December 16, 2020

With COVID-19, taxi companies need to drive in a new direction

Shree Kalluri

Table of Contents

As COVID-19 cases surge across the US once again, with daily new cases crossing the country's July peak, the taxi industry faces a major decline in ridership. Average daily taxi rides in America's biggest taxi market, New York City, were down 80% in September 2020 as compared to February of this year. From Washington D.C. to Las Vegas, taxi companies across the country are struggling to stay afloat.

COVID's impact on the taxi and for-hire vehicle industry is similar to its impact on retail, education and professional work — it's accelerated existing trends. Riders have overwhelmingly shown their preference for mobile apps and more convenient options for their rides. Before COVID, the number of Uber and Lyft rides more than tripled the number of taxi rides annually. And as lockdowns were eased across the country, Uber and Lyft recovered faster than taxi companies. In New York City, their average ridership in September was over 60% of their February ridership.

Mobile22 analysis of New York Taxi and Limousine Commission Data

So does the pandemic mean that taxi companies are reaching the end of the road soon? The answer is no, for three reasons: safety, security and driver sustainability.

Why taxis are safer, more secure and more sustainable

First, taxi companies have major safety advantages compared to Uber and Lyft. They have complete control over the vehicles in their fleets, whereas Uber and Lyft are dependent on their drivers to maintain cleanliness and hygiene standards in their vehicles.

After coronavirus rapidly spread across the US in early March and cities went into lockdowns, several taxi companies responded by making their cleaning protocols more rigorous, installing plastic shields separating riders and drivers, and equipping their drivers with masks and gloves during their shifts. Uber and Lyft required their drivers to wear masks and gloves on their trips, but if rider accounts are any indication, this requirement was poorly enforced.

         An attendant at Green Cab Madison installing a plastic barrier in one of their vehicles.

Second, taxi companies are more secure than Uber and Lyft. Taxi drivers are subject to stricter background checks before they are given a license to operate a taxi in any given market. These checks involve drivers submitting their fingerprints to local and/or state authorities, who then match them against a national database of criminal records. Uber and Lyft, on the other hand, conduct third-party background checks for their drivers. These checks are not as strict and are subject to state-specific restrictions that are placed on background check companies.

Fingerprint background checks do take longer than third-party background checks, which is why Uber and Lyft have sought to avoid them by spending millions of dollars to lobby against these checks for their drivers. Their actions have material consequences: in 2018, CNN reported that both companies approved thousands of people who should have been disqualified because of their criminal records. Security carries even more importance during COVID-19, with record unemployment sending even more people into the gig economy and alternative sources of income.  

Third, taxi companies offer more long-term economic sustainability for drivers than Uber and Lyft. In 2018, JPMorgan Chase estimated that ride-hail wages dropped by 53% between 2014 and 2018. Ride-hail wages have fallen so far that local governments have had to step in and introduce minimum wage requirements for ride-hail drivers. Taxi wages, on the other hand, have held steady from a pricing standpoint, but have fallen due to demand shifting from taxis to ride-hail companies.

Taxi companies have a captive market

Taxi companies have another underdiscussed advantage. No matter how large Uber and Lyft get, taxi companies have captive customer groups that will continue to ride with them. These include:

  1. People who don't use smartphones (almost 20% of Americans).
  2. Senior citizens who are used to the traditional taxi model (over 75% of people over ages 50+ have never booked a ride-hail trip).
  3. Riders who live in rural areas (high-income urban residents are more than twice as likely to book a ride-hail trip than their rural counterparts).

For rural riders in particular, the economics of Uber and Lyft don't make sense in smaller towns with sparser populations. Fixed and flat taxi fares give drivers more upside so that they can continue providing services reliably, even if they might not have the same volume of trips. In 2017, a former Uber driver in Chilkat, Alaska, left the ride-hail service to start her own taxi company after seeing the benefits of the taxi model in her town.

Source: "More Americans are using ride-hailing apps .”
Pew Research Center, Washington, D.C. (Jan. 4, 2019)

Taxi companies need to solve some foundational issues

Even with these advantages, taxi companies have some foundational issues that they need to solve if wish to stay competitive.

Taxi companies are notorious with their variability in pickup times. A taxicab can take anywhere from 10 to 90 minutes (or longer!) to show up for a pickup. After speaking to taxi companies across the Midwest, we've learned that the problem lies with the dispatch software companies use. These software tools don't rely on automation and frequently run into issues, forcing companies to rely on dispatchers to resolve these issues and get cabs to customers.

Digital adoption has also been highly variable for taxi companies on the front end of the ride experience. Many taxi companies still don’t offer mobile or web apps to book rides. Those that do, in cities like Seattle, Columbus, and Chicago, have only done so in the last three years, well after Uber and Lyft have dominated urban transportation markets. The taxi companies that don’t offer digital booking channels are heavily reliant on call-takers, which is a fixed cost that they can't avoid. This often results in bad customer experiences: riders can't track their driver's progress to pickup, which means even more calls to call-takers.

Mobile apps remain the exception, not the norm, for US taxi companies.
Photo by Charles Deluvio on Unsplash

These two issues lead to the biggest issue taxi companies need to solve: operational expenses. More dispatchers and call-takers mean more fixed employee costs and inefficient, people-heavy operations. If taxi companies want to stay lean, they need to focus on automating their dispatch and bookings with software tools that can get the job done for them. At the same time, offering mobile-friendly applications to riders is a necessity for taxi companies to cater not just to their dedicated customers, but to a broader market that includes smartphone users and riders who are invested in supporting their local transportation providers.

The road ahead for taxi companies is clear

In the face of economic uncertainty with COVID-19, the road ahead for taxi companies is surprisingly clear: adapt to a tech-forward operational model.  

At Mobile22, we equip taxi companies to adopt this model, and we also provide them with rider mobile and web apps for their customers to easily book rides. If you’re interested in an easier and simpler way to manage your operations and make your customers happier, contact us.

Taxi companies have several advantages over their ride-hail competitors, but if they can’t operate efficiently, then it won’t matter. The taxi industry might be able to weather the next COVID-19 wave, but if it wishes to remain viable in the long term, then it will have to turn and drive in a new direction.

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