Trade Split on Taxi Fares

05/01/2010

Supply and demand, margin and volume: how best do you set pricing to maximize profitability?  These are the age-old issues which every business must address and of course the taxi trade is no different really.

You could argue that, in some ways, the taxi industry and in particular hackney taxis are different, in that most pricing is determined by an official fare tariff.  So, in terms of pricing at least, one hackney taxi operator is not directly competing against another.  However the level at which taxi fares are set overall is something which clearly has a huge impact on earning potential for the taxi trade as a whole.

Hard Times

The current economic climate has, inevitably, thrown the question of taxi fare tariffs into even sharper focus than usual.  And - as cabbies struggle to make ends meet - different views are emerging amongst the trade on whether it’s better to increase fares to meet rising costs or keep them down to attract more customers.

Taxi fares in London, for example, increased by 3.4 per cent last year.  Transport for London announced the increase in order to help drivers maintain their earnings and cover increased operating costs.  The Transport for London Board approved the new taxi fares following consultation by the Public Carriage Office with the taxi trade and others, including London TravelWatch.  This followed a similar arrangement that was approved in July 2008 to help drivers meet costs if the price of fuel rose beyond a certain level. This level was not reached in 2008/09 so the additional charge was not applied.

Unhappy taxi drivers in South Staffordshire petitioned their council for a sixty per cent increase in fares last year.  Drivers asked for the increase, saying they are struggling to make ends meet because of a huge rise in overheads.  These included the cost of fuel and licensing fees charged by the council since the last fare rise, way back in 2001.

At the opposite end of the spectrum a pricing war has broke out between private hire firms in Hyndburn, Lancashire, which saw some fares slashed by half.  The council has no powers to set a minimum fare for private hire vehicles, meaning that prices are completely subject to competition. 

Taxi Price War

Mohammed Ishaq, owner of Central Cabs and A&B taxis, which both cut fares, told the Lancashire Press: “Of course we’re not making much money charging such low fares but we don’t have much choice”.  All of this activity, of course, has an indirect effect on public hire taxi business as well.

In Southampton a trade association requested a ten per cent hike in taxi fares after balloting all hackney drivers in the city.  The Southampton Hackney Association (SHA), which has 120 members, cited business costs including insurance, fuel servicing, docks permits and licenses as reasons for their request.  161 responses backed the fare increase from a survey issued to 480 drivers and proprietors.  Southampton Council agreed to consider the fare increase request.  

The cost of taxi journeys in Cambridge increased by 20p after the council’s licensing committee agreed to raise the initial pick-up charge for passengers from £2.20 to £2.40.  However, plans to increase the distance and time tariffs by 3.4 per cent were scrapped in light of the new levy and a 40p pick-up charge increase was also rejected. 

The increased pick-up charge – or “drop price” – was a departure from the council’s previous policy of tracking the percentage increase agreed for London cabs, which was 3.4 per cent this year.  Taxi union representative David Wratton, from Cambridge City Licensed Taxis Ltd, said the switch to increasing drop prices would benefit drivers and passengers, who might be deterred from taking longer trips if fares were increased on a per-mile basis.

Taxi Fares - What is the Right Answer?

So the debate continues. Should fares be frozen or even cut in order to encourage the increasingly hard-up public to keep using taxis?  Or should fares go up to give taxi drivers and operators a decent reward for each fare they take from A to B? 

Safe to say, there's no perfect answer and taxi operators and taxi licensing authorities around the country will continue to take differning views as they grapple with this thorny question over the year ahead.