Business Case Analysis

Industry Overview

The taxi industry is one of the most competitive industries, subject to Passenger
Transport Act 1990 and regulated by the NSW government. Taxis are contracted to
drivers under bailment and managed by an operator, who leases or purchases a taxi
licence. Taxis need to be affiliated with a network (i.e. Taxis Combined Services),
which undertake a range of compliance related activities such as training and
education (Deloitte 2013). The Act provides accreditation to owners, operators and
drivers who have satisfied training requirements and underpins the establishment of
an authorised network that provide booking services in which only an accredited taxi
driver and vehicle will respond. Every journey is monitored via GPS, with the
provision of lost property services and formal complaint means. As a highly regulated
industry, policies implemented regulate safety, quantity of taxis, fares and fees for
lease of annual taxi license. Key performance indicators are also imposed by the
government, which includes response times of taxis (NSW Taxi Council 2014).

The ubiquitous influence of Uber is the paradigm of disruptive smartphone

technology. Uber is an on-demand transportation service premised on a mobile
application, allowing passengers to simply tap their smartphone, putting passengers
in contact with drivers and call a vehicle at their location (Uber 2016). Drivers are
contracted by application and must satisfy requirements of age, health, have the
ability to drive and pass a background check. Both a smartphone device and vehicle
may be leased under the Uber business model. Uber accommodates for an array of
consumers through its service lines of Uber X, Uber Assist, Uber Taxi, Uber Black,
Uber Lux and Uber SUV (Uber 2016).

Can taxi industry reasonably argue that Uber should NOT be allowed to
operate.

The emergence of a sharing economy has seen the taxi industry decline rapidly in
the last two years, prompting an immediate response by the taxi industry to lobby
against the legalisation of ride-sharing (Law and Ma 2015). A SWOT and PESTE
analysis of the NSW taxi industry espoused in this business case analysis contends
that while the legalisation of Uber changes the level playing field between traditional
cabs and hailing apps, the co-existence of cabs and Uber will produce a more
competitive industry and consequently drive incentive for operational efficiency. It is
noted by Business and Industry Portal (2014) that while the SWOT analysis is
effective at identifying factors affecting the business, it does not address uncertain or
two-sided factors, particularly where changes in the external environment is
internalised as a strength or weakness for the industry and thus the PESTE model is
integrated into the analysis.

The innate rigidity of the taxi industry arises from stringent regulations, resulting in a
competitive weakness against its hailing incumbents. Taxis are subject to fixed rates

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and a licensing fee of up to $400 000 (Wood 2015). With no regulatory costs annexed
to Uber vehicles in NSW, it is arguable that Uber should not be allowed to operate
due to unlevelled playing fields, making Uber more price competitive. Deloitte
Economics (2016) supports that Uber is, on average, 20% cheaper than equivalent
taxi fare. Cheaper costs entice consumers to switch from taxis to ridesharing, posing
an unfair advantage for Uber. The opening of unregulated ride-sharing floodgates
also creates threats for the taxi industry with the influx of services such as GoCatch
and Lyft offering services at a minimal price (Durkin 2016).

Conversely, following NSW legal reforms, drivers for the ride-sharing service are now
subject to a licence fee to drive (Tucker and Thomsen 2015). With ACT’s proposed
fees (including application and accreditation fee) being introduced into the legislative
assembly, the legislative outlook in NSW remains speculative and thus it is
inconclusive whether the high compliance costs of the taxi operation continues to
exist as a weakness against Uber (Deloitte 2016).

Another repercussion of stringent taxi regulations is the operational inefficiency of

taxis. Deep (2015) purports that the inconvenience and wait time of hailing taxis
leads to economic cost for consumers. A study referred to by Lambert (2016) reveals
that consumers waste an extra three minutes waiting for a taxi as opposed to Uber
services, attributed to the inefficiency of roadside hailing and the inherent limitation of
cab booking, where vehicles only come from a single network. By comparison,
Cusumano (2015) argues that Uber is more universally accessible as potential
drivers with individually owned cars are more omnipresent.

Despite inefficiencies, advancement in the technology-savvy milieu do not only avail

ride-sharing platforms. Change in both technological and legal environment present
opportunities to the taxi industry to rectify limitations in its existing system for added
efficiency. This is manifested in the taxi industry’s recent push to launch the app iHail
to drastically reduce the time it takes for a booked cab to arrive. Mannix (2016)
argues that this addresses the issue of cab booking where a cab from an array of
networks can accept the order, enhancing customer experience. Competitive
pressure from Uber has prompted movements to create more efficient practises in
order to retain market share.

Further opportunities for the taxi industry may arise in areas of new vehicle
technologies and use alternative fuels. McPeak and Guo (2014) notes that with green
becoming a socio-cultural trend for industries, stakeholders have paid increasing
attention to corporate social responsibility. Local jurisdictions are moving to hybrid
taxis while most taxis in large cities have converted to operate on LPG/petrol systems
for years, reducing carbon footprint for taxis (The Australian Taxi Industry Association
2010). A combination of savings with LPG and hybrid technology will prove to be cost
effective for taxi operators to compete with the Uber market, which remains
unregulated.

