Trans-Cab Slashes its Taxi Rental Rates: What Will ComfortDelGro Corporation Ltd Do Now?

Last week, the Straits Times reported that Singapore’s second largest taxi operator, Trans-Cab, had slashed its taxi rental fees starting from 1 January 2017.

According to the Straits Times, Trans-Cab had cut its rental rates by between 22% and 34%. The lower rates apply only to taxi drivers who operate their taxis alone.

The Straits Times article also pointed out a number of reasons for Trans-Cab’s decision. Jasmine Tan, Trans-Cab’s general manager, mentioned competition:

“Because of the competition from Uber and Grab, the taxi drivers’ incomes have been affected.”

From Trans-Cab’s words and action, it seems that competition from Uber and Grab – both are ride-hailing apps – has gotten a lot stronger since they’ve appeared in Singapore’s shores.

The paradigm shift

The Straits Times also mentioned Trans-Cab currently has 500 taxis out of its fleet of 4,500 that are sitting idle. The two figures (Trans-Cab’s lower rates and fleet size) could be pointing out two important things regarding Singapore’s taxi market.

Firstly, the move to slash taxi rental rates could be in response to the lower rates it takes for drivers to rent a car to provide transport services on Uber and/or Grab. The aforementioned news article noted that rental firms are offering cars for as low as $60 per day. As part of Trans-Cab’s rental rate reduction, its daily rental for a Toyota Wish taxi had been slashed by 34% from $90 to $59.50.

Secondly, although Trans-Cab might have the second largest taxi fleet in Singapore at 4,500 taxis, this pales in comparison to Singapore’s leading taxi operator ComfortDelGro Corporation Ltd (SGX: C52). As of end-2015, ComfortDelGro had a fleet size of almost 17,000 taxis.

But here’s the thing: Uber and Grab is estimated have a combined fleet of 25,000 private-hire cars. So, the two ride-hailing apps are huge competitors to traditional taxi operators such as Trans-Cab and ComfortDelGro.

How now, brown cow 

ComfortDelGro has been implementing measures to counter the popularity of ride-hailing apps such as Uber and Grab. For instance, the company mentioned in its latest 2015 annual report that 90% of its successful call bookings were automated. That said, the move by Trans-Cab is almost certain to raise questions on what ComfortDelGro will do in response.

If ComfortDelGro struggles to hire new taxi drivers, or if customers shift their rides to Uber and Grab instead, the company would be forced to respond in some way.

History could be a guide here. In 2003, ComfortDelGro provided a $10 daily rebate to its taxi drivers when there was a reduction in tax rides in Singapore due to the outbreak of SARS (severe acute respiratory syndrome). That particular rebate amounted to a 12.5% cut in rental rates back then.

It has to be said that SARS was an episode that eventually passed. The heightened competition and new pressure to cut rental rates, in this case, might stay on for much longer.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.