ComfortDelGro Corporation Ltd (SGX: C52), or CDG, is a land transport conglomerate with a total fleet size of around 42,300 buses, taxis and rental vehicles. CDG operates in seven countries – Singapore, Australia, the United Kingdom, China, Ireland, Vietnam and Malaysia.
Singapore’s Parliament announced on August 6 that commuters can look forward to a new formal licensing regime which will allow the authorities to mandate safety standards for ride-hailing companies and to act against any breaches. This is the first time that the ride-hailing industry is being regulated since companies such as Grab and Uber Technologies Inc (NYSE: UBER) burst onto the scene six years ago. Though Uber has since pulled out from Singapore, Indonesian start-up Go-Jek has taken its place in a big way and started to offer ride-hailing services recently.
The licensing scheme
There will be two licenses offered: one for street-hail operators and one for ride-hail operators. Street-hail operators are the current taxi companies such as CDG, while ride-hail operators consist of companies such as Grab and Go-Jek. Operators with at least 800 vehicles on their platform need to apply for a license, and operators may be allowed to hold two licenses. The aim of this exercise is to introduce some semblance of control to regulate fares and to set standards for all players to follow.
Public Transport Council to oversee fare adjustments
As part of the licensing scheme, the Government will put street-hail and ride-hail fares under the purview of the Public Transport Council (PTC). Though taxi fares are currently not regulated (unlike bus and MRT fares), taxi operators must inform the council if they wish to adjust fares. Such rules currently do not apply to ride-hail operators, which means they are free to set prices as they wish.
Operators such as Grab and Go-Jek have been known to offer aggressive discounts on their fares in order to encourage sign-ups and to make customers switch. Once the licensing scheme is active, these players have to justify their fare structures and also need to inform PTC if they are going to tweak the formulae. This will cover instances such as “surge pricing” when pricing is inflated due to the higher demand for rides during peak periods.
Source: Straits Times Article dated August 6, 2019
The Straits Times performed a comparison of point-to-point commutes for the various ride-hailing companies against CDG. It can be seen that in most instances (except for the 8:45 a.m. scenario), fares for CDG (either app or call) are higher than Grab and Go-Jek. This could be due to discounted pricing implemented by the ride-hail operators that undercuts CDG and creates an uneven playing field, as those operators have venture capital money to spend.
Licensing is positive for CDG
The plan to license the ride-hailing industry will be positive for CDG’s taxi division. Firstly, more transparency and control over fare-setting by the PTC will discourage ride-hailing companies from implementing irrational and aggressive pricing that is unsustainable for the whole industry.
Secondly, it also introduces a set of standards, procedures and protocols for all players to follow, creating a more level playing field. As CDG is already a mature business with the knowledge and know-how to uphold standards of quality and consistency, this is to its advantage as it will force its competitors to also adhere to the same rules.
Investors can thus look forward to a more favourable environment for CDG’s taxi business once the licensing scheme is in place.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.