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One of the core strengths that taxi services provide is the assurance of safer
services. Authorised taxi networks maintain call centres to monitor the safety of
drivers and passengers. Taxis are fitted with a camera and duress alarm, which
allows drivers to alert authorised networks and generate emergency responses if
required (Deloitte 2013). The taxi industry contends that Uber vehicles, which are not
authorised, gives rise to safety concerns, particularly in light of reports of drivers
sexually assaulting women and thus should not be legalised (Danielson 2015). While
it holds true, it is arguable that the digital trail of every transaction ensures safety as
Uber removes anonymity, reducing the incentive to commit crime (Cain 2016). Safety
measures implemented such as share my ETA feature allow riders to share their
journey in real time with friends and family, combating the safety argument.

Stakeholders that win or lose from this change?

Shareholders

There is ample circumstantial evidence on the damage Uber has caused to taxi-
affiliated Cabcharge, with the stock declining by over 50 percent since November
2012 (McDuling 2016). Uber legalisation has prompted NSW to reform regulations,
cutting surcharges paid on taxi rides by half, damaging Cabcharge’s financial
performance. In light of increasing pressure by local taxi booking apps such as
goCatch, this may have a drastic impact on shareholders of Cabcharge.

Customers
The shift of the industry from a monopoly to oligopoly has increased competition,
driving incentive for cheaper and efficient consumer experiences. With the eminence
of sharing economy, the use of digital platforms to connect driver partners and riders
lowers transaction costs between buyers and sellers. Ride-sharing legalisation offers
differentiated services to traditional players (i.e. Uber Lux, Uber Black). The
facilitation of bidirectional rating system provides more efficient decision making by
consumers and service-providers as riders and drivers are invited to rate their
counterpart, encouraging good service. Deloitte (2016) contends that ridesharing
may also improve the ability to efficiently match consumers and sellers, connecting
people at the right time in the right place.

However, despite contentions that the competitive pressure will deliver cheaper
options, News (2016) argue that the dynamic pricing model of Uber where price is
determined by market forces implies that consumers will potentially be charged
higher prices during peak times, as seen from New Year’s Eve statistics, negating the
cost benefit argument.

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Employees
The number of contractors on the Uber platform is substantial in comparison to the
taxi industry with more than 45% of the jobs coming from the suburbs with high rates
of unemployment (Burke 2015). UberX drivers can benefit from flexible working
hours, particularly to supplement their income and avoid underemployment. In
addition, employees are entitled to 80% of fares, avoiding bailment licensing and
administrative fees for taxis. To enhance Uber’s economic contribution, Uber
announced partnering with Enabled Employment to encourage people with
disabilities to apply to drive on the uberX platform (Deloitte 2016).

However, accompanied with rising employment is the market saturation. With cuts
made to Uber prices, in particular UberX, contractors who have to compete with a
large influx of drivers frequently earn below the minimum wage. The claim that
drivers are contractors not employees also negates any claim for mandatory
minimum wage, forcing drivers work extended hours in order to sustain living (Price
2015). This employment disenfranchisement also leads to issues of lack of union
protection in addition to Uber’s centralised control over pricing (Witt, Suzor and
Wikstrom 2015).

REFERENCES

Burke, L. 2015, ‘Uber Driver Numbers Reveal Impact on Taxi Industry’, News, 10
August, viewed 20 April 2016,
<http://www.news.com.au/finance/business/travel/uber-driver-numbers-reveal-impact-
on-taxi-industry/news-story/54de1ae603e218fbb048123c7cc08f59>

Business and Industry Portal 2014, Queensland Government, viewed 20 April 2016,
<https://www.business.qld.gov.au/business/starting/market-customer-research/swot-
analysis/benefits-limitations-swot-analysis>

Cain, A. 2016, ‘How to Become An Uber Driver in Australia’, Sydney Morning Herald,
20 January, viewed 19 April 2016, <http://www.smh.com.au/small-
business/trends/the-big-idea/how-to-become-an-uber-driver-in-australia-20160119-
gm8w7l.html>

Cusumano, M. A. 2015, ‘Technology Strategy and Management How Traditional

Firms Must Compete in the Sharing Economy’, Communications of the ACM,
January, vol. 58, no. 1, pp. 32-34, viewed 21 April 2016, Google Scholar, doi:
10.1145/2688487.

