for ``a staging area in my driveway.''

``They're actually renting space from me. It's not an exclusive in my mind,'' Loughman said.

Assistant City Attorney Shelley Smith said that while non-paid exclusives are allowed to give hotels control over quality of services, paid exclusives are banned in order to keep the marketplace ``open and competitive.''

Smith agreed with characterizations that, on their face, the payments might look like kickbacks to hotels for a service monopoly.

``Hotel owners came in here (to the subcommittee) and testified none are taking the payments,'' she said, only charging parking or other fees.

``That's how hotels believe they're not necessarily encouraging paid exclusives. You can draw your own conclusions.''

Five taxi companies provided detailed accounts of the practice, and how it is escalating to the point many fear they could be put out of business.

United Independent Taxi in Los Angeles pays out nearly $1 million a year in exclusives to about 16 hotels, said president and CEO Dara Ahmadi.

``United has the most exclusives; we get burned,'' Ahmadi said, saying the market should run on ``service and efficiency.''

The drivers suffer and the public ends up paying in higher rates, he added.

Ahmadi said United Independent was paying $140,000 a year to the Hyatt Regency Los Angeles, but fell into arrears by several months and lost the account to Yellow Cab about three months ago without being given an opportunity to rebid. The Daily News saw a letter to United from Hyatt executive Kara Altice-Montes ending the service.

Altice-Montes said the disagreement with United Independent was ``purely based on service.'' She declined to discuss whether payments had been made.

``I'm not commenting at all,'' she said.

A doorman at the Hyatt said only a Yellow Cab taxi would be called for a guest, citing the company's contractual relationship with the hotel.

Ahmadi, who heads the city's second-largest cab company, said mostly the deals are verbal ``gentlemen's agreements.'' The checks are usually written directly to hotels, though one manager sent the check back saying he wanted it to be in his name.

``We try to do honest, decent (work),'' Ahmadi said. ``The bottom line, the hotels are enjoying this.''

Beverly Hills Cab Co. in Los Angeles, the smallest company with 163 cabs in L.A. and another 50 in Beverly Hills, pays about $15,000 a month for about a dozen hotel exclusives as well as complimentary vouchers, said president and general manager Gary Movsesian.

He said he recently turned down an offer from Hyatt Regency for $7,500 per month because he didn't want to ``start a war'' with the other companies. He said other hotels also have called to test interest.

``Hotels are calling us; they basically are trying to make us bid to raise the price,'' he said. ``They make us compete.''

Movsesian said the companies fight to keep the exclusives ``because you have to. But who pays? The drivers and eventually the customer. The customer, at the end of it, gets screwed.''

The competition has escalated as the economy and tourist industry have worsened. At one time, hotels courted cab companies to get their service, including perks like free lunches, he said.

``Now it's converted to the other way around,'' he added. ``It seems like under the table stuff, but everyone does it.''

Movsesian said Beverly Hills Cab - which pays out about $200,000 a year in exclusives - also had trouble making its hotel payments, but that the hotels ``were nice enough to wait'' and that all recently have been renegotiated.

Movsesian said his exclusive with The Beverly Hills Hotel was renegotiated from $3,000 a month to $2,000 a month but that he's always afraid of being outbid since he's ``not obligated to a contract.''

A financial officer with The Beverly Hills Hotel declined comment.

LA Checker Cab spends about $45,000 a month on exclusives, said Qonsul.

``Instead of spending on advertising, equipment, service, all our energy and money goes into securing these hotels,'' he said.

After getting an exclusive with Le Meridien Hotel, a special two-month assessment of $100 was levied on drivers to pay for it, he said.

Strapped drivers were angry, but he told them, ``If not, Yellow will have it.''

City Cab in Sun Valley can't afford exclusives and its president, Scott Schaffer, says they're bad public policy.

``I think they're unfair competition, and we're franchised to compete on quality of services,'' he said. ``It's clearly unfair business practices. At the end of the day, it's the public and drivers who are paying it.''

Schaffer also blamed the taxi industry - Checker in particular - for fomenting the bidding wars, equating it to a poker game with some previously willing players now complaining the stakes are too high.

``It's just insane,'' he said.

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Photo:

(color) On Constellation Avenue in Century City, taxis wait for Century Plaza Hotel guests. Taxicab companies have kicked back up to $3 million a year to some Los Angeles hotels.

Tina Burch/Staff Photographer