Why Uber And Lyft Rides Got So Expensive

If you've taken an Uber or Lyft recently, have you noticed anything different? Prices. You know, Jim, and I mean, we've all experienced this lately. There seems to be a bit of a driver shortage. Good. And the prices are exorbitant. The cost of a ride from a ride-sharing app like Uber or Lyft increased 92 percent between January 2018 and July 2021. Many riders also noticed an increase in wait times for

rides

. So what's behind this change? For us, the big problem is that the supply of drivers is still quite limited. As of early July 2021, Uber and Lyft drivers were approximately 40 percent below capacity.

Companies have taken notice and are investing millions in bonuses and base rates to convince drivers to return. While companies have been spending a lot of money to incentivize drivers to return to the platform, you've spoken to many drivers who say it's not really having an effect. Uber is still considered an unprofitable company, and Lyft recently achieved profitable status when considering its adjusted EBITDA. Profitability was an issue for these companies even before the pandemic, calling into question the effectiveness of their business models. It's hard to see these companies becoming profitable, but CEOs have promised that they would reach that adjusted EBITDA profitability measure in the coming quarters, and Lyft actually delivered.

The question is whether they can sustain it. To turn things around, these ride-sharing companies may have to do even more to convince drivers to return. I would say that companies don't really see us as human beings and simply consider us lucrative. The pandemic hit almost all industries hard. Uber and Lyft were no exception. Ben Valdez, a driver and member of the group Rideshare Drivers United, remembers what it was like at the beginning of the pandemic. As everything shut down in early March, demand dropped dramatically. And I'm talking, you know, I usually used to make like $100 to $150 a night.

Once everything started to slow down, I was making... I think it was about $85 for 12 hours. So at that moment I said, you know what? I'm going to take a break. And many other drivers took the same path. First of all, in the case of

rides

haring, obviously the decline in mobility was a shock to many of the drivers who need it for their income. Sure, and it was trips to the airport, trips to work, it was just general mobility. And so I think it's kind of a sudden drop in demand. And then you add to that, once demand started to recover, the idea that, you know, was it safe for drivers to drive around passengers?

I think there was anxiety around that as well. In fact, many drivers opted for food delivery. I was making the IV drive 150 to 200 miles a day to make $100 to $120. And then I got into InstaCart and DoorDash, Amazon Flex, and I was driving like a quarter mile and making $200 a day easily. It was a bit of a gold rush for drivers who couldn't transport passengers during the pandemic. While Uber's ride-sharing revenue decreased 43 percent between 2019 and 2020, its delivery revenue increased 179 percent. There are investors and there are Wall Street analysts who have said that Lyft and Uber are, you know, these big reopening plays and that Uber is covered because it now has this food delivery plus ride-sharing business.

So if the economy reopens, it will be well positioned. If we see the rise of the Delta variant, your food delivery business would be well positioned. We win both ways and remain relevant to the consumer, whether they want things delivered to their home or whether they want to go out, whether to a party, a restaurant or work. Rideshare drivers continue to be the bread and butter of these companies. Uber may have seen a sharp rise in delivery revenue in 2020, but mobility, the term Uber uses for its ride-sharing business, earned significantly more than its delivery business in the same year.

Uber said it was spending, I think, $200 million on incentives for drivers. And you really saw that impact your core business in terms of adjusted EBITDA profitability and your bottom line. They lost a lot more money than Wall Street expected. We are investing to make the experience of our consumers and passengers better. And we can actually reduce some of those prices as supply changes and balances out. Uber's website says drivers earn between $22 an hour in cities like Orlando and $37 an hour in cities like New York. Lyft has a long list of incentives and bonuses for drivers. The minimum driver income was a very good barometer for us to try to understand how aggressively they are trying to attract drivers.

