A Change For Taxi Companies Is On The Way

Earlier this week, the Land Transport Authority of Singapore (LTA) had announced some new rules that concern drivers of ride-hailing app makers such as Uber and GrabCar.

For the drivers in question, they would have to get themselves a Private-Hire Car Driver’s Vocational License (PDVL) by the first-half of 2017 if they wish to continue operating. Meanwhile, the cars of those drivers would also need to be registered with the LTA and obtain a tamper-evident decal that must be displayed.

Applicants for the PDVL have to complete a 10-hour course and pass a few tests. On top of that, there is a three-refresher course every six years. So, there are clearly more hoops now that drivers of ride-hailing companies must jump through.

But, it would be a good step forward in the overall public transport system, given that the moves are designed by the LTA with the thought in mind of providing better protection for commuters’ interests and safety.

The new ruling also allows some exemption for current taxi drivers. Registered taxi drivers can easily convert their existing taxi licenses into a PDVL by attending a two-hour briefing on regulations.

Impacts to current taxi companies

There are currently two prominent companies in Singapore’s stock market that provide taxi services and they are Comfortdelgro Corporation Ltd  (SGX: C52) and SMRT Corporation Ltd  (SGX: S53).

The new regulations by the LTA would help in creating a more level playing field for traditional taxi companies and ride-hailing app makers. But, the regulations also mean that the authorities are allowing the new services to stay. What this means is there would likely be stronger competition going forward in the public car transportation sector in Singapore.

As the provision of taxi services are significant contributors to the bottom-line of both Comfortdelgro and SMRT, it would be interesting to see how they handle this new environment. It’s an important challenge, given that traditional taxi operators face the possibility of losing both their customers and their drivers to ride-hailing companies.

More than cost at stake

In the fight for passengers between traditional taxi operators and ride-hailing companies, I don’t think it’s just the cost of a ride that matters.

Having being a passenger of both traditional taxi services and cars hailed from ride-hailing apps, I see one key difference in the management philosophy between the two types of companies. And, that could be one of the key differentiating factors – other than cost – for a consumer when choosing between the two.

For traditional taxi companies, this how their feedback usually works:

  1. A passenger experiences poor service from a taxi driver
  2. Passenger complains to taxi company
  3. Taxi driver gets reprimanded

It is what I call the “blame and punish” model.

But, when it comes to ride-hailing apps, there is direct feedback between drivers and commuters right after each journey. So, both the driver and the commuter would be ranked according to their service and attitude, respectively.

With a proper ranking system, commuters and drivers have the choice of only dealing with “high-ranking” individuals. This – what I call the “praise and reward” model – might be more beneficial for both drivers and commuters as it gives a more predictable and transparent experience for each journey.

Foolish Summary

If incumbent taxi operators want to successfully navigate the business threats that are posed by ride-hailing companies, it’s likely they’d have to look at more than just the cost that commuters are paying for a ride.

Intangible factors such as the feedback mechanism can also potentially influence commuters’ choice when choosing their mode of transport. It’s more than just cost at play here.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn't own shares in any companies mentioned.