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ACRP 01-35: TNCS: IMPACTS TO AIRPORT REVENUES AND OPERATIONS AUGUST 19, 2019 FINAL DRAFT DELIVERABLE Reference Guide | 2-1 | Transportation Network Companies â Overview 2. TRANSPORTATION NETWORK COMPANIES â OVERVIEW This section outlines the history and development of TNCsâthe initial concepts, their reliance on application (app)- based mobile technology, and the evolving business models with the ongoing challenges to profitability. The section concludes with a discussion of TNC impacts on airport revenues and operations.4 It is important to highlight that the TNC landscape continues to rapidly evolve. For example, since the start of the research, airport operators have modified curb operations by shifting TNC passenger pick-up and drop-off to alternative locations, such as nearby garages; rematch has emerged as an important management tool that provides passenger wait-time benefits and reduces âdeadheadâ trips; and the two major TNCs have completed their Initial Public Offerings (IPOs). This section presents a discussion of TNC: ï§ Emergence and development ï§ The evolving business model ï§ Impacts on airport revenues and operations 2.1 EMERGENCE AND DEVELOPMENT OF TRANSPORTATION NETWORK COMPANIES The sudden and unexpected surge of app-based ride services, like Uber and Lyft, in the early 2010s has a backstory that helps explain why they continue to experience rapid growth, and it points to how their services are likely to evolve in the future. The market for exclusive-ride, curb-to-curb service was expanding well before the early 2010s. After declining in the 1960s and 1970s, taxi industry revenues experienced growth beginning in the 1980s, which continued in subsequent decades, spurred by the revitalization of major American cities. Major cities, like New York City, Chicago, Boston, Los Angeles, Minneapolis, Atlanta, San Francisco, Las Vegas, and Seattle, expanded their taxi fleets during the 1990s to meet rising demand due to population growth and economic revitalization. Even with this growth, taxi services remained concentrated in the core of major cities and at airports. It was often difficult to get a taxi in outlying neighborhoods, or to know how long the wait might be when telephone requests were made. Even in certain large cities (most significantly San Francisco) there were severe shortfalls in taxi availability. A 2013 San Francisco study found that only 49 percent of residents who called for taxi service were picked up within 15 minutes, and 18 percent waited over 30 minutes or were not picked up at all. Cities like New York City, Miami, Los Angeles, San Francisco, and Boston began to see a combination of premium black-car services and unlicensed taxis emerge to fill the gaps left by a lack of taxi services. New businesses could, in most cities, be licensed as sedan companies; however, it was difficult to enter the market due to the shortage of drivers available to provide services. Licensing and auto insurance requirements for sedan service also made it difficult for new companies to get started. 4 The Annotated Bibliography (Appendix A) summarizes over 60 publications that can be accessed for additional information on TNC operations, other research, policy development, and urban mobility services.
ACRP 01-35: TNCS: IMPACTS TO AIRPORT REVENUES AND OPERATIONS AUGUST 19, 2019 FINAL DRAFT DELIVERABLE Reference Guide | 2-2 | Transportation Network Companies â Overview Market forces and regulations also played a role in the evolution of TNCs. Cities that controlled taxi supply through the use of medallions restricted competition and distorted market forces. A recent article in Bloomberg5 argued that the poor service offered by taxis fostered the rapid rise of ride-hailing. Moreover, the local and fragmented structure of the taxi and for-hire industry made it difficult for companies to attract new businesses into the market. Companies like 1-800-TAXICAB attempted to provide a single point-of- contact for taxi companies in their networks, but they were met with limited success providing an opportunity to companies that could harness the efficiencies offered by smartphone technology and provide taxi-like services. Uber and Lyft, which have become dominant TNCs, both pursued this opportunity only after another company, Sidecar, showed its market potential. The first company to offer local trips using nonprofessional drivers was Sidecar, which began beta testing in San Francisco in February 2012.6 Uber offered local trips using California Public Utilities Commission (CPUC) authorized drivers in 2010, but it experienced slow growth due to higher fares. Sidecarâs business model was different. It sought to