Right, and there are a number of other incentives that they use for drivers. They will give the driver a bonus for driving in a specific area. They will call it a hot zone. Well, they will tell you that if you do an incremental trip you will get this extra bonus. But for us, the minimum income was a good way to summarize everything that was happening in a single number. But for those still making a living, or at least trying, from ride-sharing platforms, the companies don't offer enough. Look how they treat us. Don't be scared, guys. We pay your salaries, damn it.

You know we are all drivers, right? You know we are all drivers, right? 60 cents per mile, driving, is not an adequate rate. You know, at a dollar or a dollar fifty a mile, I'd say people would be happy. There are also some transparency issues in terms of how much drivers actually earn and in which markets and where that imbalance occurs. It's hard to say exactly how much sense an Uber or Lyft driver makes; The amount would be different depending on location, frequency of travel and other factors. There is a base salary for drivers that differs from city to city.

The full fare is calculated from the distance of the trip and the amount of time the trip took. Uber and Lyft take their share of this calculation. In the second quarter of 2021, Uber's ride acceptance rate was around 19 percent. But some drivers say that's not what they see. Then they began to charge most of the fare. And that's how Lyft has now achieved profitability at the expense of drivers. Drivers can keep tips and bonuses, but for some drivers, bonuses can seem like too much of a game. An example would be that right now, during peak hours, they offer between $15 and $18 for every three rides you take.

The problem is, because there is such a shortage of drivers, you now have to drive 20 minutes to pick someone up and potentially earn 3-4 dollars. Many of these incentives are games and are designed to make people think they are making money from them. The driver shortage calls into question the ride-sharing business model and whether it is sustainable. In many of these companies, the playbook was the same: spend big, grow fast, pay people as little as possible and expand service, drive competitors out of the market, establish market dominance, and then raise prices. And now we are seeing the last phase of that strategy.

And now those competitors, in many cases, failed to do so. New York City lost more than 10,000 yellow cab drivers from January 2015 to January 2020 before the pandemic, when Uber and Lyft were growing rapidly. Back then, rideshare companies subsidized the price of rides with promotions, discounts, and even simply reduced the cost of rides to attract new customers. It was a heavily promotional environment, and part of that was trying to drive market share, was trying to push people to try and fix and understand how these products work. To me, it's no different than trying something at Costco. Well, I mean, you try it and hopefully, if you like it, you become a customer for life.

And it was a cost associated with that sample. So the capital raised by these companies went in part to making rides more affordable and ensuring drivers were happy with their compensation. But now that Lyft and Uber are public companies, they have to worry more about making profits. You can't compete as a normal company with a startup that, you know, basically pays dollars for ten cents. And that is why many of these competitors have already left the market. And that's why there aren't many options left. You have to pay the higher fees or just give up the service altogether.

And some investors are eager to hear what solutions Uber and Lyft come up with. I mean, it's a key part of the business, right? This is a platform that is based on connecting drivers with passengers. So there is no business if there are no drivers. You know, what's interesting is that there seems to be a bit of a battle between the two companies. So, you know, you can go into a geography and turn on your Uber app and not see any cars, turn left and see a bunch of cars and vice versa. So I think there is still a very competitive and liquid market for these drives that should normalize over time.

Uber declined to comment for this story, but did provide CNBC with some of the information contained in this story. And Lyft said we've added thousands of drivers to the platform and expect passenger wait times and prices to improve in the future. Both Uber and Lyft know how important drivers are to their businesses. We are increasing incentives to get drivers back on the road. Drivers earn more per hour and typically in some markets all-time highs range from thirty-five dollars to forty dollars in major markets. The question is: can they make peace with the driving community who even before the pandemic were unhappy with the companies and convince them to return?

Over time, we'll see some of that balance where I think we'll see drivers doing combinations of things; They can share rides, they can make food, they can deliver packages. You know, I think there are ways that rideshare companies have found that adding more volumes to the network, having different types of volumes, and particularly packages, can help better optimize the economics for both the driver and the driver. . as well as for the ride-sharing company. There are so many signs that help is needed. And yet, there is a tremendous mismatch between what the aid wanted and what people want to do.

And to get drivers, they will have to pay them more.