Will they just share a booking app? Consolidate their fleet size? Set up a joint venture? Or even have a buyout? These are all options, writes the Straits Times. Just last month, ComfortDelGro asked its cabbies to snap photos of private-hire drivers who pull up at taxi stands so that enforcement action could be taken against them.
It was the most visible attack the taxi giant had launched against the likes of Uber and Grab – a move preceded by persistent behind-the-scenes lobbying for the Government to step in and do something about the newcomers. But in a surprise announcement on Tuesday after the market closed, listed ComfortDelGro said it was in talks with Uber to form an alliance.
Why is ComfortDelGro considering sleeping with the enemy? Asked this, a senior executive said: “In business, there are no enemies.” Indeed, there have been stranger bedfellows in the corporate world. Even in war, both sides will call for a truce if they see no end to the bloodletting. In the case of taxis versus private-hire players, too much blood – in the form of diminished profitability or outright losses – has already been spilt.
Cabbies who are either unhappy with taxi firms or who are attracted to the idea of driving a private car have been defecting to Uber and Grab since 2013.
An alliance with Singapore’s largest taxi operator, ComfortDelGro, makes sense for private-hire company Uber. Its main ride-hailing rival, Grab, has managed to convince all other cab companies to use its app, giving the Malaysian start-up a clear edge.
As a result, taxi companies have seen their hired-out rates sliding since 2013, the year Uber and Grab arrived. Close to 10 per cent of taxis are unhired today, up from an average of 3 per cent previously. Each idle cab costs an operator close to $40,000 per year in lost rental. At its height, the industry had more than 28,000 taxis here. A 10 per cent idle rate would have translated into more than $110 million in lost revenue per year – or $330 million over three years.
It is no wonder that cab companies have shrunk their fleet size. Today, there are around 25,700 cabs on the road – 9.4 per cent fewer than in 2012. For a trade that has been growing its fleet almost continually from the 1950s, this is damning evidence of decline. For further evidence, look at ComfortDelGro’s share price, which has fallen to its lowest since mid-2014. Its closing price yesterday, a day after the surprise news, was $2.36, a long way from its peak of $3.21 in June 2015.
The company has come up with various ways to counter the private-hire onslaught, but to no avail. In hindsight, it might have done too little, too late. So waving the white flag and calling for talks is the only sensible thing to do if it does not want to see its bottom line receding further.
On Uber’s side, an alliance with Singapore’s largest taxi operator makes sense too. Its main ride-hailing rival, Grab, has managed to convince all other cab companies to use its app, giving the Malaysian start-up a clear edge. If the talks go well, it will probably be Uber’s first such alliance with a taxi company in the world.
But the San Francisco-based company is no stranger to trying new things. Owning a fleet of cars here – close to 15,000 under Lion City Rental – was also a first for the firm. Before it set up Lion City Rental in 2015, it was an asset-light technology company. Depending on how its alliance talks with ComfortDelGro pans out, it might well evolve into a full-fledged taxi operator.
And why not, if its current operating model is not yielding results?
Since its formation five years ago, Uber has been chalking up billions upon billions of losses. Its previous chief executive officer, Mr Travis Kalanick, stepped down in June, ostensibly over internal scandals. But it would not be surprising if his departure was also a sign that investors were losing patience.
- What would an Uber or Grab – ComfortDelGro alliance look like?