build a "transportation social network" where smartphone users could "hitch a ride" with drivers going to a particular destination. In keeping with this vision, Sidecar's goal was to create a sense of community among users, providing a "fun option for getting from place to place" and reducing congestion. In lieu of a fare, Sidecar suggested a "voluntary donation" to help cover costs. Another company, Zimride, which connected university- and corporate-based travelers and drivers for intercity trips, followed Sidecar into the market for local trips. Like Sidecar, it characterized payments as donations rather than fares to sidestep regulations. The key point is these two services were envisioned as glorified carpools but instead became taxis. Uber had rolled out UberCab in San Francisco in 2010 to connect users to licensed black-car drivers using a smartphone app. UberCab was an explicitly for-hire service, but its premium prices limited its market. As Sidecar and Zimride (rebranded as Lyft) gained popularity, Uber began offering a less expensive service using nonprofessional drivers. As these services grew, the taxi industry and regulators strenuously objected to these companies' evasion of established taxi and sedan licensing, auto insurance requirements, and vehicle regulations. The new companies claimed they were exempt, arguing they were merely technology platforms that connected drivers and passengers. Courts disagreed and issued cease and desist orders in cities across the country that temporarily blocked Uber, Lyft, and Sidecar from operating. As TNCs gained popularity with frustrated taxi riders, authorities were forced to find a way to regulate the new companies and their novel business model. Part of the challenge was to define the service; that is, no one exactly knew what these TNCs were: carpool, car-share, or taxi? A timeline illustrating the expansion of TNC operations and business development is presented on Exhibit 2-1. 5 Ritholtz, Barry, âTaxi Cab Owners and Regulators Created Uber,â Bloomberg, May 4, 2018, https://www.bloomberg.com/view/articles/2018-05-04/taxi-cab- owners-and-regulators-created-uber?utm_content=business&cmpid=socialflow-twitter-business&utm_campaign=socialflow organic&utm_source=twitter&utm_medium=social#footnote-131 (accessed May 11, 2018). 6 San Francisco Examiner, "Need a ride? SideCar helps you catch rides with fellow drivers in San Francisco," June 26, 2012; Fehrenbacher, Katie, "Zimride Launches Mobile Real-time Ride Sharing via Lyft," Gigaom, May 22, 2012; Stone, Brad, The Upstarts. New York: Little, Brown and Company, 2017.
ACRP 01-35: TNCS: IMPACTS TO AIRPORT REVENUES AND OPERATIONS AUGUST 19, 2019 FINAL DRAFT DELIVERABLE Reference Guide | 2-3 | Transportation Network Companies â Overview EXHIBIT 2-1 T IMELINEâTRANSPORTATION NETWORK COMPANIES SOURCE: Personal communications from Lyft and Uber, August 2019; ACRP 01-35, TNCs: Interim Report, March 2019. The CPUC led the way in 2013, creating a lightly regulated category for TNCs, separate from CPUC regulations for sedan companies and municipal regulations for taxis. Unlike sedan and taxi operators, TNCs could conduct their own driver background and vehicle checks and could rely primarily on drivers' personal auto insurance coverage. Most states followed this model over the next several years. State regulations sometimes preempted more restrictive city regulations, most notably in Texas. Houston, Austin, and, at times, San Antonio required fingerprinting as part of background checks for drivers. Uber and Lyft fiercely resisted fingerprinting drivers and lobbied heavily for statewide TNC regulation across the country. In 2016, Massachusetts legislation resulted in a TNC regulation7 requiring a full Criminal Offender Record Information (CORI) check for all TNC drivers. By early 2017, statewide regulation was the norm, with only a few cities (e.g., Austin, New York City, Chicago, Seattle, Portland [Oregon], Minneapolis, and Washington, DC) independently regulating TNCs. However, state legislation typically carved out an exception for airport authorities, which were allowed to regulate access to airport roadways separately from states. (Appendix B provides references related to regulations and permits that govern TNC access to airports.) Offering fast and reliable service, low fares, comfort, and ease of payment, TNCs offered an improved service in urban mobility to many users. They were particularly popular as an alternative to inconvenient or unreliable taxi, bus, and subway services. 8 TNCs also provided a means to avoid the cost of off-street parking, as well as avoid 7 Commonwealth of Massachusetts, Department of Public Utilities, Transportation Network Companies, https://www.mass.gov/files/220_cmr_274_00_final_9-22- 17_1.pdf (accessed May 2, 2018). 8 Siddiqui, F., âFalling Transit Ridership Poses an âEmergencyâ for Cities, Experts Fear,â Washington Post, March 24, 2018; Ori, R., âParking Lots Disappearing in Ride- Sharing Era as Downtown Construction Booms,â Chicago Tribune, March 23, 2018; Flamm, M. and D. Geiger, âUber and Lyft Crushed TaxisâIs the Commercial Parking Industry Next? Crainâs New York, February 21, 2018; Mandle, P. and S. Box, Transportation Research Board, Airport Cooperative Research Program,
