he year 2020 has meant massive disruption to the urban mobility industry. However, it wasn’t autonomous vehicles that brought it, which would have been a more appreciated disruption. It was the pandemic and associated social distancing rules that heavily impacted particularly the taxi and ride-hailing industry, leaving them struggling. So how will personal transportation change post-pandemic and what opportunities will it bring for ride-hail and taxi operators?With 2020 behind us, I am looking towards how the pandemic may change our industry in 2021 and beyond. We all hope vaccination will bring the pandemic to a halt. The restrictions will slowly cease across the world and people will start coming back and moving around the cities. Sooner or later.
Urban Mobility Trends Post-Pandemic.
With that being said, I see a couple of trends going against each other. People will still be wary of social contact and will keep social distancing, avoiding public transport and preferring private cars instead. Conversely, municipalities have been transforming car road infrastructure into active mobility spaces such as cycling lanes and open spaces for walking.
Moreover, when it comes to working arrangements, many businesses and their employees have adapted. Some may have even increased their productivity levels thanks to working from home (WFH).
However, I don’t believe that employees will stay WFH even after the pandemic restrictions ease out. Instead, I think a new normal will emerge where we combine working from home (WFH) and working from the office (WFO) into a new weekly rhythm.
Of course, not all types of employment will allow for such arrangements. The new normal will, however, decrease the commute demand of a subset of employees as they won’t need to commute to cities every working day.
So how exactly will this post-pandemic shift in working arrangements change urban transportation? And what it means for the struggling taxi and ride-hailing industry?
Commute demand will decrease to two or three days a week for some employees.
According to statistics from the EU, 74.2% of the total workforce works in the services sector. Out of this sector, almost two-thirds of employees work in a job that may require their presence at the workplace, such as health, education, retail, and transport.
The remaining one-third represents around 26% of the total workforce that can be described as a knowledge workers economy – employees whose job is not strictly tied to their workplace and can often be done remotely.
The need for businesses to adapt to the pandemic has resulted in a lower need for commuting to the city on a daily basis. A trend that is going to stay even after the pandemic ends.
And it is mostly the knowledge workers who will end up splitting their workdays between WFH and WFO. This split will converge into 2:3, regardless of whether it means 2 days a week WFH and 3 days a week WFO, or vice versa.
What it means is that the overall burden (i.e. discomfort) and financial cost of commuting will decrease since these knowledge workers will only commute two to three times a week instead of the usual five times a week.
For public transport commuters, this means fewer of these uncomfortable commuting trips along with less money spent on tickets.
Private car users will be happy too – they will not only save on fuel and parking costs but they’ll also save the time wasted in congestion and searching for parking spots.
Increased motivation for public transport commuter to pay for comfort.
Following the decreased number of commuting trips, there might be an increased motivation of individual commuters to look for premium services to further decrease the discomfort of their commutes.
Why? For two reasons. The commuter has a discretionary income saved by commuting less. But also, it is now cheaper, in aggregate, to upgrade and pay for increased transportation comfort since the number of commute trips per month decreased.
In other words, the residents will now only have to pay a maximum of 2/5 or 3/5 of what they would have paid before if they wanted to increase their commuting comfort.
Have I mentioned that the service economy and the knowledge economy especially tends to be a high-margin one? With the knowledge workers being, on average, high-income employees?
New demand to be served by taxi and ride-hailing services.
This creates a unique opportunity for the ride-hailing and taxi industry to tap into the newly found discretionary income of these knowledge workers. The opportunity is there even if the price of the taxi service stays the same as before.
But what if I told you there is an opportunity to further increase the motivation of commuters to pay for a premium service more frequently?
How? Economy 101 provides an answer – by lowering the average order value (AOV) for a single taxi ride.
How could you do that without losing out on profits, you ask?
Through intermodality – an automated interconnection of public transport and taxi services – which helps ride-hailing and taxi operators decrease the AOV for their transportation service without cutting the profits (read more about this here).
This would allow the residents to enjoy more comfort by paying only a fraction of the previously required price.
Motivating private cars users to leave their cars at home.
Moreover, it’s not only the existing public transport commuter population that you might motivate with this. Commuters using private cars might also have an increased motivation to use the premium service.
During the pandemic, municipalities around the world (see Barcelona or Paris) took the opportunity of “empty roads” to accelerate the change of shifting urban road infrastructure from cars to active mobility such as cycling and walking.
This will in turn increase the discomfort (congestion, parking) for residents using private cars.
Ride-hailing and taxi operators might be able to tap into the car-commuters population which may be willing to switch away from their private cars for some of their commute needs.
However, they will require an experience that is very close to what they were used to from their private cars – comfort and guarantee.
Therefore, having public transportation and taxi as standalone options might not do the trick. But combining the two modes into an automatically integrated and guaranteed journey may be the road to take going forward.
Capturing new demand through intermodality.
Based on the numbers from Prague, Czech Republic, an average monthly active user (passenger) opens the taxi app five times a month, rides the taxi three times a month while paying a total sum of EUR 30 per month.
Could those EUR 30 cover for the whole month’s commute?
Let’s take a look at a post-pandemic scenario where a resident ends up commuting to the city only once a week. That’s two rides (inbound + outbound) per week and nine rides on average per month.
For a monthly budget of 30 EUR that has been previously incurred by taking three taxi rides a month, it would now require the price-per-trip (AOV) to be discounted by 67% to cover for all nine trips. That’s not really achievable even with intermodality which can decrease the AOV by 42%.
But let’s have a think about the discomfort difference between morning’s and evening’s commute. Which one is more uncomfortable?
The inbound morning commute to the city when we are full of energy? Or the outbound evening commute back home when we are tired after a long day of working and a public transport frequency decreases which adds to our discomfort?
Yes, I know, a suggestive question. Anyway, let’s go back to our resident commuting to the city once a week and take a look at the numbers.
Could those EUR 30 cover for their every evening commute back home by using intermodality – a combination of backbone public transport and taxi?
All that would be needed is for the same monthly aggregated price to cover for the cost of 4.4 rides (the average number of weeks in a month) instead of the 3 rides that the average user paid for taxi rides every month pre-pandemic.
That’s roughly a 30% discount for the price-per-trip (AOV) needed. And intermodality, with its AOV decrease reaching up to 42%, can achieve that with a nice margin of safety.
The post-pandemic shift in urban transportation means an opportunity to grow for taxi and ride-hailing services.
To summarize, 26% of the workforce are knowledge workers who belong to a high-margin / high-salary economy segments. They will see their commute needs shrank to 2/5 or 3/5 of pre-covid levels due to adapting to WFH working arrangements.
They will see their disposable income increase by saving transportation costs from unrealized commute trips while having to pay less for upgrading their remaining commute needs to premium comfortable service.
This represents an opportunity for ride-hailing and the taxi industry to capture the new demand, without decreasing the transit ridership of pre-covid transit commuters and while motivating residents to switch away from private cars to get to the city post-pandemic.