After nearly a year, drivers on online cab-hailing platforms Ola and Uber in India are seeing incomes reverse their plunge. At the receiving end of the companies pulling back on driver incentives over the past few quarters, the drivers now see incomes rising thanks to better fares and demand for rides.
This also allows Ola and Uber to improve the profitability of their operations.
Uber described the development as the result of a “tipping point” in Indian market where demand from riders and supply of drivers are resulting in fares that don’t need subsidising. Ola drivers are seeing a sharp increase in ride times and, as a result, better earnings helping the platform reduce incentives.
First, the driver experiences: Deepak Prasad, a migrant cab-driver from Nawada, a Bihar town 150 km southeast of Patna, is about to start his seventh trip of the day from a south Delhi neighbourhood. “These days incentives are negligible,” says Prasad, who has been an Uber driver for over three years, in Hindi.
He had to complete 43 trips to receive an incentive bonus of Rs 350. That is a drastic change from a year ago.
Prasad would have earned Rs 3,000 in incentives after completing six trips (incentives were higher during peak hours) and up to Rs 12,000 for 15-17 rides. Today, in the best case scenario, Prasad will get Rs 500-600 as incentive to drive longer hours. Market research and advisory firm RedSeer Consulting estimates that incentives as a percentage of gross booking value have reduced from 52% in January 2017 to some 20% at the end of the year.
The fares they’re a-changin’
The cab fare itself is changing – anything between 20% to 100%, going by some customer experiences – resulting in better driver incomes from two-three quarters ago.
Mohammed Shakeel, an Ola driver in Bengaluru, says, “Ola pays similar incentives like Uber… it may be marginally different. Income had gone down a lot for drivers, mine had halved.” Shakeel used to earn up to Rs 100,000 a month at the peak – there was an incentive on almost every ride. When the incentives were slowly pulled back by Ola, his income dropped by almost three-fourths and he even contemplated selling his car.
“Then the fare started going up as incentives were gradually coming down,” says Shakeel, adding that some fares are as much as double compared to last year. “That has helped us grow our income… More people are also using Uber and Ola than they were earlier.” He says his earnings have grown 15-20% in recent months.
The demand is such that Shakeel easily completes 40-45 trips in three days, he says. Earlier, it was difficult to complete six to seven trips in a day. RedSeer estimates daily rides on Ola and Uber grew 60% to nearly two million in 2017 from the year before.
“Currently, 80% of drivers across India who are online for more than six hours a day make between Rs 1,500 and Rs 2,500 net, after Uber’s service fee,” an Uber spokesperson said on email. Uber keeps 20% of a driver’s fares.
Preetam, a driver from Delhi’s Nangloi area in his early twenties, says: “After all expenses, I make anything between Rs 1,500 and Rs 2,000. I made Rs 500 in three days as incentive and after driving for four days and 45 rides I will get Rs 900.” His work hours are long – at least 12 hours – but it is better than when income had dropped to Rs 30,000-35,000 a month about six months ago.
FactorDaily interviewed more than a dozen cab drivers in Delhi, Mumbai and Bengaluru. Each said incentives are negligible today compared to what they got in the past.
Path to profitability
Uber believes market dynamics may be at work. “As a two-sided market, we reached a tipping point in India, where sustained high demand from riders and drivers allows us to begin reducing higher levels of incentives for drivers and discounts for riders, to operate more efficiently…,” said the Uber spokesperson.
At the end of the day, sustainable business is important. A source close to Ola said incentives are only one of the components of overall driver earnings. The cab-hailing company has rolled out other programs to maximise utilisation. “This is a function of overall ride time to the total time spent by a driver partner on our platform – it has increased significantly,” the source said. “This had led to an increase in overall earnings for driver partners.”
Increasing fare is also to manage operational cost better and not to upset authorities. For instance, the Karnataka government came out with a new fare structure in January and the cab-hailing tariffs were revised accordingly. Increase in tariffs also takes care of a rise in fuel costs.
“At present, things are fine. These days it’s slightly better because it’s per kilometre rates. We’re getting about Rs 15-16 per kilometre,” says Kiran Gowda, President, Karunada Rajya Taxi Chalakara Mathu Malikara Sangha, a union representing cab drivers in Karnataka. “We can’t count on incentives because it is coming down day by day.” He added the commission taken by the platforms should come down to 10%.
The increase in fares augurs well for operations of the cab platforms. Ola has submitted a report to Registrar of Companies about its future profitability, compiled by Jain Ambavat & Associates. The agency projects Ola will turn profitable by 2018-19 and achieve net operating profit after tax of Rs 1,170.49 crore. By 2021, the agency added that Ola will make $930 million in profit. The company made a loss of over Rs 2,300 crore in fiscal 2016.
Uber CEO Dara Khosrowshahi, on a recent trip to India, said the market isn’t profitable for the company yet and that it is in “investing mode for unlocking greater growth and potential in the market”.
“Ridesharing apps account for less than 1% of the total number of vehicle trips that are happening at any given time. The market potential, therefore, is huge, and we are just getting started,” the Uber spokesperson added on email.
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Jayadevan P K contributed reporting for this story.
Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures and Vijay Shekhar Sharma among its investors. Accel Partners is an early investor in Flipkart. Vijay Shekhar Sharma is the founder of Paytm. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.