Why Has SMRT Corporation Ltd Entered The Private Hire Car Business?

SMRT Corporation Ltd (SGX: S53) mentioned in its latest annual report that one of its strategic directions in FY2016 (fiscal year ended 31 March 2016) for its taxi business is to grow its taxi fleet from a size of 3,500 taxis back then.

But interestingly, SMRT announced a few days ago that it has launched a private hire car business in Singapore and had entered into an “exclusive one-year partnership with ride-booking plaform GrabCar.”

This move might cannibalize SMRT’s taxi business, so why do it? I believe that this is SMRT’s way of saying, “If you can’t beat them, then join them.”

Greenlight for ride-booking

Recent developments suggest that private hire taxis, the business GrabCar is in, are increasingly being accepted by the government of Singapore. Earlier this month, the Ministry of Transport had introduced the Private Hire Car Driver Vocational Licensing (PDVL) framework, which would be put in place by the first half of 2017.

It’s hard to get quality data. But there are many people in Singapore who believe that private hire taxis have cheaper fares than traditional taxi services. GrabCar has even advertised fixed prices for its services.

It remains to be seen if private hire taxi fares would increase for passengers when the PDVL kicks in. But, the authorities have also made it relatively easy for holders of taxi licenses to convert to the PDVL – drivers just need to attend a two-hour course.

Best of both worlds

By setting up a private hire car business, SMRT is now exposed to both the traditional taxi business as well as the burgeoning private-hire taxi business. It will be interesting to see how ComfortDelGro Corporation Ltd (SGX: C52), which is the largest taxi operator in Singapore, responds.

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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 contributor Ong Kai Kiat does not own shares in any companies mentioned.