Uber is in the Driver’s Seat

Uber is in the Driver’s Seat

Uber is a classic disruptive business model, offering a service of convenience and generally lower prices to their passengers and additional work for their “partner drivers”.  Taxi drivers are protesting as the value of their “plates” suffer from structural decline.

Demand:

Alan Krueger is the Bendheim Professor of Economics and Public Affairs at Princeton University.  The noted labour economist together with Judd Cramer have released a study, “Disruptive Change in the Taxi Industry: the case for Uber”.

The study says that in most US cities for which the data is available, UberX drivers use their carrying capacity better than taxis do.  They have passengers in their car much more often than taxi drivers, whether on a time basis or a distance travelled basis.

The authors suggest four factors are behind Uber’s success:

• Ride share services have more efficient technology for matching drivers with passengers
• Ride-sharing services are bigger than taxi companies
• Taxi regulations are relatively inefficient
• Ride-sharing services offer a flexible labour supply and change their prices depending on supply and demand, which generally works better throughout the day.

Supply:

In late 2015, Beneson Strategy Group surveyed the Uber “driver partners” in the US, which now number over 400,000.

Some of the finding included:

• 67 per cent of drivers didn’t earn any income from driving prior to “partnering with Uber”
• 69 per cent of drivers have other full-time or part-time work outside of Uber
• 91 per cent of drivers were “satisfied with the ability to balance their work with Uber and the rest of their life”
• 19 per cent of drivers are women and 29 per cent who started driving with Uber in the past three months are women

Uber’s take (from an LA driver partner’s viewpoint):

After a deduction of the $1 Rider Fee, Drivers keep 80 per cent of the total fare price for a given ride. Uber takes 20 per cent of the fare.

So here is the math for an $18.42 fare.

$18.42 – $1 Rider Fee – ($17.42 x 0.20) = $13.93 to driver; $4.48 to Uber.

This is how much the driver is paid before any expenses. My rule of thumb (this may not be an accurate number for you) is that I spend about 10 per cent on gas and other vehicle expenses and 10 per cent on taxes on average (after all the deductions). Which in this case is calculated as follows:

$13.93 x 0.80 = $11.14

This is the approximate net income from the 30 minute-ride.

Two rides an hour would equal $22 for the driver partner and $9 for Uber.  And the power of the Uber network effect is illustrated through the 169 million trips booked on a worldwide basis in March 2016 alone.

To learn more about our funds, please click here, or contact me, David Buckland, on 02 8046 5000 or at dbuckland@montinvest.com.

MORE BY DavidINVEST WITH MONTGOMERY

Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.