Many people have been surprised by the high prices of Uber rides, and even the CEO of Uber himself is no exception. Steven Levy, the editor at large of Wired, had an experience where he took a 2.95-mile Uber ride from downtown New York City to the West Side to meet with Uber’s CEO, Dara Khosrowshahi. When asked to guess the cost of the ride, Khosrowshahi estimated it to be around “twenty bucks,” as reported by Levy. However, the actual price turned out to be more than double that at $51.69, which included a tip for the driver. The CEO said, “Oh my God. Wow,” as he learnt the cost.
“It wasn’t the worst of it,” Levy explained. Levy had initially attempted to book an Uber to get to the interview, but he was surprised that the price was $20 higher than usual. Khosrowshahi attributed this to surge pricing, but Levy pointed out it was a sunny weekday at 10 am, with no special events in town.
Khosrowshahi defended the price increase, stating, “Everything is more expensive. Inflation has become a part of our everyday life,” Khosrowshahi responded. “With Uber, the vast majority of your fare is going to your driver. Earnings per week for our drivers are up 40 50 percent over the past four years because that is the cost of time and labour. I think that’s positive.”
Ride-Hailing Industry Challenges: Inflation, Driver Shortage, and Impact on Prices
According to data from Rakuten Intelligence, the cost of rides on ride-hailing apps like Uber and Lyft soared by 92% between 2018 and 2021, with Uber fares in April 2021 being 40% higher than the previous year. Khosrowshahi assured the public that they were working to return prices to their earlier levels by September, aiming to make it feel like the “good old days” again.
According to a CNBC report, data from Rakuten Intelligence showed a significant 92% increase in the cost of rides from ride-hailing apps like Uber and Lyft between 2018 and 2021. In April 2021, Rakuten’s data indicated that Uber fares had risen by 40% yearly. At that time, Uber’s CEO, Khosrowshahi, promised prices would eventually return “to nearly the good old days” by September.
However, recent findings by the UCLA Labor Center earlier this year revealed a contrasting picture. The study focused on New York City and found that from February 2019 to April 2022, the median passenger fare for Uber and Lyft had increased by 50%. In contrast, median driver pay only saw a 31% increase during the same period.
To explain some of the recent growth, Khosrowshahi had previously attributed it to factors such as inflation and a shortage of drivers. The lack of drivers is a problem the entire industry faces, impacting service availability and potentially leading to higher consumer prices.
The Strategic Shift of Uber and its Impact on Pricing and Profitability
Interestingly, despite the challenges posed by the pandemic and the driver shortage, Uber reached a record 5 million drivers worldwide in August of the previous year, representing a remarkable 31% increase from the prior year.
The ride-hailing industry has experienced significant pricing and driver pay fluctuations in recent years. While there was a promise to bring prices back to more affordable levels by Uber’s CEO, the reality seemed to differ in some regions. As the industry continues to navigate challenges and changes, the focus remains on maintaining a balance between fair pricing for passengers and reasonable earnings for drivers.
“We have a very strong flow of new drivers who are signing up, coming on to earn,” Khosrowshahi said. “Over 70% of them have said that inflation and what they’re seeing right now in terms of the cost of groceries, the cost of living, plays a part in that decision for them to come on to the platform.”
Furthermore, some of the price adjustments can be attributed to Uber’s strategic shift from subsidizing rides for growth to a focus on profitability. This shift seems to yield positive results, as Khosrowshahi recently announced Uber’s first operating profit.”