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Danielson, T. 2015, Uber Just Formed A Board To Address Growing Safety Concerns
For Its Drivers, Business Insider Australia, viewed 17 April 2016,
<http://www.businessinsider.com.au/uber-forms-safety-advisory-board-in-wake-of-
growing-driver-safety-concerns-2015-11>

Deep, A. 2015, ‘How Uber Works: Insights Into Business & Revenue Model’,
Juggernaut, web blog post, 24 September, viewed 16 2016,
<http://nextjuggernaut.com/blog/how-uber-works-business-model-revenue-uber-
insights/>

Deloitte 2013, The Economic and Social Contribution of the NSW Taxi Industry,
media release, 12 December, viewed 18 April 2016,
<http://www.deloitteaccesseconomics.com.au/uploads/File/DAE%20NSW%20Taxis
%20Final%2012Dec2013(1).pdf>

Deloitte 2016, Economic Effects of Ridesharing in Australia, media release, viewed

21 April 2016, <http://www2.deloitte.com/au/en/pages/economics/articles/economic-
effects-ridesharing-australia-uber.html>

Durkin 2016, ‘GoCatch To Take On Uber, Taxi Industry In Australia’, Sydney Morning
Herald, 22 February, viewed 10 April 2016,
<http://www.smh.com.au/business/consumer-affairs/gocar-to-take-on-uber-taxi-
industry-in-australia-20160222-gn017i.html>

Lambert, O. 2016, ‘A New Report Explores the Benefits of Uber’, News, 1 February,
viewed 21 April 2016, <http://www.news.com.au/finance/business/travel/a-new-
report-explores-the-benefits-of-uber/news-
story/5e41687c9bc2614f07015f85eb784f7f>

Law, J. and Ma, W. 2015, ‘UberX are Cheap Copies of Taxis, Industry Group Says’,
News, 25 March, viewed 20 April 2016,
<http://www.news.com.au/finance/business/travel/uberx-are-cheap-copies-of-taxis-
industry-group-says/news-story/c506f5e85724a10dca3d9e59fb59b5c5>

Mannix, L. 2016, ‘All Hail iHail: Will This Taxi App Be the Uber Killer Australian Cabs
Are Driving For?’, Sydney Morning Herald, 22 March, viewed 10 April 2016,
<http://www.smh.com.au/national/all-hail-ihail-will-this-taxi-app-be-the-uber-killer-
australian-cabs-are-driving-for-20160322-gno7jc.html>

McDuling, J. 2015, ‘The Uber Effect: What It’s Like to Have Your Business Ripped
Away From You’, Sydney Morning Herald, 7 September, viewed 20 April 2016,
<http://www.smh.com.au/business/markets/the-uber-effect-what-its-like-to-have-your-
business-ripped-away-from-you-20150906-gjgibi.html>

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McPeak, C. and Guo, Y. 2014, ‘How the “Go Green” Trend Influences the Automotive
Industry Financial Performance’, Journal of Sustainability and Green Business, vol. 2,
no. 1, pp. 1-12, viewed 15 April 2016,
<http://www.aabri.com/manuscripts/141953.pdf>

News 2016, ‘Uber Users Share Their Price-Surge Horror New Year’s Eve’, News, 5
January, viewed 10 April 2016,
<http://www.news.com.au/finance/business/travel/uber-users-share-their-pricesurge-
horror-stories-from-new-years-eve/news-
story/27db8a49e318b199e44c635780883f91>

NSW Taxi Council 2014, NSW Taxi Council, viewed 16 April 2016,
<https://www.nswtaxi.org.au/structure-nsw-taxi-industry>

Price, A. 2015, ‘Uber Drivers Who Claim to be Earning Below Minimum Wage
Preparing to Fight Back’, Courier Mail, 7 December, viewed 20 April 2016,
<http://www.couriermail.com.au/news/queensland/uber-drivers-who-claim-to-be-
earning-below-minimum-wage-preparing-to-fight-back/news-
story/5f04f412776dcd2f2168a576ba74dc1b>

The Australian Taxi Industry Association 2010, Implementation of Alternative Fuels

Taxation Policy Discussion Paper, The Australian Taxi Industry Association, viewed
20 April 2016,
<http://archive.treasury.gov.au/documents/1953/PDF/Australian_Taxi_Industry_Assoc
iation.pdf>

Tucker, H. and Thomsen, S. 2015, The NSW Government Is Giving the Taxi Industry
$250m In Compensation After Legalising Uber, Business Insider Australia, viewed 17
April 2016, <http://www.businessinsider.com.au/nsw-is-about-to-say-yes-to-uber-
2015-12>

Uber 2016, Uber, viewed 20 April 2016, <https://www.uber.com/drive/>

Witt, A., Suzor, N. and Wikstom, P. 2015, ‘Regulating Ride-Sharing in the Peer
Economy’, Communication Research and Practice, vol. 1, no. 2, pp. 174-190, viewed
18 April 2016, Taylor Francis Online, doi: 10.1080/22041451.2015.1048041.

Wood, A. 2015, ‘Uber Legal in NSW, Taxi Owners To Be Compensated’, Daily

Telegraph, 18 December, viewed 19 April 2016,
<http://www.dailytelegraph.com.au/news/nsw/uber-legal-in-nsw-taxi-owners-to-be-
compensated/news-story/ac75ae856b9963c847a9d528e92a70f4>

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