Taxi Fares and the Art of Deception

July 24, 2016 at 5:32 pm

It has become fashionable these days to advertise ridiculously low rate per Km for taxi rides to lure customers. However, these fares are like a tip of the iceberg – they hide more than what they reveal. I had a very interesting conversation with my friend’s daughter who is just 8 years old. She is learning tables and was incidentally focused on table of 6. She told me that her father, i.e. my friend does not know table of 6. I was a bit intrigued and asked her why does she feel the same? She said “we went from our home to her grandmother place that is only 10 kms and if the taxi fare is Rs. 6 per km then it should be only Rs. 60 but her dad paid Rs. 215. She said every time we take taxi, my dad says we will go in a taxi that cost Rs. 6 per km but pays much more. So my dad does not know table of 6.” This is the story of today’s taxi industry, many players claim to be Rs. 6 per km but charge upto Rs. 25 per km. The customer and media and regulators are only talking about surge pricing while the reality is there is much more hidden in the taxi fares. I was wondering when the MBA institutes will start offering a full time course to understand taxi pricing☺. Without waiting for that to happen, let me take a try at it.

It is prudent to take into account some of these hidden charges while estimating the fare for a cab ride.

  • Base Fare: This is the minimum charge at which the trip starts and it does not include any free kilometers. (Minimum fare, on the other hand does include some free Km). For example, the base fare of sedan from one of the aggregators is Rs. 70, while per Km rate is Rs. 10. If you take a 10 Km ride, then it adds Rs. 7 per Km to the advertised fare of Rs. 10 per km! The Base Fare ranges from Rs. 40 to Rs. 70 for aggregators. On an average the trip length is approx. 8 kms. So anything between Rs. 5 to Rs.8 is added per km just for base fare.
  • Ride Time Charges: Any normal taxi fare includes a wait time charge, which gets calculated only for those minutes when the vehicle is waiting for you or completely standstill in traffic. In a one hour ride, the waiting time is typically 3 to 10 minutes. Ride time charge on the other hand get calculated for the entire duration of the trip. Average speeds in the cities are 20 to 30 Km per hour. At Re. 1 per minute of ride time charges, this translates to additional cost of Rs. 2 to 3 per Km. Some services have ride time charge of Rs. 2 per Km, which means Rs. 4 to 6 per Km get added. So the reality is passenger is not only paying for km rate but also for the time when the vehicle is moving.
  • Surge Pricing: As you can see from both the above examples, a price of Rs. 10 per Km actually translates to Rs. 20 per Km in reality, which is very similar to fares charged by all the original taxi players. What makes the matters worse is the concept of surge pricing (also known by different names like dynamic pricing, peak pricing etc.). Even a routine surge of 2.0x for a 10 Km trip means that per Km rate becomes Rs. 40 per Km, which is 4 times the fare advertised and 2 times the fares approved by Government. If it is your bad luck and surge of 3.5x then it could mean Rs. 70 per km i.e. 7 times the advertised fare and 3.5 times the Government approved fare!! Many of my friends who work in lower parel and live in bandra can vouch that they have paid upto Rs. 700 for office to home ride that is approx. 10 kms. The elements like base fare and ride time charges not just add up but multiply the deception during the surge pricing.

The poor auto and Black & Yellow taxi drivers have faced people’s and regulator’s wrath for ages for asking 1.5 or 2 times the fare during peak demand time. How would you react if anyone of them ever asked 7 times the published fare?

But this is a well planned business model used by the aggregators, this is way of making people try a product by mentioning wrong pricing and then fleecing them when they get used to it. The drivers are doing their bit in adding fuel to fire. For example, they will do all the things to increase the fare

  1. They will switch off the trip and then will ask you to rebook the trip. This gives them extra base fare.
  2. Some drivers drive slowly even when roads are clear to get more ride time money.
  3. Some drivers will use consumer app in peak time and keep opening them to make the system believe there is huge demand and hence higher surge pricing is calculated by the system.

Meru is making an attempt to make the passengers understand that we do not have any such conditions and use very transparent pricing.

So the next time when you head out for a cab ride, do check for true rupees per Km.