Delivering when it counts the most: Flat Fares on New Year’s Eve
In the past, we have spoken out against sudden, unpredictable, and uncapped increases in the price for a ride such as the Surge. Here we present Flat Fares, an alternative that we believe is better.
The use of medallions to limit the number of drivers on the road has made taxis virtually unusable at peak times such as on New Year’s Eve.1,2 So it is not surprising that the taxi industry is being challenged by innovative startups such as InstantCab, Lyft, SideCar, and Uber.
On days like New Year’s Eve (NYE) when the number of people who need a ride goes up by several fold, transportation becomes a critical need for everyone. It is important to us that InstantCab is usable even at these peak times. The only way to make this possible is to increase the number of drivers on the road several fold or to “increase supply several fold” as an economist would say.
Increasing the number of drivers on the road several fold is hard
- It requires convincing drivers who wouldn’t usually work at a given time time to drive at that time. Since supply has to be several times what it is on a normal day, it stands to reason that drivers who wouldn’t usually drive at 1 am on New Year’s Eve would have to be convinced to do so.
- Most people don’t want to work on N.Y.E, they want to celebrate it with their loved ones. This makes it harder to convince them.
- N.Y.E is one of the hardest days to drive on because there is an incredible amount of traffic and it takes a much longer time to reach pickup and drop off points. Further, most riders need rides to or from the busiest areas.
Given all of this, is it reasonable that drivers would expect higher compensation to drive at a time when they wouldn’t usually drive, to do so instead of celebrating with their loved ones, and when it is much harder to do their job? We think it is.
Our rules for price increases: Be predictable and transparent. Work to charge less. Be human.
We believe an increase in prices on New Years Eve is fair. However, we can’t ignore the fact that there has been intense push back against price increases by one of our competitors, Uber. Uber calls their prices increases Surges. A lot of people, including us, have been extremely critical of the surge. On the other hand, several people have also defended Uber and cited examples of fare increases in other industries such as airlines4.
Most of the surge defenders have focused on the fact that increasing prices is really the only dependable way to increase supply. We believe the pushback against the Surge is not because of the price increase itself, but about how it is implemented and when it happens.
In keeping with the InstantCab code of treating others as we would want to be treated, we have identified three principles we want to live up to.
(1) InstantCab will be Human.
In his excellent article on the surge3, Paul Krugman of New York Times points out how supply and demand are not the only things that matter, human factors such as fairness matter too. Citing research from the ’90s, Krugman explains why wages don’t fall in a recession, “even when unemployment was high and employers knew employees have no place to go, because they believed that morale and workplace cooperation would collapse if their employees felt that the company was exploiting a bad economy for its own gain.”
Raising prices addresses fairness for drivers on days like New Years Eve, but conversely, especially at times of crisis, we expect more from our drivers and ourselves. Perhaps it will sound far-fetched to associate heroism with something so routine as transportation, but we do look for a bit of heroism in our drivers. We believe heroes don’t have to have superpowers. They just have to use the ordinary powers they have to help people in extraordinary need. They just have to be good.
In times of crisis, we will sacrifice profit and work the hardest to charge as low as possible.
(2) InstantCab will always work to charge less.
In increasing prices, the temptation to charge as much as possible is obvious. As Jeff Bezos says though,
"There are two kinds of companies: Those that work to try to charge more and those that work to charge less. We will be the second."
InstantCab, too, is the second kind of company – the kind that works to charge less. If our drivers tell us they are willing to drive as long as they make $X per hour, we will only charge enough to help drivers make $X.
Unfortunately, as one of the smaller players, this is going to be the hardest challenge for us. Our ability to charge less will be limited by how many of you choose to ride with us.
(3) InstantCab will be predictable and transparent with Flat Fares.
This New Year’s Eve, we are setting up flat fares that don’t change with traffic. Traffic is the one thing that is completely outside your control. With other providers, you pay more twice: first by paying higher for traffic and second by paying a multiple of the entire fare which includes distance AND time. We are fixing that with flat fares.
Instead of telling you what the price will be only right before you make a request, you will know at least 24 hours in advance exactly how much your trip will cost. These fares will go into effect after 8 p.m. tomorrow. and have been featured in the app since Friday.
Further, as long as you have the version of the app released on Dec 21st (tip: Update in the next 24 hours to get a special discount code), you will always see a notification about these flat fares before you make a ride request.
An average San Francisco taxi ride costs a little over $15 (including tip) and is about 4 miles. So, the NYE Flat Fares should be a little less than double for most riders. For comparison, other services have already announced a multiple ranging from 3X on SideCar, up to 3X (including up to 200% prime time tips) on Lyft, and an uncapped surge that changes dynamically on Uber. 5
We are one of the smaller startups in this space. Our ability to impact overall pricing is limited and affected by tactics of the larger players. However we believe that doing the right thing is not just a good ethical practice but also a good business practice. We believe higher but flat pricing on New Year’s Eve is the right solution here for both riders and drivers. If you believe we are doing the right thing, please tell your friends about us. If not, please email me your feedback or ideas at email@example.com or via twitter.com/instantcab
Discuss this on HackerNews
 Some quotes from an excellent Priceonomics article titled “The Tyranny of Taxi Medallions” illustrate this tyranny. (disclaimer: I was a primary source for the piece) :
The life of a taxi driver is hard. When cabbies start a shift, they owe about $100 to their company as payment just for the opportunity drive a taxi. They might not break even until halfway through their shift, or maybe not at all that day. In most American cities, they have to work very long hours to make a living.
…medallions sell for hundreds of thousands of dollars on secondary markets depending on the city.. In Boston, the price of a medallion is $625,000.
 A reported 72% of cabs dispatched by taxi companies on weekends in SF did not show up as of 2011. More recently, in 2013, this number was reported to be 26 to 27%.
 Uber and the Macro Wars – Paul Krugman
 While many have drawn parallels between increase in airline ticket prices on Christmas and Uber’s surge pricing, here are two key ways they are not the same:
(a) Average airline ticket prices on Christmas are no more than 1.5 times of average airline ticket prices. I am not sure the same can be said of the surge.
(b) If an airline only let you buy a ticket right before you got on the plane, and then charged you whatever it wanted based on it’s internal notion of supply and demand, that would be surge pricing.
On a related note, when Southwest started a lot of experts did not think that they would have a shot in a business known for making millionaires out of billionaires, especially with a slogan like ‘THE Low Fare airline’. Today they are one of the most beloved airlines. In large part this is because they remain one of a very small handful of airlines that don’t charge baggage fees and allow reusing money from cancelled fares to buy another ticket. They don’t compete just on price, but by giving consumers a viable alternative at an affordable price, they help consumers and keep incumbent operators on their toes. We are shamelessly inspired by Southwest in our thinking about pricing and customer service.