Variety

All we hear is Radio Taxi

| Updated on January 24, 2018 Published on August 18, 2014

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Whether it is in Delhi and Mumbai or Kochi and Patna, the radio taxi has become ubiquitous. Rashmi Pratap looks at how and why this mode of transport has become so popular across India.

Software professional Raza Khan earns about ₹2 lakh a month, goes abroad every year for a vacation, owns a plush flat in Mumbai’s Andheri suburb and yet, does not own a car. No, he does not work for his multinational IT company from home. Khan has been commuting to and from his Worli office by radio taxi for the last three years.

“Renting a car is more economical than owning one,” he declares. Khan’s calculation is precise: “I save on car EMIs, maintenance and insurance, driver salary, petrol, parking charges and use the time during the journey to read the latest news on my iPad.”

Cut to Lucknow. Shweta Mehra swears by Flash Cabs, started by Shashank Agarwal in October 2012. For her, the alternative to the radio taxi is the eight-seater rickshaw, or tumtum, which is always overloaded. “Radio taxis are safer and more convenient,” she says.

Khan and Mehra are among the growing number of people using car rental services, which have taken the metros as well as tier II cities by storm. From Delhi to Chennai and Jaipur to Patna, these air-conditioned, GPS-enabled cars are gradually becoming the preferred mode of transportation for professionals and families alike.

The most prominent names in this segment are Meru Cabs, Easy Cabs (the radio taxi service of Carzonrent), Mega Cabs, Olacabs, Savaari and TaxiForSure. The growing market has also given birth to regional operators such as Mauryan Cab in Patna, Manan Cab in Ahmedabad and Flash Cabs in Lucknow. And it has also brought >Uber, the US-based transportation network company, to India.

The numbers show that the trend is for real. Agarwal started Flash Cabs in Lucknow with 15 cars and six trips a day. In less than two years, his fleet has grown to 50 and he gets nearly 300 bookings every day. Ditto for Meru. It records over 30,000 trips across eight cities each day. Easy Cabs gets 13,000 bookings a day from Delhi, Mumbai, Bangalore and Hyderabad.

In Chennai, Fast Track handles 35,000 customer calls a day and makes 20,000 bookings with a fleet size of about 6,000 cars. Meru, Olacabs and TaxiForSure are already there and Easy Cabs is readying to enter the city.

Three Cs

When a customer calls up a taxi helpline, an operator at the >cab’s call centre uses radio signals to locate the nearest available cab. Since these taxis are in touch with their base using radio signals, they are called radio taxis.

A combination of comfort, convenience and costing is tilting the scales in favour of such taxis across India.

The economics of renting a car versus owning one is simple. Khan points out that while the EMI on a sedan could be anywhere between ₹12,000 and ₹15,000 depending on the loan amount, a driver’s salary is upwards of ₹12,000 and the petrol for Khan’s 40-km journey would cost over ₹250 a day. Parking charges are extra. In contrast, all that he pays Meru Cabs is about ₹850 a day or ₹22,000 a month.

“I would rather invest in an asset that appreciates with time than a vehicle whose value will only lessen with each passing day,” says Khan.

Still in the red

With its scorching pace of growth, the Indian car rental services market is valued at $6-9 billion (₹36,000-₹54,000 crore). And private equity investors have been pumping billions of dollars into the segment.

But surprisingly, none of them are profitable ventures. Meru, which began in Mumbai in 2006, is expected to book profits when it reports its FY14 numbers. And while Carzonrent is profitable on a consolidated basis (it also offers services such as self-drive, outstation and international cab services), it is not known if Easy Cabs is profitable on a standalone basis.

The radio taxi operators argue that since they are in expansion mode, it is not yet time to book profits. “We are actually building for the future. We are expanding fast and going deeper into existing cities,” says Bhavish Aggarwal, co-founder and CEO at Olacabs.com, the online marketplace for car rentals, run by Mumbai-based ANI Technologies. His company has so far received three rounds of funding, the latest being ₹250 crore raised this July.

Gaurav Aggarwal, CEO of Savaari, agrees: “We are in a phase where we are building the brand and investing in technology that will make us grow even faster.”

For Meru, profitability has been elusive since it opted for the capital-intensive ‘own-the-fleet’ model. That meant the company would buy the car and give it out to drivers while handling the vehicle’s maintenance and upkeep. In return, drivers paid it ₹1,200 per day, keeping the rest of the day’s earnings.

“We don’t own the whole fleet now. We changed the model around 2011-end. Now, almost 60-70 per cent of the fleet is owned by the drivers and they have attached the vehicle to us,” says Siddhartha Pahwa, CEO, Meru and Genie Cabs.