ACRP 01-35: TNCS: IMPACTS TO AIRPORT REVENUES AND OPERATIONS AUGUST 19, 2019 FINAL DRAFT DELIVERABLE Reference Guide | 2-4 | Transportation Network Companies â Overview drinking and driving. At airports, TNCs offered an option to the cost and sometimes hassle of airport parking garages and car rentals. As they drew patrons from taxis, buses, subways, and personally driven autos, TNCs' popularity drove down revenues for taxi owners and drivers, transit operators, downtown and airport garage owners, and airport rental car concessions. TNCs utilize efficiencies created by smartphone technology and relaxed regulatory requirements. The algorithms that are used match riders with drivers on-demand to minimize wait times compared to alternate modes. Smartphone apps eliminated the expense of back-office staff and dispatchers and treated drivers as independent contractors, which eliminated the cost of paid leave, health, and disability insurance. Drivers are required to purchase (or lease) and maintain their vehicles and provide auto insurance, saving TNCs from paying these expenses. However, the principal reason that TNCs offer lower fares is because they accept massive losses (supported by venture capital) as a strategy to earn market share, not due to efficiencies or regulatory requirements. Using billions of dollars in venture capital, TNCs can offer fare discounts to passengers and can offer financial incentives to drivers that, together with surge pricing, help ensure drivers are available, particularly for peak periods like rush hour or when bars close late at night. Although Lyft and Uber both began TNC operations in San Francisco in 2012, Uber expanded more rapidly, offering service in 14 major cities by the end of 2012. Lyft caught up with Uber in geographic coverage in the United States after major expansions in 2016 and 2017. Both companies now cover over 95 percent of the U.S. population. (Sidecar went out of business at the end of 2015.) With respect to airports, TNCs quickly emerged as a popular ground access option. The first airport-issued agreement was at Nashville International Airport (BNA) in September 2014, quickly followed by SFO in October of the same year. Although by 2016 TNCs had agreements authorizing operations at about 60 airports, 10 of the busiest airports (including Hartsfield-Jackson Atlanta International [ATL], Orlando International [MCO], Detroit Metropolitan Wayne County [DTW], Boston Logan International [BOS], and Philadelphia International Airports [PHL]) still didnât allow pick-ups unless drivers had a chauffeurâs license or livery plates. The negotiation and acceptance of operating terms and fees continued, with TNCs ultimately entering into agreements with most large-hub airports in North America.9 As of July 2019, Lyft has 368 authorized airport partners in North America. Their agreements come in various forms: the majority (over 220) are in the form of executed permits; the balance is in accord with local ordinances or airport operator actions. 2.2 OUTLOOK This growth has catapulted TNCs into becoming a major part of the overall transportation system. The impact on transit has been of particular concern. Public transit ridership in major US cities has been flat or declining over the past few years. A recent study conducted a longitudinal analysis of the determinants of public transit ridership in major North American cities for the period 2002-2018, segmenting the analysis by mode to capture differing effects on rail versus bus. The research found that standard factors, such as changes in service levels, gas price, and auto ownership, while important, are insufficient to explain the recent ridership declines. The research found that the Synthesis 84: Transportation Network CompaniesâChallenges and Opportunities for Airport Operators, 2017; Rosenthal, B., ââThey Were Connedâ: How Reckless Loans Devastated a Generation of Taxi Drivers,â New York Times, May 19, 2019. 9 McCartney, Scott, âYou Canât Take an Uber Home from These Airports,â Wall Street Journal, July 6, 2016, https://www.wsj.com/articles/you-cant-take-an-uber- home-from-these-airports-1467829592 (accessed August 2, 2019).
