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Keeping-a-Tab-on-Cab

Keeping a Tab on Cab

Indian roads are a scandalous ordeal with people steering across an acute crowded and unkempt infrastructure. In a country with 1.3 billion populace, only 2% own cars! The basic outlook of cab rides in India is perceived as a ride on dilapidated vehicles with tinkered meters and capricious chauffeurs. However, over the past few years the Indian radio taxi market has seen a lot of changes. The demand for radio cabs has grown among MNC executives, tourists, IT sector executives etc. Over $400m of VC (Venture Capital) money was pumped into this sector whose market value is expected to grow to a whopping $25b by 2025. Many rounds of funding and investments are a clear indication of how others foresee a great potential in these radio cabs, and has also generated a lot of curiosity among the general public. Companies like Taxi For Sure (Started in 2011, raised $30 million in funding) looks to expand its services to tier-2 and tier-3 cities even though the metros remain a primary market for most of the players. Ola cabs (started in 2010) has raised $210m in series D funding from Soft Bank. World leader Uber (with funds of $1.5b) is aggressively launching its services in multiple cities in India. (It launched its Indian operations in Bangalore recently). It also raised $307m globally in a series of funding arrangements and is committed to invest $400m to aggrandize its services in India.

In a country with 1.3 billion populace only 2% own cars. Since owning a sedan in India could cost you around Rs. 40,000 a month.

In India, the 3 large multi-city operators are Meru, Easy Cabs and Mega Cabs who capture nearly 70% of the market share. The Indian Radio Taxi market is pegged anywhere between dollar 6b- 9b. It is a market of illimitable demand with a curtailed supply. With a growth visualized at 17- 20% CAGR, there is no doubt that it is one of the most robust growing sectors in India. The Indian radio taxis are expected to cross the 30,000 mark by 2017! However a major surprise is that only 4-6% of this market exists as organized sector (compared to 70-80% in developed countries). 5.5 Lakh commercial cabs are registered across India’s top 10 cities. A humongous 88% of these total cars belong to the unorganized sector (growing at 40% annually), while 7 and 4 percent represents the radio cabs and the affiliates. The rest are from operators who own small fleets of 2-50 cars and typically have a presence in only 1 city.

Moving back, the idea of radio cabs was initiated way back in 2001, when Mega Cabs and Fast Track were the only players available as small fleets. Soon, other operators like Easy Cabs, Savaari etc. all came within 1 year.

Let us take a look at how these cabs actually operate, what is their source of income, ROI, their method of working, etc. There are actually three major business models followed by these radio cab companies

MODEL 1:

Here the fleet ownership is fully with the company, where drivers are employed for a salary. The cars operate on the incoming bookings. Despite the fact that the revenues are directly augmented to the company, the expenses such as the car loan EMIs, maintenance costs etc., reduce the margin of profit to a great extent. In some cases, the income is sometimes lesser than the expenses! This model has high scope for embellishment; however it comes at a huge cost. It is also prone to many social issues such as high stress levels of drivers, driver strikes etc. The booking method followed in this model is mainly through telephone calls. A major part of the payment transactions are done through cash.

Advantage - Supreme control on service quality

Disadvantage - Huge pressure on utilization rates.

MODEL 2:

Companies like TaxiForSure and Ola were the pioneers of this fleet aggregation model, wherein the small fleet owners (or) single car owners can put the company brand on the car and get registered with them. Mid-sized sedans form the bulk of a fleet. They are free to undertake non-company rides, but for every company-commenced ride, they pay them a fixed share as commission. Rides can be booked via calls, websites and the payment process is predominantly through cash even though credit/ debit cards are also accepted.

Advantage – Asset light business with a low capital expenditure. VCs are bound to love this model. Also there is no utilization headache.

Disadvantage – Quality to end customer may not always be exemplary, as the company has no control on cab availability & service quality from the private fleets

MODEL 3:

This is a hybrid model, where part of the fleet is self-owned and the others are through the aggregation model. Most of the orders are initiated through mobile apps and customers are advocated to pay through their online wallets or their credit cards. A major breakthrough in this model is the launch of hatchback cabs at lower prices (Ola Mini, Uber X) for the economical section of the society.

Advantage – Better control on cab availability & service quality.

