The value of flexible taxi fares

By Harrison Peck, Policy Manager and Johannes Hallermeier, Economist

While we’ve had taxi drivers on the Uber platform for several years now, the most transformative change has been our ability to price taxi trips on our app in the same way that we do for UberX rides. Some cities — like San Francisco, Santiago, and Madrid, to name a few — have changed longstanding policies to allow e-hail platforms to calculate taxi fares through an app instead of a taximeter, surface upfront prices to riders and drivers to agree upon in advance of the trip, and use dynamic pricing to adjust fares in response to real-time supply and demand fluctuations.

In cities where we can set taxi fares in this way, having the option to offer ride requests to taxis or a PHV (private for-hire vehicle, like UberX) can allows for faster pickups. Our belief is that coalescing both taxis and PHVs into one product offering will bring a range of benefits to riders, drivers, and cities more broadly.

Now that we’re coalescing taxis and PHVs in several cities, we’ve dug into some case studies and found that dynamic pricing for both vehicle types on Uber can serve both riders and taxi drivers better.

San Francisco

In April 2022, the San Francisco Municipal Transit Authority (SFMTA), San Francisco’s local taxi and transportation regulator, approved an amendment to allow ridehailing apps like Uber to refer trips to local taxi companies and surface upfront fares before the start of a trip. This amendment also allowed, for the first time, for ridehailing apps to set taxi prices based on a dynamic pricing model, rather than a taximeter. This policy change means that we can now dispatch taxis to fulfill trip requests for UberX and other ridehailing products.

The SFMTA publishes quarterly reports that assess the impacts of this fare pilot on taxi riders and drivers. The September 2023 report, which covers taxi trips on Uber during the 2nd quarter of 2023, illustrates the value derived from fare flexibility and taxi integration into Uber. Some highlights:

• Higher earnings for drivers. San Francisco taxi drivers who accept trip requests from Uber, in addition to street-hail and taxi e-hail earn, on average, 23.8% more per month than drivers who do not accept Uber trips. Specifically, in the 2nd quarter of 2023, taxi drivers earned more than $1,700 a month from Uber trips alone, a 60% increase over their earnings from Uber trips in the first quarter of the year and accounting for about one-quarter of their total monthly income.
• Expanded access for riders across the city. Historically, taxis have largely served San Francisco riders in Downtown and at San Francisco International Airport. However, the SFMTA report shows that, in addition to these areas, taxis dispatched through Uber are also serving the city’s outer neighborhoods, where taxi service has typically been scarce (see Figure 1). This finding demonstrates how Uber can open transportation access in historically underserved areas, providing new ways for people to get around while reducing the need to drive private vehicles.

Figure 1: Pickup locations for taxi trips excluding Uber (left) and taxi pickups on Uber only (right) (Source: SFMTA)

• Newly licensed taxi drivers. The number of new taxi drivers getting licensed for the first time in San Francisco has risen dramatically in recent months, concurrent with the fare pilots. Specifically, the city licensed 135 new drivers in 2022 — more than 6 times the number during the pandemic lull and more than 3 times as many as in 2018 — and this trend has endured into the first few months of 2023, with 153 new drivers in the first 8 months of the year. While this growth cannot be entirely attributed to the fare pilot, the SFMTA reports that Flywheel, the only taxi company taking Uber trips in San Francisco during this time period, experienced the most significant growth in new drivers by a wide margin. This finding suggests that modern features like fare flexibility and integration with Uber could make driving a taxi more attractive to prospective drivers.

(More information on San Francisco’s fare reform process can be found in Chapter 3 of Access Partnership’s report Rethinking Taxi Pricing: Spurring Innovation and Choice in the Taxi Industry.)

Buenos Aires

Uber launched in Buenos Aires, Argentina, in 2016, and we first brought local taxis onto the app in late 2020. At that time, we used metered fare calculation for all taxi trips on the Uber app. In May 2022 we included dynamic pricing for taxis on e-hail apps and began to serve UberX trip requests with both PHVs and taxi vehicles.

Looking at our Buenos Aires rides data since we made this switch, we found that taxi drivers are now completing more trips, finding riders more quickly, and earning more money through Uber.