ACRP 01-35: TNCS: IMPACTS TO AIRPORT REVENUES AND OPERATIONS AUGUST 19, 2019 FINAL DRAFT DELIVERABLE Reference Guide | 2-5 | Transportation Network Companies â Overview introduction of bike share in a city is associated with increased light and heavy rail ridership, but a 1.8 percent decrease in bus ridership. The results also suggest that for each year after TNCs enter a market, heavy rail ridership can be expected to decrease by 1.3 percent, and bus ridership can be expected to decrease by 1.7 percent. This TNC effect builds with each passing year and may be an important driver of recent ridership declines.10 However, transit agency partnerships with TNCs for first-mile/last-mile connections may work to improve regional mobility, especially when supported by incentives such as free or discounted rides, guaranteed ride home programs, and linked mobile apps. The Future of Mobility White Paper assembled demographic, economic, environmental, and personal travel information from a wide range of industry, state, and business sources and surveys to provide the âstate of the knowledgeâ in support of transportation modeling and policy development.11 The outlook for TNCs is placed within the context of the statewide transportation system, and it summarizes the current market size of the ride-hailing industry, the estimated impacts on vehicle miles traveled (VMT), and the likely effects of TNC growth on the use of other modes, particularly public transportation. Of note is the section discussing the implications of TNC use on mode shifts. Is the TNC trip replacing one that otherwise would have been made on transit, in a personal vehicle, or in a taxi? Or is the TNC enabling a new trip that would not have been made, tapping into latent demand? Citing the results of five surveys conducted from 2014 to 2016, the authors state: Across multiple studies in different cities, researchers find that modal shift impacts due to ridesourcing are city- or region-dependent. Further, their impacts may be changing over time. While some studies conclude that ridesourcing is largely not substituting for public transit trips, several other studies . . . suggest that ridesourcing can compete with public transit and active modes (cycling and walking).12 At the same time, TNCs continue to be scrutinized for their role in increasing traffic in urban areas,13 drawing riders from public transit, impacting the ability of drivers to earn a living wage, and failing to serve the entire population. Although public policy responses to these issues have been quite scattered to date, the pressure to address these issues is likely to intensify as TNCs become an even larger component of the transportation system, and as the introduction of self-driving vehicles draws closer. There are at least five key issues that must be addressed: ï§ Traffic impacts. Several reports released in 2017 found that contrary to their claims of reducing vehicle trips and alleviating traffic conditions, TNCs are adding millions of miles of driving to urban roadways. Traffic impacts are most acutely felt in New York City and San Francisco, but they may also spread to other large, densely populated cities. While an initial attempt to limit TNC growth failed in New York City in 2015, several bills are currently pending in City Council to stem the rapid growth of TNCs in congested Manhattan traffic. A rigorous VMT analysis is hampered by the lack of data from the TNCs; however, the studies suggest there may be VMT increases in these two cities as a consequence of TNC operations.14 10 Graehler, M., Mucci, Richard A., and Erhardt, Gregory D., âUnderstanding the Recent Transit Ridership Decline in Major US Cities: Service Cuts or Emerging Modes?â Paper presented at the 98th Annual Meeting of the Transportation Research Board, Washington, DC, 2019. 11 Shaheen, Susan, Hannah Totte, and Adam Stocker, Future of Mobility White Paper, 2018, https://cloudfront.escholarship.org/dist/prd/content/qt68g2h1qv/qt68g2h1qv.pdf?t=pgra5s (accessed June 17, 2019). 12 Shaheen, Susan, Hannah Totte, and Adam Stocker, Future of Mobility White Paper, 2018, p.49, https://cloudfront.escholarship.org/dist/prd/content/qt68g2h1qv/qt68g2h1qv.pdf?t=pgra5s (accessed June 17, 2019). 13 Erhardt, Gregory D., Sneha Roy, Drew Cooper, Bhargava Sana, Mei Chen, Joe Castiglione, âDo transportation network companies decrease or increase congestion?, Science Advances; 5, 08 May 2019 : eaau2670 14 A brief review of possible VMT impacts is presented in the Future of Mobility White Paper, which notes two recent studies (New York City and San Francisco).
ACRP 01-35: TNCS: IMPACTS TO AIRPORT REVENUES AND OPERATIONS AUGUST 19, 2019 FINAL DRAFT DELIVERABLE Reference Guide | 2-6 | Transportation Network Companies â Overview ï§ Transit impacts. Transit ridership has declined in nearly all large U.S. cities in the past several years, reversing previous trends. Studies have shown that a substantial fraction of TNC users are switching from bus or rail services, making TNCs one contributing factor in transit ridership decline. Transit agencies have responded to this shift by trying to improve their services and by considering how TNCs might complement or replace their services. Transit agencies are currently experimenting with using TNCs as a replacement for low-performing bus routes and as substitutes to costly ADA paratransit services. Transit agencies have also partnered with TNCs to promote their use as feeder services to bus and rail hubs. In addition, several governmental units, including Chicago, New York City, Washington, DC, Las Vegas, Pennsylvania, and Massachusetts, have adopted TNC trip fees with proceeds going primarily to fund transit needs. ï§ Labor impacts. TNCs have greatly benefited from treating drivers as independent contractors; they require drivers to provide the vehicles used to transport passengers, as well as use their personal auto insurance policies, and they avoid paying benefits, such as vacation and sick leave, health, and disability coverage. Seattle adopted legislation, currently being challenged in court, that would allow TNC drivers to unionize, and the city is also considering legislation to set minimum driver wages. Bills in New York City also seek to improve driver incomes. Labor issues may increase if the economy turns down and unemployed workers enter the