CAN RIDE-HAILING APPS LAST?
Out of 10 rides he picks up on the Grab platform, private-hire driver S. K. Tan, 61, estimates that around seven of them are on a promotional fare.
Through chatting with his customers, Mr Tan learnt that some of them were given discounts on rides for an entire week, if they put monetary credits into their Grab app accounts. The recent deal: Top up $20, and get $4 off all rides in the week, up to four rides a day.
While he is paid the actual fares, he expresses concern about whether his job is sustainable. “They are giving so many cheap, and even free, rides to customers and they are also paying us fares and incentives,” says Mr Tan, who has been a private-hire driver for three years.
Of the $1100 he makes in a week, about $400 of it is a bonus which Grab gives him for hitting a trip target. The goal is 180 rides a week, which is achievable if he clocks about 10 to 12 hours of driving a day.
Despite their stellar growth, neither Uber nor Grab is profitable.
Grab incurred combined losses of nearly US$40 million (S$55.2 million) in 2014 and 2015 in Singapore alone. For the first quarter this year, Uber said that it lost US$708 million for its worldwide operations.
But they are heavily backed. According to the crunchbase website, Uber has raised US$8.81 billion in funding, and Grab, US$3.44 billion.
Assistant Professor Yang Nan of the National University of Singapore (NUS) Business School’s strategy and policy department says: “As long as investors are still interested in financing the price war, I don’t see their patience running out.”
When asked about its financials, Grab’s Mr Lim says that the firm is “close to profitability in our more mature services and market”, though he did not name which.
He says incentives given to drivers helped to “bridge the gap” in the initial stages of business, when there were fewer bookings. He says the reliance on incentives will be reduced as more passengers travel with Grab and drivers take home more fares to cover their overheads.
Uber’s Mr Tseng, meanwhile, declined to talk about sustainability, saying only that the firm’s goal is to offer commuters “greater reliability and affordability”, while for its drivers, “greater stability and opportunities to increase earnings”.
NUS transport researcher Lee Der Horng says the bleeding losses may end with either Grab or Uber exiting the Singapore market.
Dr Lee notes that this happened in China, where the millions lost between Uber China and rival Didi Chuxing resulted in Didi buying over the Uber business there.
He says: “The moment when one player controls the market, that’s when it will reduce subsidies and incentives, and make profits.”
THE DEATH OF TAXIS?
Experts such as transport researcher Park Byung Joon from the Singapore University of Social Sciences wonder if the taxi industry will cease to exist one day. Dr Park says: “The future is shaky. There is no real cap on the growth of the supply of private-hire cars.”
Prof Yang notes how both Uber and Grab are “getting too similar in terms of product design”.
“When product offerings are the same, what is left to compete (on) is price. This is obviously not good for profit, but perhaps worse for traditional cabs,” he notes.
A dearth of taxis could impact commuters in a big way, especially during peak periods.
Dr Park says: “Right now, commuters have an option – wait in the taxi stand queue, or you book an Uber car, pay a higher fee and get the ride quickly.
“In the future, if taxis disappear and all rides are priced dynamically, commuters won’t have this (more affordable) option anymore.”
NUS’ Dr Lee says that with regulations, the authorities have in a way given the “endorsement” to the private-hire industry to operate here, which may spur their growth further.
While cab operators are cutting rentals and introducing new fare options, it appears that they are unlikely to go the route of the start-ups and throw money at fighting a price war with the new players.
Some are hopeful the onslaught will end one day. Mr Neo Nam Heng, chairman of the Prime Group, believes that when ride-hailing apps cut back on discounts for commuters, business will swing back to the taxis. “I am confident that while the taxi business is down, it is not out,” he says.
He may not be wrong. Commuters like Ms Stella Ang, 36, say they will return to taking taxis in time, if the discounts stop.
Ms Ang, who works in client management, says: “My experience is that taxi drivers tend to be better drivers and tend to know the roads better.”
Despite the gloomy outlook, cabby Armstrong Ho, who has been driving for 19 years, believes the taxi industry will survive.
“Because taxi drivers are finding it harder to get by, the number of cabs and cabbies will reduce in numbers,” Mr Ho, 49, says.
“But there will always be passengers who want to walk out to the streets, and flag a cab. Tourists and foreign visitors will still take taxis. And there are people who will pay for better service,” he says.
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