Demand Spikes, Cab Fares Touch Dizzying Heights

Cab aggregators are making a killing when demand is high, charging almost eight times the normal fare.

Published: 08th January 2016 04:20 AM  |   Last Updated: 08th January 2016 04:20 AM   |  A+A-


BENGALURU: Cab aggregators are making a killing when demand is high, charging almost eight times the normal fare. A passenger used social media to vent about his experience of being charged 7.7 times the usual fare. His post, on Facebook, has gone viral.

In situations like this, a customer booking a cab through a mobile app pays Rs 770 for a fare of Rs 100.

Party-goers on December 31 had no choice but to accept a high surcharge. But cab aggregators are demanding higher fares even on regular days, especially near IT hubs.

The Centre has directed state transport authorities to issue guidelines to cab aggregators, but nothing has moved for Karnataka. In November, the Central Transport Department spoke about taming dynamic pricing, but left it to each state to prepare regulations to suit regional requirements.

“Online taxi services should adhere to the state government’s City Taxi Service Scheme of 1998, and follow the same pricing norms as others. The Transport Department has the powers to seize vehicles violating rules, but we have not seized any aggregator cabs yet,” said a transport official.

On its official blog, aggregator Ola states, “Peak pricing is triggered when there is too much demand and not enough cabs to service the additional demand. This is usually during peak travel hours; during office hours like 9 am or 6 pm, special events such as a strike or periods of extreme weather.”

Ola says the fare reflects the demand, the category and the location, and the customer is free to choose or reject the surcharge.

“If you choose ‘I Agree,’ you are accepting to pay the peak hour pricing on your ride. However, you always have a choice. If the peak pricing of the hour is high, then you click on ‘Try Later,’ go back to the home screen, select a different category (and we have a wide range of rides from autos to prime) and you may find a ride with no or lower peak price,” it explains.

The system works on a well-designed algorithm working with demand and supply inputs, an employee working with an aggregator said. “The dynamic pricing comes into effect on the basis of the ratio of customers and cabs at a specific place,” he explained. 

Ramegowda, commissioner, Regional Transport Department, said, “We have already sent our draft guidelines to the ministry and are awaiting approval. The fresh guidelines include all measures necessary to curb unreasonable pricing.” Transport Minister Ramalinga Reddy was not available for comment.

Autos Fined While Cabs Get Away

In 2015, 10,591 autos were booked for demanding excess fare, but cab aggregators charging seven times the normal fare got away without any punishment.

Additional Commissioner of Police (Traffic) Dr M A Saleem said, “We do not have the powers to book app-based cabs for higher fares. It is the Transport Department that has to issue guidelines and we will act on them.” A driver said a high surcharge was the surest way to make passengers furious.

“It comes into effect during peak traffic hours. In some cases, customers where shocked to see the fare,” he said. The aggregator makes most of the money at such times, he said. “After shelling out the fare, some customers curse us and not the company,” he rued.

Uber’s Idea of ‘Surge’

Cab aggregator Uber says it employs a ‘surge-pricing’ algorithm to balance supply and demand. “When demand for rides outstrips the supply of cars, surge pricing kicks in, increasing the price. If you still want a ride, Uber shows the surge multiplier and then asks for your consent to that higher price,” a representative told Express. The objective, according to Uber, is “to ensure a rider can push a button and get a ride within minutes - even on the busiest nights of the year. And due to surge pricing, that’s almost always possible.” Uber sends an SMS to the user with the ‘surge’ rate, and only after the user accepts it does the trip get booked. “Similarly, we send out SMSes to driver-partners informing them about areas where demand is high, and areas that are surging. Within minutes, they reach the said area, and the market dynamic of demand and supply comes back to normal and dynamic pricing is turned off,” according to Uber.

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