industry, diluting driver revenues and increasing traffic concerns. ï§ Access for people with disabilities. Advocates for people with disabilities have pushed state and local governments to require that TNCs provide wheelchair-accessible vehicles. Pennsylvania and New York City adopted requirements for TNCs to offer wheelchair-accessible service. Across the United States, dozens of individuals who rely on wheelchairs or guide dogs have filed suit against Uber, alleging the company discriminated based on their disability; the outcome of these suits could affect Uberâs core business model.15 UberACCESS, UberWAV, and UberASSIST are the companyâs responses to this issue.16 ï§ Telephone dispatch. Prospective TNC customers must have both a smartphone and banking relationships to sign up as Uber or Lyft users, to request rides, and to make payments. Some transit agencies have arranged for their dispatchers to take and transmit telephone orders to TNCs as part of partnership agreements. As what occurred over many decades with taxi regulation, there is likely to be a slow accretion of regulation on TNCs in response to particular local problems and constituent concerns. 2.3 EVOLVING TRANSPORTATION NETWORK COMPANY BUSINESS MODELS Understanding the commercial ground transportation business and landscape has always been a key priority of airport landside managers. As discussed in ACRP Report 146, Commercial Ground Transportation at Airports: Best Practices, airport operators develop and evaluate options to manage and operate services consistent with their respective key objectives. In particular, staff are charged with developing permits, as well as monitoring performance. This is done to support the following objectives: ï§ Customer service. Ensure superior service and a range of options. ï§ Labor relations. Maintain uninterrupted service and fair treatment of drivers. 15 Casey, Bryan, âUberâs Dilemma: How the ADA May End the On-Demand Economy,â University of Massachusetts Law Review 12, no. 1, 2017. 16 UberACCESS and UberWAV provide a wheelchair-accessible vehicle. UberASSIST provides additional assistance for seniors and passengers with disabilities.
ACRP 01-35: TNCS: IMPACTS TO AIRPORT REVENUES AND OPERATIONS AUGUST 19, 2019 FINAL DRAFT DELIVERABLE Reference Guide | 2-7 | Transportation Network Companies â Overview ï§ Agreements, permits, and regulations. Ensure operators understand permit requirements, comply with leases, audit requirements, and provide disability access. ï§ Fees and revenue. Establish business arrangements that, at a minimum, allow the airport to recover its costs and potentially increase revenue. ï§ Operations. Monitor activities related to roadway access and curb congestion. ï§ Safety and security. Enforce vehicle maintenance and equipment requirements; ensure operator compliance with training, background checks, and insurance requirements. ï§ Environmental quality. Support regional environmental and sustainability goals. ï§ Data. Collect, maintain, and share information related to dispatches, dwell times, and trip fees. Many of these issues are echoed in the negotiations between the operator of SFO and the TNCs; the operator ultimately accepted and regulated the TNCsâ role in its ground access system.17 The introduction of a new business model that does not fit into legacy ground transportation categories introduces novelty and uncertainty to the commercial ground transportation landscape. An understanding of the TNC business model can help airport operators negotiate agreements that meet policy and operational objectives. However, there is not necessarily a single business model that represents the entire ride-hailing market. Products span a spectrum of services, each with its own value proposition; a single large company, such as Uber or Lyft, might have products at different price points and service characteristics. A search of ride-hailing companies18 identified over 70 businesses providing some type of on-demand for-hire service. Further blurring the landscape are efforts by traditional airport ground access providers, such as SuperShuttle, to incorporate features similar to ride-hailing into their services.19 Just over half of these companies serve the U.S. market; the balance operates only in Asia, Europe, or South America. The ACRP 01-35 Final Report includes a list of companies, including those categorized as âmicrotransitâ and âpeer-to-peerâ (e.g., Turo), reflecting the diverse range of business models and products available. There are three distinct product categories to consider: ï§ Premium products: Uber Black/Uber SUV were the initial product offerings from Uber. These vehicles are typically owned by a company that pays the drivers directly; the driver typically does not own the vehicle he or she is driving. Also, the company uses the TNC application for dispatch and for generating revenue. Before TNCs, these vehicles operated like standard limo/car services. From the driversâ perspective, the only difference is that the app tells them where to go to pick up or drop off a rider. Because there is a formal arrangement, it is logistically easier for airports and other municipal agencies to regulate this category of service. ï§ Peer-to-peer products: With UberX, a private individual uses his or her own car to pick up and drop off riders. The driver signs up with the TNC directly and uses the app to connect with riders. The TNC pays the driver directly, which includes the driver commission (a percent of gross revenue collected from the rider), plus any incentive/bonuses. The driver decides whether they want to be on or off the app, so they may drive 60 hours a week or only a few trips a month. Also, they may drive for years or for only a couple weeks. The âeasy come easy goâ nature of the service makes it much harder to regulate, as drivers are on and off the platform as they please. Also, when they are not on the platform, they can use their car for personal use. It was after peer-to- 17 Eva Cheong, Director, Airport Services ACI-NA CEO Forum, âWhen Technology Disrupts the Airport Business Model: Ground Transportation Impacts,â ACI presentation, February 2015. 18 Ride Guru, https://ride.guru/content/resources/rideshares-worldwide (accessed May 2, 2018). 19 A description of their products can be accessed at: https://www.supershuttle.com/how-it-works/.
