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How Can Ride-Hailing Companies Turn a Profit?

Ride-hailing is popular among customers, yet ride-hailing companies show red figures. How can ride-hailing companies turn a profit [1]?

Ride-hailing is growing fast, but can it continue to grow like this? At this moment investors in ride-hailing companies are subsidising the user's cost for transportation. This is not sustainable in the long run. How can ride-hailing companies increase their revenue? They can, of course, raise the fee, but this will make ride-hailing less favourable. They can also cut cost by for example removing the driver in the future, but will this be enough? Maybe there is a third way.

Lately, ride-hailing companies have shown a growing interest in congestion pricing. The idea behind congestion pricing is that road users pay for road space. If the traffic increase they pay a higher price and if the traffic decrease they pay a lower price. For a ride-hailing company, congestion is a problem because congestion delays the response to a request for a ride and it also raises the cost of operating a taxi by increasing time spent between dropping off one rider and picking up the next.

 

Personal comments

In Sweden, we already have a form of congestion pricing in Stockholm and Göteborg called congestion tax. A lesson learned is that the tax needs to be adjusted every now and then to achieve an optimal effect. When Stockholm last time raised the congestion tax it resulted in more efficient traffic flow with less congestion in the city. Further analysis of data showed that different categories of road users value when to travel differently [2]. Private road users were more cost sensitive while commercial road users were less sensitive. Maybe this will also have an effect in the future regarding ride-hailing.

 

Written by Kristina Andersson, RISE Viktoria.

 

Sources

1. 2019-05-09, Riding alone in a car is a luxury – an increasingly unaffordable one

2. Rapport 2017:123 Trängselskatten I Stockholm förändrades den 1 januari 2016. Vilka effekter fick förändringen?