Two business models

Meru now has two types of attached cars – one fully belongs to the driver (used in Meru plus and the Genie model, which offers hatchbacks). “In this model, the driver gives us a share of the total business we give him,” says Pahwa. In the second model, Meru buys cars for drivers who can’t afford it. Drivers pay a subscription of ₹700 a day and ₹500 a day for the EMI. “Here, they become owners after four years. The benefit of this model is that there is full commitment by the drivers,” he adds. And it also brings down the company’s costs.

Ola’s Agarwal says they work with car manufacturers to negotiate lower rates for drivers who want to buy cars. “We also have deep ties with NBFCs and banks for finance, with insurance players and with second-hand sellers so drivers can become entrepreneurs.”

Alongside, operators reduce the burden on their own balance sheets. Newer companies such as Olacabs and TaxiForSure don’t own any cars at all. That means they are asset-light, require less capital, and don’t have to bother about maintenance and the insurance on a huge fleet of cars.

“We don’t buy the car. We enable drivers to become entrepreneurs, but we invest substantially in delivering a good customer experience,” says Ola’s Aggarwal.

And that is also the business premise of Uber. “Drivers are our partners. We get them technology. Each partner has flexible hours and can choose to work for two hours or full-time. We let drivers decide how many hours they spend on the system,” says Gagan Bhatia, general manager at Uber Technologies.

Commission model

Radio taxi operators are now working on a commission basis. From Olacabs to Uber, they all charge 15-20 per cent of the tariff as their cut. So, if a driver makes ₹4,000 in a day, the company will get ₹800.

“The entire model is exciting as it is asset-light and involves less risk,” says Rehan Yar Khan, general partner and founder, Orios Venture Partners. Khan believes the market to be potentially larger than even the electronics space. “There could be 30-50 million Indians taking two rides a day,” he says.

His optimism stems from the fact that car ownership is costly and its maintenance tedious. “When radio taxis begin to reach the customer’s doorstep in five minutes (from the current 20 minutes), there will be no reason for people to buy cars. Car ownership will go down; just like in New York, where people hail taxis,” he adds.

Since operators are now working on an asset-light model, their major expense heads are technology and marketing.

Most operators have now created apps for booking. So, instead of going through the call centre and being in a queue, customers can just tap their phones to book a cab. Meru, Ola and TaxiForSure get between 30 and 50 per cent of their booking requests through apps.

TaxiForSure, which works with smaller operators having fleets of their own instead of signing on individual owner-drivers, has a standardised programme to train cab drivers on using technology. Since the model now works on a commission basis, technology is used extensively to track the kilometres clocked, the route of the vehicle, the share of each party and other details.

Wooing auto passengers

As technology brings down costs for operators, they have begun offering more economical services to convert autorickshaw commuters into cab riders. Meru’s Genie offers hatchbacks at ₹15 per km against the ₹20 per km charge for sedans.

Similarly, Ola offers Ola Mini at ₹13 per km and a base fare of ₹100 for the first six km (the company’s sedan services cost ₹18 with a base fare of ₹200 for the first eight kilometres). Even Uber, a premium player, has launched UberX, with a base fare of ₹50 and a charge of ₹15 per km.

For customers, low-cost taxis are a good alternative to autorickshaws, which cost ₹12-13 per km and are considered unsafe. Meru piloted its low-cost model in Hyderabad and within eight months, 1,500 cars were attached to the company. “We are seeing huge attraction for the Genie model and we are doubling our trips every month in this category,” says Pahwa.

As things stand, cab operators in India are trying every possible trick to get more trips and passengers. And since all of them are offering the same rates and quality of service, building a robust brand will be key to growth.

Eventually, some operators will have to give in and become part of the bigger players. But as Orion’s Khan says, consolidation is not a bad thing at all. “Over time, two-three strong players will emerge. And there will be value creation on the way.”

Endangered species

Mumbai’s famous kaali-peeli (black and yellow) taxis continue to run alongside the Merus and Ola cabs. But their numbers are dwindling as aging drivers sell their taxi permits to radio taxi operators. Few in the next generation are interested in driving and even if they do get behind the steering wheel, they prefer to do it in an air-conditioned vehicle.

Taxi permits in Mumbai are being transferred to cab operators for upwards of ₹2 lakh. And with the base fare for taxis increasing to ₹21, it is no longer economical to hail a kaali-peeli. The process may be slow, but the black-and-yellow taxi might eventually go the way of the dodo.

(With inputs from Tanya Thomas)

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Published on August 18, 2014
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