People think twice before opening this ridesharing app on their smartphone.
The practice is going nowhere, but the slow pace at which ride volumes have recovered from their pandemic lows is the latest sign the industry may not be becoming as ubiquitous as once hoped. As dreams of world domination fade and investors look to the bottom line, the cost of that ride could push some potential customers toward more economical modes of transportation.
Of late, market leader Uber UBER 0.47% Technologies has moved beyond the service that has made its name a verb. According to its Investor Day Deck 2022, Uber is present in 72 countries. It added Eats to deliver groceries, then expanded to include convenience, alcohol, diapers and more. Now, among other things, taxi partnerships and trips are being added. Soon you’ll be able to hail your own private party bus.
These additions are designed to outwardly provide Uber with a way to aggressively build a super app from a position of strength. They’re probably just as defensive. If investors used to want quantity, now they want quality. As Chief Executive Dara Khosrowshahi recently wrote in an internal email, “In times of uncertainty, investors look for certainty… we have to show them the money.”
The economics of ride hailing have changed. Platforms like Uber and Lyft LYFT -1.14% have been growing for years by subsidizing the cost of rides to gain market share from other modes of transportation as well as each other. Between 2016 and 2021, Uber burned an average of nearly $3 billion annually.
But with investors now focused on raking in money rather than splashing it around, broad subsidies are no longer a winning strategy. And this discipline comes at a time of rising costs. Labor laws, competition and a rise in vehicle and gas pump prices have resulted in rideshare drivers having to be paid more. The combination of those costs and investors’ demands for profit and cash flow means that post-pandemic ride-hailing may never be as affordable as it once was.
Already in April, average ride-hailing prices nationwide were nearly 39% higher than the same time in 2019, according to YipitData. Some of this has to do with longer trips consumers are now making. But even per mile, prices increased by over 27%. In the sprawling cities of Phoenix and Atlanta, Uber and Lyft prices combined increased by an average of 40% and 50%, respectively.
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The pandemic may be slowing down, boosting demand from tourists and commuters, but consumers are likely to consider cheaper options as fares and prices for other goods and services rise. And the prices could get even richer. Faced with a driver shortage, Lyft may need to compensate with higher driver rates to be competitive. Meanwhile, if Uber continues to push for aggressive growth in its grocery delivery and other non-core businesses, someone will have to shoulder the bill.
Ride Hailer wanted to free us from car ownership and offer us more convenience and comfort than other transportation options available. What if the future of ridesharing was… the bus?
write to Laura Forman at [email protected]
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Appeared in the May 23, 2022 print edition as “Overpriced rides are driving some passengers away.”