Earnings of app-based cab aggregators Uber and Ola could come under pressure after the government capped commissions and restricted the scope of dynamic pricing, industry executives and experts told ET.
The Ministry of Road Transport and Highways issued guidelines on Friday, setting the maximum take rates for Ola and Uber at 20% of the gross fare and restricting surge pricing to 1.5 times the base fare. Dynamic pricing is when fares are set based on demand.
While both platforms have charged an average of about 25% commission from drivers, they have also enjoyed higher earnings from surge pricing during peak hours.
“Capping surge at 1.5X will definitely be a hindrance for aggregators. It might be fine for an independent cab operator to make money during peak hours by charging 1.5X the fare, but for aggregators it’ll be hard as they have costs attached to the platform, driver services, app maintenance and upgradation,” said a senior advisor with a leading app-based cab aggregator.
The prospects of reduced earnings comes amid a slowdown due to the pandemic, with Uber and Ola estimated to be operating at under 50% in terms of rides compared with pre-Covid-19 levels, according to data from Superfly Insights.
“Surge pricing is where the profitability delta for ride hailing lies. With a cap on that, it hurts business economics. This will also affect driver supply in high congestion areas where surge was the only incentive to ride during peak hours,” said an executive at a ride-hailing company.
In addition, the government’s new requirements for increased compliance for driver training, medical tests and verification could hurt aggregators in the short to medium term until the volume of app-based cab rides grows.
“The guidelines will certainly increase the cost of operations of ride-hailing companies,” according to Jaspal Singh, director at Valoriser Consultants. They will be required to conduct training programmes, take insurance policies for drivers, conduct medical tests for them and limit their working hours, he said.
While the fare regulations are expected to impact aggregators negatively, people told ET that the government had taken a balanced view of other aspects. Among them, the exception made for electric vehicles from the fare and surge restrictions will allow the industry to experiment with multiple price points before finding a model that works.
Also, allowing private vehicles and drivers to attach themselves to aggregator platforms after completing the KYC process and for a limited number of rides every week could alleviate some of the supply issues in the market, especially during peak hours when consumers find it hardest to get rides.
“Most aggregators have been looking at EVs very closely, as from a monetisation point of view, that’s anyway the way to go. Allowing platforms to have higher take from drivers for EVs will allow them to subsidise some of the cost of the vehicles, come up with better loan structures and other incentives,” said Ankur Pahwa, a partner at EY.
According to the senior adviser cited earlier, there could be a marginal increase in fares. He added that a large fare increase is unlikely because India is still a price-sensitive market and aggregators wouldn’t risk losing customers and would instead find other ways to make money.
A senior government official told ET that the ride-hailing sector in India was still nascent and that the commissions earned by them would be more than enough to pay for other costs.
“The aggregators have said they are already profitable on a per-ride basis. Right now they are investing to grow their businesses, but as the sector grows, which has been our main aim with this regulation, they can easily earn profits,” the government official said, pleading anonymity as he is not authorised to speak to the press.
Singh of Valoriser Consultants said one key issue that the new guidelines have missed is the sharing of trip data with local authorities for improved governance, policy making and urban planning.
“Internationally, ride-hailing companies are required to share data with transport authorities. However, the policy did not cover this point,” said Singh.
While the ministry has issued the guidelines, each state will take an independent decision and not all of them may implement them immediately.
