It was 9:43pm. Rushing to get ready, I called my friends anxiously asking what time they were heading to Boston for the night. “We’re leaving Cityside in 15 minutes, so hurry”. Realizing I had zero time to walk from my Boston College dorm to CitySide Bar, I opened up my Uber app to search for a ride and to my surprise, each ride cost a minimum of $35.
I REPEAT $35. The ride from my dorm to CitySide is a 1.5 mile drive. This 1.5 mile drive cost $35.
Before this weekend, I heard prices for Uber or Lyft had increased, but going from a usual $5 or $10 Uber to $35 fare had me exploring reasons as to why.
Here’s some reasons why your Uber and Lyft Rides might be going through the roof:
1. Driver Shortage.
The main reason for price increases is the shortage of drivers. At the early onset of the pandemic, demand for ridesharing essentially fell off a cliff. Driven by the partly government mandated and partly consumer driven shut down, demand shocks sent hard hits to Uber and Lyft. Americans hunkered down for the pandemic and in turn, Uber bookings dropped approximately 75% (shown in the graph below). Within recent months, however, socially-distanced sensitive spending (i.e restaurants, airline travel, hotel tourism) has increased dramatically; people are vaccinated, stores are opening up, and society is eager to return back to pre-pandemic life. As the states have opened up, demand for rides has returned faster than the supply of drivers, leading to price spikes in many cities across the U.S. July 2021 statistics illustrated drivers still fell 40% below capacity (depsite demand rising back to pre-pandemic levels).
2. Unemployment Insurance
With the world still slowly returning to normal life, half of U.S states are still paying federal covid-related unemployment benefits. In states that ended employee benefits (i.e. Miami, Houston, Atlanta), however, Uber and Lyft are seeing drivers return and prices go down. A select segment of the drivers revealed that the stimulus checks have created a financial safety net for mainly, part-time drivers, who aren’t as reliant on the income from Uber. Some drivers even outwardly disclosed they’re fine riding it out on stimulus checks or unemployment for now, while vaccination levels continue to rise. Uber and Lyft have tried to compete with the unemployment benefits – by offering various monetary incentives – to attract drivers back to work, although the statistics support the concept that all drivers won’t return until COVID unemployee benefits fizzle away.
3. RideShare Competition Among Drivers & Other Services
Given the limited number of drivers, rideshare companies must also compete for the limited number of drivers while fighting against the attraction of food delivery services. Food delivery services inherently offer safer working conditions. Drivers don’t have to worry about social distancing or risk contracting COVID, they eliminate the risk of crazy customers with no concern for people entering your car, and they avoid getting a driving performance rating (rather a simple food delivery rating).
How do RideShareing Companies plan on bringing employees back?
With unemployment insurance and fierce competition, Uber & Lyft have increased driver bonuses to attract workers back to the platform. Both Uber and Lyft have spent millions to offset demand with substantial supply. Uber allocated $250 Million to promote driver incentives while Lyft spent $572 Million on driver incentives through the second quarter of 2021. Lyft noted a 50% increase in rides due to the three-month incentive offering; it remains unclear, however, whether the increase was caused by new drivers or existing drivers eager to take advantage of the incentives.
Can we expect prices to go down in the near future?
As drivers return to the road, Uber and Lyft hope that prices will begin to stabalize, however the rideshare price projections forecast continuing expensive fares moving forward.
Regardless of the pandemic, ride-hailing companies solely focus on long-term profits. Analysts expect customers to pay more per ride compared to the discounted rates prior to the pandemic due to low returns. Uber and Lyft began phasing out discounts to users (even before the onset of the pandemic) with increasing investor pressure to perform better. The user discounts caused millions in net losses and ultimately hurt investor return, making investors agitated and eager for a business model shift. Investors highly encouraged a more sustainable model for future profits than their current subsidy model.
Uber and Lyft currently focus on a subsidy model for their respective ride-sharing platforms. Subsidized organizations provide incentivized offerings in an attempt to get traction for their early startup, all of which is needed to attract customers quickly and establish a dominant market position. Subsidy models rely on startups, raising venture capital, and using those funds to track customers with deep discounts. These subsidies could come in many forms, from low shipping rates for e-commerce sites to coupons for free food delivery; all of these services attract customers to their site. For ride-sharing companies like Uber and Lyft, subsidies involve attracting users with deep discounts and then incentivizing drivers to provide those rides. Part of what’s happening, however, is that as demand for user services has soared, companies that once had to compete for customers now deal with an overabundance of them. In order to deal with the overabundance, Uber and Lyft have begun phasing out those rider discounts to shift subsidies over to the supplier side, offering increased driver incentives and mitigating user incentives.