Budget taxi firms need to upgrade to stay relevant

GRABCAR and Uber services have been very successful conquering the Malaysian personal transportation market, certainly in the cities where they take a lion’s share of the taxi market.

GrabCar and Uber are positioned as a good alternative to the Malaysian budget taxi, with transparent and fixed fares, newer cars (less than five years old), and motivated drivers.

Compared with drivers in Indonesia, Malaysia’s GrabCar and Uber drivers are mostly parttimers who work for additional income next to their existing (office) job.

Malaysia is fast moving towards a high-income nation status with changing personal transportation needs. However, the taxi sector has for far too long been stuck in the low-cost strategy of a developing country.

For instance, cost is more important than convenience (such as old cars, gas cylinder in boot space, and “broken” meters after 11pm) and functionality is more important than service (like rejecting passengers, dirty cars and unkempt drivers)!

Although there are certainly good examples, this low-cost strategy has resulted in a bad reputation for the Malaysian taxi industry.

As there has been a growing divide between consumer expectations of taxi services and the service level offered, GrabCar and Uber quickly filled this gap.

As GrabCar and Uber are surely eating away at the budget taxi market, it is five minutes before 12am for Malaysian taxi companies!

In my opinion, Malaysian taxi companies have only two options.

The first is to stay in the budget segment. This means they will compete head-to-head with GrabCar and Uber.

This requires budget taxi companies to invest in a modern car fleet (cars that are no more than five years old), ensure cars are clean and keep arms length control of drivers through proper incentives and penalties.

As the current taxi market is highly fragmented, it is calling out for larger professional taxi companies with a clear brand differentiation. The Blue Bird Group in Indonesia is a good example of how this could work successfully.

A consolidation of the industry through mergers and acquisitions of the smaller companies is necessary.

Current utilisation of taxi vehicles is also extremely low.

As the booming e-commerce industry commands high volume transport of small (express) packages, there is an opportunity for large taxi networks to integrate these package delivery services with taxi services, allowing for a higher utilisation of its dense transportation network in cities and its car fleet.

The second option is to exit the budget segment and enter the luxury taxi segment via comfortable green cars.

Instead of an liquefied natural gas tank taking up the limited boot space, use biodiesel cars.

In the coming years, these companies should invest in an extensive fleet of electric vehicles.

Next, these luxury taxi services are expected to offer drone taxis as well.

In fact, Dubai last month conducted the first test of a passenger drone for its flying taxi service.

Research showed that in the coming years, car ownership is expected to go down, benefiting growth in public transport and personal transportation services, such as taxi.

Although this is good news for taxi companies, time has changed Malaysian consumers’ wants!

Instead of an liquefied natural gas tank taking up the limited boot space, use biodiesel cars. In the coming years, these companies should invest in an extensive fleet of electric vehicles.