The entry of transport network companies (TNCs)
W(First of two parts) hen TNCs like Uber and Grab entered the country, commuters noticed the difference right away. They changed service standards and pricing expectations and execution, using technology to solve recurring problems with public transportation. Using technology, they completely upended the transportation equation and disrupted the taxi/ livery industry.
One useful way to think about how technology has changed our habits involves a comparison between advice given in the 1980’s and 1990’s and today’s practices. In the 1980’s and 1990’s parents and media hammered home the message that you should never talk to strangers. To get into an unmarked car driven by a total stranger — especially at night — was unthinkable.
Today, we use technology to call a total stranger to pick us up in a strange car and take us where we want to go, at any time, 24 hours a day, seven days a week. Our sons, daughters, wives, friends, and relatives use the service — and all talk about their experience as “hassle free” or “convenient” — most of the time.
TNC’s have also ventured into pooling rides to achieve better load efficiency and reducing costs for commuters going to similar destinations. These developments have even encouraged some car owners to leave cars at home — a welcome development in reducing traff ic.
TNCs have gained tremendous following due to the convenience, safety, and accessibility of the services they provide. A study conducted recently by a student at the University of the Philippines concluded that people are rapidly adopting TNC’s compared to taxis. Taxi operators are starting to experience financial challenges.
THE CONTROVERSIAL SURGE FACTOR
One pricing feature that has become controversial recently due to higher demand during the holiday season involves the surge factor. One of the TNC country heads explained that the surge during the holidays was attributable to a supply and demand problem. There were many drivers who took time off from driving during the holidays, and due to the social demands of the season there were more passengers trying to book rides.
The surge factor is a multiplier that increases the advertised TNC trip price in order to balance supply and demand. In periods of high demand and less supply, the surge factor provides an incentive for more TNC operators to hit the road.
Also, the surge factor is a price discovery mechanism that makes it more eff icient for drivers to find passengers willing to pay the price of a ride during a high-demand situation. It also acts as an advertisement for a client to attract drivers — after all, they are willing to pay the surge factor price.
Everyone benefits — drivers find willing passengers, and passengers find incentivized drivers. Previously, the price discovery process involved for one service, for example, the passenger having to enter manually the surge factor into their mobile device before they could actually book a ride.
Recent changes to the user interface has resulted in the surge factor being incorporated into the advertised fare. Users no longer have to enter manually the figure before the ride gets booked. In both cases, users do not have to accept dynamic pricing – they retain the right to refuse should the ride get priced beyond their budget.
Reports and complaints of extremely high surge factors were directed to the LTFRB over the holidays. After deliberation and consultation, the LTFRB issued an order: “The maximum allowable price surge on the fare shall be twice the rates for time covered and distance traveled excluding the base fare.” That price cap may alter the supply and demand equation for personal transportation in the TNC segment.
The argument for LTFRB intervention stems from an alleged failure of the market pricing mechanism during peak demand and limited supply, such as what occurred during the Christmas rush. These negative market factors allegedly caused mispricing to the prejudice of TNC riders. Such negative market factors must be incorporated in the price discovery process so that those who are willing to bear those negative market factors (i.e. those who can afford the surge factor) are given the opportunity to source rides. Conversely, those that cannot or are unwilling to bear the negative factors (unable to afford the ride) are forced out of the market.
Perhaps TNC regulators across jurisdictions can compare notes and ask questions like “Are all of the positive and negative factors in real time demand and supply being taken into consideration in the pricing engine? How robustly does the pricing engine perform during times of market stress?” The answers to such regulatory questions can aid in further policy development.
TAXWISE OR OTHERWISE
REGULATORS ARE LOOKING OUT FOR THE RIDING PUBLIC
RAOUL VILLEGAS and JOHN MICHAEL DELOS REYES
The rule changes issued by the regulator have a laudable motive — they try to ensure a level playing field in an industry that is being disrupted by technology. Admittedly, this is a daunting task where the pace of technological change threatens to outstrip even the most nimble of rulemakers.
Recognizing the necessity of the level playing field, regulators have enforced mandatory 20% discounts for students (on school days), persons with disabilities (PWD’s), and senior citizens. It is right and accepted that these classes of riders enjoy this privilege.
The transport network companies have also taken initiatives in making costs more competitive for the rest of the riders by coming up with pooling or ridesharing services. Business can also consider ways to ease traff ic congestion by coming up with staggered working hours in order that congestion gets eased during the traditional rush hour.
( Please look forward to part 2 next week.)
The views or opinions expressed in this article are solely those of the authors and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from the article.