How slashing surge pricing will affect cab aggregator industry

Bengaluru commuters may soon be in for a pleasant surprise while taking a cab from the likes of Ola or Uber. The infamous peak-hour charges will be rescinded as the Karnataka On-Demand Transportation Technology Aggregators Rules, 2016 has strictly prohibited charges higher than the fare fixed by the government.

This development would serve a big blow to cab aggregator services that typically run on extremely low charges during non-peak hours by cashing in on the hiked charges during peak hours, which often come up to 2x-5x the normal rate. This would also affect Ola’s leasing programme, which aimed to get drivers exclusively on its platform to ensure enough supply at peak hours. That may no longer be viable for the company.

Varying charges

Currently, government-mandated rates in Bengaluru for city taxis are Rs 19.50 per km for AC cars (with Rs 80 upto Tfour km] and Rs 14.50 per km in non-AC taxis [with Rs 70 upto four km] in Bengaluru. But in order to ensure supply at night, the government raised taxi charges by 25-30 percent.

Ola offers charges as low as Rs 10/km for Mini and Rs six/km for Micro, while Uber charges Rs 7/km, with a minimum fare of Rs 50. Such low pricing has had its impact too - a year ago, Uber had a burn rate of $8-10 million and Ola $15-20 million, per month.

Experts believe that dynamic pricing should be based on demand and supply during peak hours, rather than day and night. Jaspal Singh, Partner at Valoriser Consultants, which provides market research for transportation companies, believes that surge pricing should be tapped properly. According to him, government needs to set a ceiling during surge pricing; but demand-supply should decide the real price.

Bengaluru’s significance

Losing out on the dynamic pricing in Bengaluru can cost these aggregators a small fortune. Bengaluru is a large market for both Ola and Uber. While they did not disclose the number of cabs plying in the city, Uber confirmed that the Garden City is among its top five markets in India. In 2014, when it launched in the city, the average time to get a cab was about 15 minute. Now it is threeto five minutes, a source said.

Cab aggregators declined to reveal their revenue from surge pricing, but Jaspal says that it undoubtedly helps them cost-subsidise. But not by much. “Not a lot of customers avoid trips when they see surge prices. So the surge pricing in itself cannot be a major contributor, as it does not convert into business,” he adds.

During surveys, he found that drivers did not get more than a trip during surge on average day. This is because when they see the surge is activated in an area, lot of drivers go there to benefit from it. But when the supply increases, the surge automatically stops.

Bengaluru is the largest market for cab aggregators in general. One major reason is that the airport is too far from the city, and most people prefer taxis instead of taking their own vehicles. Electronic City being away is another reason; youngsters, especially immigrants, living there are open to coming to the city by taxi as few have their own vehicles. The large supply, therefore, helps.

Problems in penalty

While the Transport Department is adamant on banning surge pricing, it is indifferent to low prices. H. G. Kumar, Additional Commissioner for Transport and Secretary, State Transport Authority, says: “They have to set up a system accommodating the new policy. But we cannot take action unless a passenger complains of the high charges.” Violation of this rule will result in licence-cancellation and penalty of up to Rs 10,000. However, the penalty is imposed on the licence holder, who is the owner-driver registered with the platform, as neither Ola nor Uber has taken an operator licence in Bengaluru, despite numerous rulings to enforce it.

However, Lokesh Bevara, Co-founder of 360 Rides, a ride-sharing platform, believes that this development will be an advantage for the smaller players. “Customers are attracted to aggregator services due to the cheap prices. So the number of people using it will reduce drastically if this changes,” he says, adding that cab agencies have become non-existent due to the cab aggregators. (Ola claims to have a market share of 65%, while Uber claims the rest.) Lokesh goes on: “With normal pricing mandates, players like Fastrack, Meru, Easy Cabs, Mega Taxi etc can have some hold.” Meru as well as Easy Cabs follow fares as per Transport Department’s mandates, with no peak charges.

Not just in India

Regulator process in the country is generally snail-paced. Only Delhi, Mumbai and Bengaluru are diligent about regulation. Delhi has issued it already, and Mumbai is still drafting one. “Gurgaon, Noida, Chennai and Hyderabad are not bothered due to lack of supply. Prior to these aggregators’ entry, no other models existed. So there was no major conflict,” says Jaspal.

But taxi aggregators have had trouble with government agencies all over the world. Uber’s surge prices have been criticised in Singapore and Malaysia, yet the governments in these countries have not put strict regulations in place. In fact, even the famed Singapore Metro charges extra for peak hours. Lot of cities in the US have allowed surge pricing on the condition that in case of any natural disaster or emergency, they don't hike up the charges.

India cannot afford the luxury of zero government regulation of cab aggregators. But, as Jaspal says, driver-partners who are active on a daily basis are only 30-40 percent. So the slash in surge price will lead to short supply and may hurt the consumers more than these platforms.

Better public transport, anyone?