K Ravikumar, operated a fleet of five call taxis in 2007 that he rented out for locals in Manapakkam, Chennai. The income from renting the taxis were sustainable that helped him earn a small profit, after paying out salary to drivers and vehicle maintenance. But with the entry of technology-based cab services like Meru, Ola and Uber between 2007 and 2013, customers found a plethora of options and competition made consumer the king.
However, technology is also disruptive. Ravikumar could not sustain competition from the low cost offered by Ola and Uber. He stopped renting taxi since October 2014 and offers only for corporate and tourist packages. “It’s impossible for me to continue charging Rs 17 or Rs 16 per km for normal rides. I couldn’t compete so I shifted to corporate clients,” he said.
Like him, Balbeer Singh (55) of Janpath Taxi Service in Delhi is also facing a survival challenge. He owns a fleet of about 45 taxis. “Our business has come down to one-third now. The cheap rates offered by Uber and Ola (Rs 10 per km after 1 km) are destroying our livelihood,” said the owner.
The taxi market in India is highly fragmented and unorganised. But funding by big investors will see growth of the organised taxi market in India exponentially at 25 to 30 per cent annually for the next 2-3 years, according to a report by RedSeer Consulting.
“The initial disruption will happen and traditional taxi operators need to find new ways to survive or get subsumed into aggregation network, till the market finds its new equilibrium,” says Amit sharma, a Delhi-based retail analyst at Technotip.
Metros and major towns and cities like Chandigarh, Coimbatore, Kochi and Cuttack have become the battleground for Ola, Uber, Meru and others of their ilk, since substantial business is generated from such places.
The share of major town and cities in the revenue is low at present. However, even in these cities, around 70 to 80 per cent rides are towards or from airport or railway station, at an average fare of Rs 500-600.
Ola and Uber offer discounts up to 50 per cent to its first time users. It allows its application-based users to pin-point the location of a cab driver, which is further categorised depending on the kind of cab. These players are offering heavy discounts and multiple vehicle choices to acquire customers.
“The comfort of the ride and the easiness to book (cabs) are two major features which attract me,” says K Ajayakumar (35), a marketing executive in Kochi.
Can cab companies maintain the low cost model to be competitive? Looks difficult. “Rates are not as cheap now as when they first came in. Surge in pricing, night time charges etc have made prices increase unpredictably,” says Karthik Kumar, a design consultant from Mylapore, Chennai.
Kavya Sharma, a daily commuter by cab from Greater Kailash to St. Stephen’s College in Delhi is also experiencing a similar trend.
“I started with a free ride option from the app. But now, prices are higer than the traditional taxi. Ola and Uber advertently surge prices even at non-peak periods. Also, the waiting time is too much and they don’t respond as well,” says Sharma.
Ola will focus on ensuring that enough cars remain available when customers really need them and if that means incetivising drivers. Competitors like Uber and Meru are also aggressively increasing their fleet. These companies contest that peak pricing is not new, it had been in several industries and sectors.’’...it is to ensure that cars are on the road when the customers need them... In the end, it is economics that will prevail,” said Anand Subramanian, Head Marketing Communications Ola Cabs.
Certainly, it will be the economics of running business that will decide, if customers will continue to get low cost ride, pampered with water bottles and newspapers. The customers using these cabs are enjoying the fruits of competition.
The cab market will soon consolidate. With a few operators in the market, the danger of cartelisation and higher price needs to be proactively addressed by the government. So consumer can continue to enjoy the ride.