Disadvantage – Initial investment of tracking and navigation devices such as GPS in the cars.  Read More

Having analyzed these business models in detail, this market appears to be a large, unorganized market with a lot of scope for growth. Large investments by leading investors like Tiger Global, Accel Partners, Bessemer Venture Partners, Matrix Partners etc., have definitely boosted this sector. However one of the main challenges to be encountered is initiating the switch over of the common man from the autos to the radio taxis. The ongoing trend indicates that official travel is done through radio taxis, while private travel is done through buses and autos.

Different places may have different issues. Each city’s problems are unique. For example, Delhi may ask for assured safety, Mumbai may stress November 2014 | 20 on the comfort factor, Bangalore may implore for the availability while Chennai may solicit transparent fares. Another interesting point to note is that the operators earn 30-50% of their revenue from airport pickup-drops while the increasing demand in services within city & rising tariffs for parking in airports are some of the new ways to cater to the non-airport demand.

The state government works in association with the RTOs and they have the power to set fares, terms for commercial passenger transport, provide fleet licenses, setting minimum service requirements for operators to protect public interests, cover aspects such as driver code of conduct etc.

The main pain-points for the taxi operators are acquiring customers and timely payments. Another possible road-block for these radio cabs could be the payment method undertaken. A statistic data shows that in most of the cabs, 80- 85% of the payments are done in cash. The usage of cards is very low. However this could be a major deterrent for Uber (as they have traditionally succeeded in markets where mapping software accuracy, mobile penetration and credit card usage is extremely high.) They will be forced to innovate for the Indian market and made to accept different modes of payment for broader adoption rates.

The case study of Uber is also one to be noted. Uber uses an international payment gateway to get around a two stage authentication mandated by RBI, thus making it possible to store credit card details of clients. Member companies of the Association of Radio Taxis in India (ARTI) such as Meru, Easy Cabs etc. have plans to set up collection offices abroad to avail the advantage of single-level authentication. TaxiForSure- not a member of the body, and is also planning to have abroad collection facilities.

Passenger safety is one of the major points to be taken into consideration while opting for a cab. With the recent controversies and news regarding women safety becoming a question mark due to some crimes, that have added more fuel to the already ensuing debate. The usage of technology plays a crucial role here. Cab tracking devices using GPS, usage of mobile app to determine location etc. which started as innovations, could soon be made mandatory in all cabs. Therefore these are no longer going to be the differentiators in the market. There are even some major partnerships between e-commerce websites and these radio cabs (Flipkart – TaxiForSure) and it’s just a matter of time before a price war ensues in the online space between different operators.

The evolution of these radio cabs also create a demand for the software products used for fleet management, tracking, utilization reporting, driver management etc. Companies may also look to expand into providing cabs for weekend-only outstation trips to maintain the high utilization rates. Ride sharing, widely proclaimed as the “next big thing” in radio cabs, might come up in the next few years and has a substantial potential to bring down costs significantly for consumers and reduce costs for taxi players. Already small ride sharing startups like LetsRide, Ridingo, PoolCircle, Rocket Internet’s Tripda etc. have started this initiative. Scope for M&A activities with consolidation may help these companies to fuel its fray in ride sharing.

With many innovations by the small players and startups, the big players are not in dearth of upheavals either! Ola Cabs has recently launched a new initiative wherein you can hire an auto rickshaw through your mobile app! The eye catching tagline “HIRE A RICK THROUGH UR CLICK” explains it all! The fare payable is in strict accordance with the existing norms for meter charge levied by the government + Rs.10 as a convenience fee to the driver. As of now, the number of autos engaged in this service numbers to around 300 and each of the autos under the Ola service has been equipped with Huawei phones to track bookings. Ola Cab is currently offering each auto rickshaw driver, a minimum salary of Rs. 10,000 alongside Rs.1500 as mobile charges per month, claims a report by Deccan Chronicle.

Even though the discounts and schemes are coinciding with festivals and technology (GPS) etc., these could only be the initial marketing factors. In future, service assurance, quality and convenience will emerge as the long term differentiators between a successful venture and a non-successful one.

Okay, how to end this? Well, let us do it this way! With the government ending the excise duty for automobiles at the end of last year, they are set to be more expensive from this year (2015). A recent research study shows that owning a sedan in India could cost you around Rs. 40,000 a month. Let us say you have a monthly run of 1200km. The average monthly run works out to Rs.35/ km whereas going by the recent reports and price lists, good quality taxi service is available at Rs.22/km. Thus it makes more economical sense to hire a taxi rather than owning a car!!!

TAXI……TAXI……..!!!!!!!!!!!!!