ACRP 01-35: TNCS: IMPACTS TO AIRPORT REVENUES AND OPERATIONS AUGUST 19, 2019 FINAL DRAFT DELIVERABLE Reference Guide | 2-8 | Transportation Network Companies â Overview peer services launched around 2012 that TNC volumes increased dramatically, since it was much easier to stimulate driver supply, and the service is much cheaper for the rider. ï§ Shared rides: UberPool and Lyft Shared (formerly Lyft Line) are a subset of the peer-to-peer products where the driver picks up different riders at different points, and the riders may share the ride for different segments of the trip. 20 The driver owns his or her own car and has a direct relationship with the TNC. This product (also called ride-splitting21) enables TNCs to generate more revenue and trip volume with the same number of drivers as standard peer-to-peer. Consequently, the possible impact is much greater on mass transit. Another way to frame it is that UberX competes with taxis, while UberPool mimics certain aspects of traditional transit services. Table 2-1 summarizes the services from Lyft and Uber.22 TABLE 2-1 TRANSPORTATION NETWORK COMPANY MOBIL ITY PRODUCT OFFERINGS (A S O F J UN E 20 19 ) LYFT DESCRIPTION Shared and Shared Saver Shared matches a passenger with others going the same way, so they can split the cost. Price is fixed upfront and always less than a standard Lyft. Lyft Standard service; seating for up to four passengers. XL A âsupersizedâ ride for a larger travel party. Lux A ride in a luxury vehicle. Lux Black and Black XL A ride in a luxury âblack carâ vehicle with a professional driver. XL version provides seating for up to six passengers. Bikes and Scooters Available for local travel in select cities. Transit View nearby ferry, bus, and train schedules in the Lyft app. UBER DESCRIPTION POOL The least expensive option available; shared ride with an option to walk. X Basic option; seating for up to four passengers. XL Basic option; seating for up to six passengers. Select This is a four-door luxury sedan with seating for up to four passengers; professional drivers. Black and Black SUV Uberâs original car service; luxury vehicles with seating for up to four passengers. Jump Bikes and scooters SOURCES: Lyft, Inc., https://www.lyft.com/ (accessed June 3, 2019); Uber Technologies, Inc., https://www.uber.com/ (accessed June 3, 2019). The long-term viability of current TNC business operations has been a source of debate in financial publications, journals, and blogs, including Forbes,23 the Financial Times,24, 25 and Naked Capitalism.26 A comprehensive discussion is found in the Final Report. 20 Other pooled options include microtransit and taxi-splitting models. 21 The Society of Automotive Engineers, Task Force J3163, is preparing a full taxonomy and definitions. 22 While Lyft and Uber are currently the dominant companies, Wingz (originally known as Tickengo) competes in certain markets, especially the West Coast and the Southwest. Wingz serves 21 airports and allows riders to request a specific âfavoriteâ driver; they conduct driver background checks, which include DMV and CORI checks, as well as fingerprinting. 23 Forbes, âWhy Can't Uber Make Money?â December 17, 2017. 24 The Financial Times, LTD, https://ftalphaville.ft.com/2016/12/01/2180647/the-taxi-unicorns-new-clothes/ (accessed April 30, 2018). 25 The Financial Times, LTD, https://ftalphaville.ft.com/2017/08/23/2192709/a-question-about-ubers-fake-valuation/ (accessed April 30, 2018). 26 Naked Capitalism, âUnderstanding Uberâs Bleak Operating Economics,â November 30, 2016; Naked Capitalism, âUnderstanding Uberâs Uncompetitive Costs,â December 1, 2016; Naked Capitalism, âUnderstanding False Claims About Uberâs Innovation and Competitive Advantages,â December 2, 2016; Naked Capitalism, âUnderstanding That Unregulated Monopoly Was Always Uberâs Central Objective,â December 5, 2016.
