Saturday, February 21, 2009

Lower Fares Will Hurt Cabbies?

Lowering taxi fares will hurt cabbies
WE REFER to Wednesday's letter by Mr David Goh ('Taxi costs') and his suggestion to lower taxi fares.

We recognise that in the present economic downturn, everyone, including taxi drivers, is affected. Our fellow drivers have seen a drop in daily income due to general belt-tightening which led to reduced demand for taxis.

We doubt that lowering taxi fares will help as there is no guarantee that reducing fares will lead to more people taking taxis, but it would certainly hit drivers by further reducing their income, which has already suffered a drop. We are therefore very concerned that thoughtless reduction in taxi fares would lead to hardship for drivers, many of whom are main or sole breadwinners in their families. We believe any suggestion to help should have maintaining drivers' income stability as the primary consideration.

In fact, there are many ways to help drivers. A better way would be for taxi companies to do more to promote taxi ridership. Our taxi companies are working with corporate clients, supermarkets and cashless card merchants to give discounted taxi vouchers, which customers can use to take our taxis. This is a good way to create more demand for our taxis and we welcome more such initiatives from taxi companies to help us as drivers.

Nah Tua Bah
Comfort Taxi Operators' Association

Robin Ng
CityCab Taxi Operators' Association

Source: The Straits Times, 21 February 2009
The major taxi operators are still resisting the need to lower the fares in order to stimulate higher taxi ridership.

Looked at in isolation, lowering fares on the same amount of demand definitely makes no sense as cabbies income levels get hit. However, the economic reality is that lower prices helps lead to increased demand. When prices of near perfect substitutes such as the MRT, standard bus services and even premium bus services are falling, the prices of taxi travel has remained artificially elevated because of the reluctance of Comfort, the market leader, to set the fare charges lower.

Promoting taxi ridership by the taxi companies is a sexy albeit poorly thought out argument to direct fare cuts. Analogies can be drawn from the airline industry. Essentially, all people want to achieve is to get to their destination for work or leisure. The passenger volume of budget airlines has improved significantly during this economic downturn as corporate clients increasingly turn to reorganising their travel arrangements using budget airlines to cut costs. Targetting a focused group whom are already on belt tightening will do little to improve their contributions to bottomline.

While corporate customers are typically more generous in taking taxis since the transport costs can be reimbursed, their contributions to the bottomline of the cabbies will be capped when the companies' transportation expenses are the easiest to control.

Taxi companies may well do better if they wake up to the fact that there is a huge demand for their services that lies untapped in the heartlands. The downturn has helped to put many's dreams of owning a private vehicle out of reach. Yet, this group still craves the conveniences and comfort of car ownership in these days when the low cost transport options of buses and trains are struggling to cope with large numbers of commuters whom have given up their cars. Price taxi fares lower correctly and cabbies may well see their income levels gapping up as the floodgates of pent up demand flow through.

Look after the needs of the customers and the profits will follow accordingly.

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