by Sunil Shah

YatraGenie: Taxi-Aggregator Model in Danger of Collapse

Nov 17, 2015
BusinessFinance and Accounting SystemsGovernment

Here’s a surprise: A CEO bold enough to talk about a deep flaw in the Indian taxi-aggregator business—and why it needs to be fixed quickly.

“Hand to our hearts, if any of us (taxi aggregators) say we are changing the lives of drivers, we’d be bullshitting,” says Renil Komitla, President and CEO, YatraGenie.

That isn’t the sort of thing you hear every day. In fact, it’s the kind of thing you never hear in a market jacked up on investor money Red Bull–let alone from the CEO of a tech-transport company.

But that’s just the sort of straight-shooting person Komitla is.

So just who is this man and why should you listen to him?

When the flood of investor money dries up, it’s the driver ecosystem that will suffer the most.

Here’s why: Because Komitla knows the travel business. YatraGenie isn’t Komitla’s first brush with the transportation business. Years ago, before tech-transporters became a fad, Komitla set his mind on fixing the transportation problems of his home town, Nellore, Andhra Pradesh. In 2004, he started Komitla Bus Services to ensure that Nellore’s citizens could access good quality bus services.

That’s when he learnt something important: For the most part, transportation in India, isn’t a sustainable business, not at current prices.  

That’s when he learnt something important: For the most part, transportation in India, isn’t a sustainable business, not at current prices.  

 “I started Komitla to serve the people of Nellore, to offer them decent bus services. Over the course of 12 years, I’ve personally put in more than Rs 4.2 crore into it to keep services running,” he says.

The same applies to the taxi business. And aggregators, he says, aren’t making things better by lowering prices.

When the flood of investor money dries up, it’s the driver ecosystem that will suffer the most, he says.

We’re beginning to see signs of that. The recent protests among Uber drivers in India objecting to the aggregator’s revised incentives, shows this.

But he does believe it can be fixed. Here’s how.

What’s the problem with the taxi business, the way it is today?

I don’t know if my peers in Ola and Uber agree, but technology can only play a limited role. The operator, that’s the people driving cabs, have to be in business if anyone else–including end-customers and taxi aggregators, can benefit.

Whether you’re talking about Ola or Uber or YatraGenie, we can only be in business if the underlying layer, that’s the people who run cabs and buses, are healthy and profitable over time.

The problems, we face today, are deep-rooted and are beyond the ability of one person or company to fix. (These problems boil down to unsustainable pricing). Let’s take, for example, a ride from Koramangala to the Bangalore airport. That’s about 33 km. Now, if you take a Meru cab, which charges Rs 19.5 per kilometer (after the first 4 km), you will pay about Rs 770 including taxes. – 50KM, you will pay about Rs 1200 including taxes. Taxis like Ola, Uber, YatraGenie it is about Rs 800.

For the same distance, an operator in the US or another country in Europe, will get paid about the equivalent of over Rs 7,500.

To make things worse, cars cost about 40 percent more in India, diesel costs 20 percent more, and car maintenance is more expensive. Yet, the selling price for taxi services here is almost a tenth of what it is there.

How in this world can an operator be successful? It’s next to impossible.

One of the problems is that the government often fixes the rates. And once fixed, it takes years before they are revisited.

New technology entrepreneurs like Ola, Uber and YatraGenie, make this worse by undercutting prices even further.

Are you saying that the entire cab ecosystem, in its current shape and form, is unsustainable?

Yes, that’s exactly what I’m saying.  It’s not long term, not until we change the pricing mechanism.

Related content

Ola Integrates Technology with Transportation

Meru Cabs Unruffled by Competition in the Market

‘Carzonrent’s taxi business is about safe, convenience and consistent quality delivery’

Since taxi aggregators can’t change the prices of cars, diesel or car maintenance, the only way to ensure that drivers can make a sustainable living is to increase the cost of a ride. What number do you suggest?

Realistically, a driver will be able to be happy, and an aggregator will make money, at a price of Rs 26-27 per km.

At that price, a driver will be able to take home about Rs 25,000 to Rs 30,000 and will be able to afford decent education and medical for his kids.

So why don’t taxi aggregators lobby the government to raise prices?

No aggregator has a right to ask the government to up the prices—not when they offer Rs 6 per km!

What you’re saying is in direct contrast to the slew of hoardings claiming drivers can make up to Rs 90,000 a month.

That’s marketing. It doesn’t work. It’s a marketing gimmick meant to get drivers to join an aggregator.

To make Rs 90,000 a month, a driver must make Rs 3,000 a day—and must drive every single day of the month.

To make Rs 3,000 a day, at an average price of Rs 10-11 a km, a driver must drive about 300 km a day! Can you imagine a driver trying to do that in a city like Bangalore?

On average, if a driver is working with a popular tax aggregator, he will probably do about 200 km a day. That’s if he is lucky and is willing to work 12 hours a day.

Even if a driver is this lucky–and works 30 days a month, which assumes they never take a holiday and never fall sick–they will make about Rs 65,000 a month. From that 20 percent goes to the aggregator, leaving the driver with about Rs 48,000. Then they have to pay for diesel (about Rs 30,000 a month), the car’s mortgage, and servicing. They aren’t left with much.

And if you work 12 hours a day for 30 days, well you are going to fall sick!

What are you doing about this, because you are party to the problem?

My model is different. I’m not interested in building a billion dollar business overnight. We want to take our time and build a business that’s both profitable and sustainable for the drivers.

I’m seriously looking at bringing about change. I’m trying to ensure that we start with the transporter. Like, I said, if the transporter is healthy, the ecosystem will work.

Since I cannot go over the pricing cap that the government has set, we have created a package for drivers. Part of the idea behind the package is to ensure that drivers don’t stick to city driving only. If drivers agree to increase the radius in which he is working, they can make more money.

This way we aren’t throwing incentives to drivers. The last thing we want is to create a culture in which we reward people for merely doing their jobs. Incentives should be limited to people who are super stars.

But I’m afraid that, in the last few years, in the rat race to become market leaders, taxi aggregators are spoiling our own people. We’re telling them that we’ll reward them just for doing their jobs. We’re creating problems for ourselves and we’re shooting ourselves in the foot.

Some day or another, if we continue down this path, things will break.

But players like Meru have been in this line of business for some years now. How do you explain that?

I have a lot of respect for Meru. Meru doesn’t make these promises to their drivers. I have to give them credit. And until the other aggregators came along they didn’t have discounting models.

But, that said, at Rs 19.5 per kilometer (the cap that the government has put in Karnataka), the operator is still making a loss.

You said “some day, if we continue down this path, things will break.” Can you make a guess of when?

That really depends on how deep the pockets are of the investors behind the aggregators.

So the question boils down to: When will investors stop investing and this bubble burst?

My guess is that it won’t go on for too long. Another two years at the most. I say two years because we’ve reached a stage where the two unicorns (Ola and Uber) are literally fighting. A fight, by the way, that isn’t good for all the other players, big and small, who can’t match the throwaways they are offering.

I hope that the investors and the folks running the aggregators realize that when the ecosystem breaks, there will be a lot of people on the road. End consumers will use public transport or autos, but the drivers will be in trouble. Remember, a lot of them have left mom-and-pop stores or other means of employment to drive taxis. When things go bad, it’s going to be hard for them to re-start.

I think the bigger aggregators should have some moral responsibility. A business that runs only on discounts has to stop.