How sustainable are these low taxi fares?

The unprecedented taxi fare war has had Bengalureans hopping onto cabs in unprecedented numbers. But most harbour a big question: Are these low prices sustainable? How long will these “attractive” prices remain competitive vis-a-vis autorickshaws and other modes of commute?

On Tuesday, Meru Cabs upped the competition with the launch of a 30 per cent cash back offer on every trip paid using its “My Wallet” mobile App link. This offer is available on all its Meru, MeruFlexi and MeruGenie categories. Competitor Ola Cabs already has a similar offer running. Those who opt to book a taxi through its mobile App could get a 50 per cent cut, provided the fare is deducted from the OlaMoney link.

Artificial rates

Shaken by the dropping prices, traditional taxi operators are convinced that the fares are artificially kept low to acquire customers. Fares, they say, will begin to climb in about two to three months. But there’s a counter to this, as voiced by a top Ola Cabs official: Rising demand has reduced the “unpaid” runs of the taxis, thus boosting price sustainability.

Unpaid runs are taxi drives from the point where the driver drops a customer to the point where he picks up the next customer.

“The distance of the unpaid run has reduced from five kms to about 1.5 to 2 km. This is because the frequency of paid rides has increased from an average of 10 rides a day to 18 rides daily,” Ola Cabs Director (Marketing and Communications) Ananth Subramaniam explained to Deccan Herald.

Altered fare dynamics

Rising demand, he said, has altered the fare dynamics. “So, even with a reduced fare, drivers are making 35 to 40 per cent more money than what he made before.” In the coming months, this trend is bound to intensify, widening the network.

In defence of competitive pricing, Meru Cabs CEO Siddhartha Pahwa said the current pricing may not look sustainable, but rising demand and supply would eventually keep the fares low.

“Broadly, about 50 per cent of the cost of operation, including vehicle, driver, etc, is fixed. With more utilisation, the per unit cost will come down significantly.”

One fear, as expressed by Bengaluru Tourist Taxi Operators Association (BTTOA) general secretary Radhakrishan Holla is of monopolisation. But Pahwa contended that the Bengaluru taxi market is big enough to accommodate another three to four big players.

He said, “The entire Indian market for taxi service is USD 13 billion. Only five per cent of this is in the organised sector. It can easily take another three to four major players.”