ACRP 01-35: TNCS: IMPACTS TO AIRPORT REVENUES AND OPERATIONS AUGUST 19, 2019 FINAL DRAFT DELIVERABLE Reference Guide | 2-9 | Transportation Network Companies â Overview According to Forbes, Uber passengers are paying only 41 percent of the actual cost of their trips; Uber is using venture capital subsidies to undercut the fares and to provide more capacity than the competitors who had to cover 100 percent of their costs out of passenger fares. Researchers confirmed this finding:27 TNCs fares on average are much lower than taxis. It may be because they offer lots of promotions to passengers when they first operate in a city, or they can charge lower fares since they have lower operating costs, because they do not have fingerprint- based FBI background checks for their drivers. With time and stricter regulations, we expect TNC fares to be more in line with that of taxis in the future. A recent article on pricing examines two routes to profitability: âWill the extra money come mainly from higher prices paid by consumers or from lower wages paid to drivers?â28 The author concludes that passengers, not the drivers, will likely be the main source of financial improvement, at least for the short term. Using the economic concept of price sensitivity, the authorâs argument is that passengers are not that sensitive to price (i.e., the fare). Citing a recent study of passenger behavior, the article suggests passenger demand is inelastic. On the other hand, drivers respond quickly to changes in price by entering or exiting the market. The article concludes by stating, âBecause drivers are four times more price sensitive than riders, a reasonable guess is that 80 percent of the price burden will fall on passengers, 20 percent on drivers.â If TNCs are currently underpriced, then airport operators must anticipate what would happen to the demand for TNCs if their fares were set equal to more established private modal (i.e., taxi) fares. This could be one result of the recent IPOs: the need to set fares in line with investor expectations. 2.3.1 TRANSPORTATION NETWORK COMPANY PUBLIC OFFERINGS The two most significant TNCs in the United States, Lyft and Uber, recently engaged in IPOs, with the result of transitioning the companies from privately held to publicly held. This has resulted in a significant increase of disclosure of business operations and financial results in connection with the initial IPOs, as well as with subsequent reporting of quarterly financial results. Comparisons are a bit complicated because the general view is that Lyft was too aggressive in pricing its IPO, and Uber used this lesson to later be more conservative. Lyft share price was initiated at 72 and is now 59; Uber share price was initiated at 45 and is now 40. 29 2.3.1 .1 UBER INITIAL PUBLIC OFFERING Uberâs IPO took place on May 10, 2019. The IPO raised $8.1 billion and valued the company at $76.5 billion at its closing price, significantly lower than earlier expectations as high as $120.0 billion. One consequence of the disappointing IPO is that the CEO has eliminated a senior executive position (Chief Operating Officer) and is combining the marketing, communications, and policy teams into one group in order to focus on the companyâs stagnant revenue growth. As recently noted in the financial press, âCentral to Mr. Khosrowshahiâs job now is recharging the companyâs stagnant revenue growth and taming its big losses. Over the past year, Uber has struggled to combat an onslaught of competition in both the United States and regions like Latin America, where well-funded competitors are attempting to steal market share in both ride-hailing and food delivery.â30 27 Hermawan, K. and C. A. Regan, On-Demand, App-Based Ride Services at Los Angeles International Airport. Washington, DC: Transportation Research Board, 2017, http://amonline.trb.org/63532-trb-1.3393340/t002-1.3410428/678-1.3410497/17-01061-1.3410560/17-01061-1.3410561?qr=1 (accessed May 7, 2018). 28 Goolsbee, A., âPath to Ride-Share Profits Begins with Higher Prices,â New York Times, June 2, 2019. 29 Yahoo! Finance, https://finance.yahoo.com/quote (Lyft and Uber closing share prices as of August 9, 2019; accessed August 12, 2019). 30 Brown, E., âTop Uber Executives Out Amid Shakeup,â Wall Street Journal, June 7, 2019.
