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The market for taxi services is in crisis as profit margin shrinks

As transportation market leaders slash incentives and commissions, the industry is witnessing reversals.

New Delhi: Vikram Shukla, 36, who booked an Uber taxi, saw after waiting 10 minutes that his trip had been canceled by the driver. Shukla was unable to find another taxi instantly and had to drive for an equivalent price to Uber. In the process, he lost 15 minutes. Vikram Shukla’s story is not an isolated one as many other riders are increasingly going through the same post-lockdown experience as services have diminished and the response from many riders is unprofessional. These incidents point to a worsening crisis in the transport market, which has seen massive growth over the past decade. The Sunday Guardian has charted the current crisis in the amusement rides market, how the industry and workforce are responding to it. “The Covid pandemic has greatly disrupted the market. In reality, the market has slowed since 2018, with the company reducing our incentives and commissions. But, still before Covid, we were generating a good amount of profit because we were getting a high number of rides. After March 2020 things changed and the company further reduced our profit margin. People expected things to improve after Covid but even now the market has not improved. Today, many drivers are leaving the industry. I personally know drivers who, after booking, offer the customer a lower amount for the service and ask him to cancel the ride. The main reason drivers circumvent Uber’s guidelines is the massive cut in commissions and incentives,” said Gurgaon resident Alok Pradhan, who has been driving Uber for five years. It’s not that only Uber had suffered, even other transportation market leaders have also seen reversals in their businesses over the past three years.
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The Sunday Guardian has sought an answer from Uber on growing customer complaint of late about the company’s drivers, services and how the Covid pandemic and rising fuel prices have had a negative impact on its workforce and business model, but despite multiple attempts, no response from Uber has been received. It is a known fact that between 2014 and 2018, when the market exploded, the price of fuel was low. Now prices have gone up and drivers have to bear the pain of rising prices. Moreover, in 2015, Uber was making inroads into the Indian market. They offered good incentives for drivers to expand their market. Now things have changed dramatically.
The crisis is not just about a big company like Uber, but all other taxi service providers are facing the same issues. Recently, in the Delhi-NCR area, taxi and taxi strikes have been called by the unions, which has led passengers to go through a rough patch. The unions had the same issues – they were demanding higher tariffs and lower CNG prices to offset the impact of rising fuel prices. The strike has resulted in a shortage of taxis and automobiles in Delhi-NCR.
It’s not just that Uber is cutting commissions and driver incentives, but it’s also taking other cost-cutting measures. A report by Fintracker points out that Uber had reduced its advertising costs by around 50% after the pandemic. Recently, the company raised fares for rides in Delhi-NCR by 12% and a few other metros by 15%, but drivers who spoke to the newspaper argued that profits from the rise in fares would go to business.
Many believe that a comprehensive plan for application-based cabin aggregators (ABCAs) needs to be implemented, in order for the industry to be successful in the long term. Recommendations for app-based taxi aggregators have been made in the past by think tanks, but the government had yet to make a decision on this. The prestigious Gurgaon-based Management Development Institute (MDI) recently published an article in which it suggested draft policy recommendations for app-based taxi aggregators (ABCAs). He pointed out that for long-term success in India, regulators should balance regulations in such a way that regulations do not discourage innovations in business models and encourage competition in the market. The Sunday Guardian also contacted the Ministry of Roads, Transport and Highways for a response on the guidelines for taxi aggregators, but no response was received.