Specifically, we found the following:

• More taxi trips: Taxi drivers more than tripled the average number of trips they complete per month on Uber, from about 25 trips in April 2022 (with metered fares) to about 85 trips in April 2023 (with dynamic fares).
• Fewer empty miles: Likewise, the percentage of time drivers spend driving with a rider (known as their “efficiency” rate) doubled, from about 20% in April 2022 to more than 40% following the pricing switch. Higher efficiency benefits not only drivers’ earnings but also overall congestion and emissions, as drivers spend less time driving empty. As shown in Figure 2 below, both trips per month and efficiency shifted up immediately after we began to offer a unified rides product served by both PHVs and taxis.

Figure 2: Both trips per month and efficiency doubled from April 2022 to April 2023.

• Higher earnings: Coinciding with an increase in trips and efficiency, we also found that Buenos Aires taxi drivers on Uber are now earning substantially more money on an hourly basis than prior to the switch to dynamic pricing. As shown in Figure 3, taxi drivers’ earnings on Uber increased by more than 200% once they gained access to UberX trip requests. (Note that Argentina underwent significant inflation during this period; local currency in this analysis has been adjusted by using CPI [Consumer Price Index] to control for this.)*

Figure 3: Hourly taxi driver earnings on Uber (adjusted for inflation)

Note that all data refers only to driver activity on Uber’s platform, not through other channels like streethail.

Madrid

Uber began coalescing taxis and PHVs in Madrid, Spain, in November 2019. This was made possible thanks to a regulatory change allowing taxis to offer upfront fares and flexible, capped taxi fares, which opened the door to dispatch taxis and PHVs under the same product at a price equal to or below the metered taxi fare.

Riders making a trip request in Madrid can choose among UberX, which can be fulfilled by either a taxi or PHV; Taxi, which can be fulfilled only by local taxis; or UberX Saver, which is a lower-fare product that becomes available only during low-demand periods and can be fulfilled with PHVs or taxis. Consistent with what we found in Buenos Aires, taxi drivers in Madrid are far likelier to source trip requests from coalesced products like UberX and UberX Saver than from a Taxi-only product. In Madrid, though, we also found that taxi drivers complete more UberX Saver than UberX trips, with Saver accounting for more than half of their trips on Uber, and UberX one-third. This finding suggests that taxi drivers in Madrid tend to rely on Uber to stay busy during slower periods when other demand sources, like traditional street-hail, might wane — that they prioritize staying busy (i.e. increasing their efficiency) even during times when fares are slightly lower.

We also found that taxi drivers that accept UberX Saver trips not only increase their efficiency, they also significantly improve their earnings:

• More trips: In the second quarter of 2023, taxi drivers taking UberX Saver trips in Madrid completed, on average, more than twice as many trips on Uber than taxi drivers who do not complete Saver trips.
• Higher earnings: As a result of more completed trips, taxi drivers taking UberX Saver trips earn 60% more per week on Uber than those who don’t.

The positive impact of this limited price flexibility helps to explain why more than 4,000 taxi drivers are registered with Uber in Madrid.

Driving taxis forward

The data is clear: both riders and drivers benefit when riders can find taxis through e-hail platforms like ours and when we can set dynamic taxi fares and fulfill trips with either taxis or PHVs.

And it’s not just Uber’s data telling this story — a new study published by Access Partnership surveyed taxi riders and drivers in 4 cities — San Francisco, Vienna, Singapore, and Sydney — where riders can choose between dynamic and metered taxi fares when planning a trip using e-hail apps. The researchers found that, relative to strictly metered fares, upfront, dynamic fares can reduce rider wait times and improve driver efficiency, while both riders and drivers prefer the ability to make a choice between metered and dynamically priced taxi trips.

Uber is committed to strengthening our partnerships with taxis in cities around the world. From our experience to date, we’ve learned that pricing flexibility is the key to unlocking taxis’ even greater potential.

* Organization for Economic Co-operation and Development, Consumer Price Index: All items: Total: Total for Argentina [ARGCPALTT01IXNBM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/ARGCPALTT01IXNBM, August 21, 2023.