ACRP 01-35: TNCS: IMPACTS TO AIRPORT REVENUES AND OPERATIONS AUGUST 19, 2019 FINAL DRAFT DELIVERABLE Reference Guide | 2-10 | Transportation Network Companies â Overview 2.3.1 .2 LYFT INITIAL PUBLIC OFFERING Lyftâs IPO took place on March 29, 2019. The IPO raised 2.3 billion and valued the company at $24.0 billion, higher than earlier expectations of $15.0 billion. As of June 7, 2019, the share price had fallen 24 percent since the IPO. 2.3.1 .3 STOCK PERFORMANCE AND ANALYST RATINGS SINCE INITIAL PUBLIC OFFERINGS Stock analyst ratings on both companies were generally âbuyâ or âpositiveâ after the IPOs; however, some of the Lyft ratings have moderated to âneutral.â Most stock analysts view Lyft and Uber as being in substantially similar businesses with significant upside potential. Despite some disappointment with stock price performance following the IPOs, stock analysts remain generally positive on the long-term outlook for these companies and their businesses. There have been varying statements about the potential for profitability, but almost all analysts acknowledge that it will be several years in the future. Therefore, the basis for a âbuyâ rating is the macro market opportunity when the companies get there, and not any notion of current business profitability or cash flow. 2.3.2 RECENT UBER AND LYFT FINANCIAL RESULTS Uber In May 2019, Uber reported a $1 billion loss in the first quarter of 2019, in the first official reporting as a public company after its IPO. The company reported a 20 percent increase in revenue compared to the same period last year and attributed the negative results to increasing competition and the need to offer incentives to drivers and employees. Uber indicated that it plans to use diversification of its business as a strategy and highlighted the 89 percent year-over-year increase in revenue from its food delivery business Uber Eats. Uber reported a second quarter (2019) loss of $5.2 billion; a large portion of this loss is attributable to stock-based compensation that Uber paid its employees after going public. Its revenue climbed to $3.17 billion, its smallest quarterly increase on record and below analystsâ expectations of $3.3 billion. âUber has been grappling with an onslaught of competition around the globe, particularly over the past year. While ride-hailing was once thought by early venture capital investors to be a market where one player would dominate, it has turned into a crowded field, fueled by billions of dollars that have flowed into the sector. That has kept price wars alive and profits elusive.â31 Lyft In May 2019, Lyft reported a $1.1 billion loss for the first quarter of 2019. The company stated that about 80 percent of that loss was related to stock-based compensation related to the IPO. Revenue nearly doubled compared to the prior year. Lyft stated it believes 2019 will be its peak loss year. The company expects profitability to improve as it continues to grow its core transportation business and expands into other segments, including rentable bicycles and scooters. It also announced a partnership with Waymo, the self-driving car unit owned by Googleâs parent company, Alphabet. Recently, Lyft has reported an improved outlook for its business, and now projects 2019 revenue to be approximately $3.5 billion, compared with a previous range of $3.275 billion to $3.3 billion.32 âLyft gained riders faster than expected, and those riders are paying more, leading revenue to surge 72 percent to $867 31 Brown, E., âUber Posts Its Largest Quarterly Loss,â Wall Street Journal, August 8, 2019. 32 Brown, E., âLyft Raises 2019 Revenue Outlook and Sees Smaller Annual Loss,â Wall Street Journal, August 7, 2019.
ACRP 01-35: TNCS: IMPACTS TO AIRPORT REVENUES AND OPERATIONS AUGUST 19, 2019 FINAL DRAFT DELIVERABLE Reference Guide | 2-11 | Transportation Network Companies â Overview million. The number of active riders climbed to 21.8 million from 15.5 million in the year-earlier period, Lyft said. Revenue per active rider was $39.77, up 22 percent%.â33 Aspects of Business Model Sensitivity Many analysts have focused on the key drivers of the Lyft and Uber businesses, such as the fares paid by passengers and the percentage of the fare retained by the drivers. This is an inherent tension in the business modelâhow much the platform company realizes after paying various costs. One recent study pointed out a distinction between driver loyalty and customer loyalty. Drivers move in and out of service and companies (which is a key distinction of the âgig economyâ), whereas customers seem to establish loyalty and contribute to return business after using a service. This helps explain why companies such as Lyft and Uber are looking at different ways to enhance driver engagement, besides just costly incentives that contribute to losses. This includes, for example, the ability to combine passenger rides with other services, such as meal delivery and product delivery. 2.3.3 TRANSPORTATION NETWORK COMPANY BUSINESS DIVERSIFICATION TNCs have increasingly looked at diversification to scale their businesses and to achieve economic efficiencies. Uber Uber has engaged in multiple business ventures besides offering app-based rides. Uber Eats has been mentioned as a key revenue generator for the company. âWe continue to have newer markets. We continue to have businesses like Eats that have amazing growth rates,â Khosrowshahi said, adding that he thinks 2019 will be the companyâs peak year of losses, which should start to narrow in 2020 and beyond.34 There are multiple other Uber products and services, some in operation, some started and stopped or suspended, and some aspirational. For example, in May 2019, Uber requested permission to initiate its Uber Elevate food delivery service using the Air Robot 200 UAS, a star-shaped hexa-copter, which can carry up to 25 pounds and can fly just over three miles. In addition, the company has also been partnering with cities and transit agencies to supplement public transportation. Lyft Lyft has invested in businesses beyond the app-based rides. These have been focused on related mobility services, such as bikes and scooters, and connections to municipal transportation systems. In March 2019, Lyft introduced a program called City Works to provide rides and connections to city transportation networks. In May 2019, Lyft began testing car rentals in San Francisco. 33 Ibid. 34 Brown, E., âUber Posts Its Largest Quarterly Loss,â Wall Street Journal, August 8, 2019.