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The Straits Times says

Cut-rate fares are not sustainable

Discerning commuters would know that perks now being dangled by ride-sharing firms cannot last indefinitely. Discount coupons and cut-price offers are part of the business strategies of industry disruptors out to enlarge their market share. Uber, for instance, offered a guaranteed capped fare of $10 from Changi Airport to anywhere for those riding on uberPOOL. Promotions evaporate over time, as most consumers fully expect, but what they also value is the quality of the service provided by the newcomers. In matching supply and demand using mobile apps, Grab and Uber have outdone incumbents, like the largest taxi operator, ComfortDelGro. Technology can bring together riders heading in the same direction and help commuters hail a car without stepping out.

The question is: What fares are sustainable over the long term so commuters can continue to enjoy speedy responses, affordable rides and more choices? Many would want private-hire cars to succeed to avoid relying solely on an old taxi regime characterised by confusing fare structures and patchy service, like scarcity at certain places and times. But the economic model for ride-sharing will bare its true face only after Darwinism has run its course in the industry. Taxi companies are feeling the heat of competition - as evident in the financials of ComfortDelGro - and Grab is eyeing the takeover of SMRT's taxi business, despite being a johnny-come-lately.

How would the cost structure of ride-sharing firms change if they were subject to many of the regulations that are imposed on taxi companies? For example, until the rules were revised from this year, taxi drivers were held to a minimum daily mileage of 250km and to availability requirements between 6am to 7am and 11pm to midnight. Private-hire car drivers enjoy much more flexibility, which is one reason why their numbers have multiplied. There are 41,000 private-hire cars now, compared to 26,000 taxis - a market which commentators describe as being "oversupplied". If, at the end of the day, incumbents cede much ground to the disruptors, the transport scene would be transformed.

Should one wait till the dust settles before evaluating the economic efficiency, service characteristics and employment practices of ride-sharing platforms? At that point, it might be too late to restore the positive aspects of taxi services. The benefits of new technology are not doubted. The question, however, is how commuters will be served over the long haul and if those who drive for a living will be better off. Disruptors are backed by investors who will want returns for their investments. When in a dominant position, new practices might emerge which are deemed to be sustainable. Hence, the present glee over low prices needs to be tempered with circumspection, as what lies on the road ahead is uncertain.

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A version of this article appeared in the print edition of The Straits Times on May 31, 2017, with the headline 'Cut-rate fares are not sustainable'. Print Edition | Subscribe