By Regina Clewlow, UC Davis, June 2017
In most U.S. cities, Uber drivers make approximately $9 to $11 an hour after expenses. Compare that to the average U.S. transit operator salary of $20.09 an hour, which also comes with the benefits of paid vacation and sick leave, a pension plan, and contributions towards a medical plan. If Uber had to abide by the same labor regulations, its labor costs could be 2x to 3x what they are today.
Transit agencies also have an unfunded federal mandate to provide service to everyone of any ability, of any income range, and essentially every geography. It is largely due to labor costs and this unfunded mandate that transit agencies are unable to operate at higher farebox recovery ratios. If public transit agencies didn’t bother to provide coverage to neighborhoods with lower population densities, ignored low income neighborhoods, and failed to provide accessible services, they’d likely post better financials as well. However, most advanced economies recognize the core economic value of providing public transportation services. As a society, I personally believe that it is critical that we enable a future where individuals have access to affordable, accessible, and sustainable transportation services.
The bottom line is that urban public transit agencies do a pretty darn good job given the constraints that they are under. That cities are considering subsidizing Uber services, essentially adding public subsidy to venture capital subsidy, is potentially an unsustainable model that could leave many riders in the lurch in the future if not properly structured.
Will Uber will be profitable with autonomous vehicles? Probably not
Let’s say that Uber could fend off the labor issue and continue to pay drivers about half (or less) of what public agencies pay until autonomous vehicle technology is viable. Thus, driver wages eventually drop to zero.
Unfortunately, there’s the pesky issue of fleet management. Transit agencies are already financially responsible for their vehicles and maintenance — not to mention infrastructure such as bus stops (which Uber drivers often use). In a future with autonomous vehicles, Uber would presumably have to absorb some portion of fleet management costs. That’s assuming, of course, that they can develop autonomous vehicle technology with the Waymo lawsuit looming.
There may be only one way shared mobility services become viable: Partnering with transit agencies
Many argue that the only way companies like Uber or newer, and more likely sustainable, microtransit services are financially viable is through some sort of public subsidy in partnership with transit agencies. Uber, which began its journey as “everyone’s private driver”, quickly began to recognize that the market for serving the masses was much larger than the market for serving the top 1%; hence, the evolution of UberX and UberPool. Earlier this month, Lyft “invented a city bus” when it launched Lyft Shuttle. The economics of mass transportation are pretty obvious: the costs per passenger are lower when there are more passengers in a vehicle.
The broader question facing cities is this: are transportation network companies and microtransit services competitive or complementary to public transit? The answer is probably both.
There are other examples in the transportation world of services that can be either complementary or competitive to one another, depending on how transportation networks are designed. The key for Uber, Lyft, and newer microtransit services is to forge a path where they can bolster line-haul transit services and effectively fill the gaps — where the gaps actually need to be filled, and not entice choice, paying riders from existing public transit services that serve the public just fine.
So what are some effective ways for private mobility operators and cities to move forward?
- If private sector mobility providers are seeking public subsidy, they should be transparent with public agencies about their operating costs. Public agencies and transportation planners need long-term sustainable solutions to move their citizens, not ones that fall apart when the VC funding runs dry.
- Private sector mobility providers should focus on providing better coverage to parts of the city where large public transit vehicles cannot effectively provide frequent service, or during hours (e.g. late night) when publicly-operated transit is not necessarily the most cost effective solution.
- In order to facilitate truly cooperative transportation network planning, private operators and public operators need to develop a plan for more effective data-sharing. Ultimately, data is critical to ensure that private mobility options can improve, not hinder, how we get around.
Transportation and mobility are crucial to economic growth. During a time of rapid, disruptive change, it is important that public transit agencies and planners are partners in the process to introduce new solutions that can help cities move more efficiently. Mobility companies that partner with, rather than battle, public agencies are who I’m betting my money on to lead the way.
About the author
Regina Clewlow is an expert on urban transportation, shared mobility, and autonomous vehicles. She is currently devoting her time to launching new technologies for transit agencies at Swiftly. Dr. Clewlow also serves as a part-time research scholar and advisor on the future of mobility at the U.C. Davis Institute of Transportation Studies. She is the author of numerous peer-reviewed articles and holds a Ph.D. in transportation systems from MIT. www.reginaclewlow.com