Bad Regulations and Better Responses: Part 3 - Invasion of the TNCs

These past five years, practically unnoticed until this last one, have witnessed the most radical change in public transportation since the introduction of scheduling software in the Early 90s: The invasion of traditional, analog services wallowing in their nostalgia by hyper- [or uber]-digital counterparts big on access, low on some concerns, and flying beneath virtually every City's and State's regulatory radar.

The new kids on the block, self-proclaimed Transportation Network Companies (TNCs), began in taxi form roughly seven years ago, as a vision in Paris. In September, 2013, New York City's Uber fleet contained only 500 vehicles. Last year - In less than a single year - this fleet (in competition with similar Lyft) grew to 9,600 vehicles (in all five boroughs), and bloated Manhattan's 13,000+ vehicle fleet of medallion cabs, thinning their densities by estimates (in May, 2015) ranging from eight percent (New York Times) to 30 percent (scores of "medallion" taxicab drivers interviewed by this author). More recently, so many traditional medallion drivers have jumped ship (to Uber) or abandoned their $200/shift medallion cabs altogether that the Ubers have largely replaced thousands of medallion cabs, reducing the number of taxi vehicles in the service area, and raising the densities of both types to close to pre-Uber levels.

In the process, of course, the value of a taxi medallion (the symbolic form of NYC's taxicab entry fee) slid from an estimated $1M/vehicle less than a year ago to practically zero - bankrupting or denting the financial future of owners of hundreds of units (a few own more than 1000), and launching what will likely be the transportation field's law suit of the 21st Century.

The details of New York City's woes will be covered in a future installment. In this installment, I will try to describe, as succinctly as possible, how all this got started - and how it managed to skate past our sluggish regulatory structure in almost every State and major city in the country. And I will provide a quick glimpse of the rapid chameleon-like transition of this beast from taxis to charter services - and where its most-likely next targets will be. But this is a magazine article, not a book. So as this mini-overview whizzes by you, readers, wake up and stay tuned.

From Out of Nowhere

Frustrated by his inability to hail a taxi one snowy evening in Paris, 2008, former Silicon Valley ex-patriot Travis Kalanick had a vision. With "apps" all the rage, and the lives of the Developed World's young adults increasingly sucked into the vortex of round-the-clock cell-phone addiction, Kalanick devised the notion of an app that could instantly summon the closest vehicle from an endless fleet of taxis by simply "pushing a button." Designed to disrupt what he perceived as a "very broken transportation system" (just as I have for my entire career in the field), Kalanick launched his innovative idea and fleet in San Francisco, in 2010, with a handful of assorted vehicles.

Kalanick's model was to simply replace reservation clerks and dispatchers (and "hailing" in those cities whose taxis operate in this mode) with an "app." Initially called UberCab, Kalanick skirted the limp order to "cease and desist" from the San Francisco Municipal Transportation Commission and the California Public Utilities Commission by simply dropping the term "cab" from his entity's namesake, reinventing it instantly as Uber.com. (I am guessing this domain cost him $7.99/year from GoDaddy.com.)

Otherwise, so much for the help you can expect from U.S. regulatory authorities - as Mitchell Rouse found out when the Los Angeles Public Utilities Commission almost destroyed his SuperShuttle concept with its extraordinary ignorance (see NATIONAL BUS TRADER, July, 2015). By mid-2011, when Uber had a mere 9,500 customers, former Netscape mogul Marc Anderssen offered him $220M for it. According to Vanity Fair (December, 2014), Kalanick's enemies included "the traditional taxi industry, regulators around the World, his rivals [e.g., Lyft] and, on occasion, his customers."

Catching our stagnant taxi and limousine industries that have evolved more slowly than barbershops in the past 50 years with their pants down was hardly a challenge. With its competition less alert and prepared than the Tar Baby, investment dollars flowed into Uber at warp speed. By December, 2014, Kalanick's "smart-phone-based car service" was worth $18.2B. (In comparison, rival Lyft was valued at only $275M a year earlier in May, 2013).

In New York City, the average "cabbie" eked out a living of roughly $38,000/year by driving 72 hours/week in six 12-hour shifts. It became the hardest U.S. city hit by TNCs because traditional taxi drivers were paying $200/shift to amortize the City's $1M/vehicle medallion value (some cabbies claim it was worth $1.5M). Without having to amortize this obscene entry fee, no insurance requirements, virtually no regulations, and missing other programs, armed with only an app and a navigator (to replace the reservation clerks and dispatchers of most other cities' taxi systems), the housewife-turned-Uber driver could make $90,000/year driving a 40-hour workweek. NYC's elected officials and regulators did nothing - for which, again, they are now facing a huge lawsuit which, if successful, will simply soak the local and state taxpayers. But that is a story for a future installment.

Uber initially made some mistakes - like charging eight times the regular fares for peak period service (e.g., Christmas shopping week). But after a firestorm of protest from its customers, Uber curtailed this practice, and business returned to normal. Clearly understanding density the same way I and Mitchell Rouse do, Kalanick realized from the start that the more vehicles he placed in service, the shorter would be most customers' response times,and the less deadhead time and mileage each vehicle and driver would incur. Having a "free" app on one's cell-phone sped up the response time even more, and every combined reservation and fare payment (tip included) became nothing but an instant credit card moment.

Kalanick's ultimate goal was to make using Uber cheaper than owning a car - not exactly a challenge in Manhattan where parking can cost $50 to $70 a day. Some big-name investors, like Dallas Mavericks owner Mark Cuban, who initially turned Uber down, have regrets. Google does not. It sits prominently on the Uber Board of Directors. Should Uber need any funds - say, to imbue its service with after-thoughts like safety - it merely need turn to the corporation that will soon own most of the world.

Truth and Fiction

Dawson Rutter, the CEO of Boston-based Commonwealth Worldwide Chauffeured

Transportation, attributes Uber's enormous success simply to "outright deception" (Limousine, Charter & Tours magazine, December, 2014). Closer to the truth, according to Rutter, are a plethora of accidents, drivers with criminal records (hardly new to U.S. transportation when you factor in the non-emergency medical transportation industry and many cities' taxi operations), price-gouging and legal violations. Pre-trip inspection check-outs: Are you kidding? According to Rutter, "Uber is [simply] manipulating the people."

It takes little thought to recognize the list of characteristics that this new mode, with its far-superior communications-oriented customer interface, do not possess. One can effortlessly begin the list with training, monitoring (the Achilles heel of all U.S. public transportation services), insurance, regulatory compliance (including hours-of-service compliance, although many TNCs may comply better than many motorcoach charter operators) - along with the absence of dispatchers, reservation clerks, management personnel and even the facilities in which they would otherwise operate. But in spite of this, Uber is just another component of most of its customers' now-cell-phone-dominated lives, and demand-responsive transportation simply another app away - like pizza and grocery deliveries, dog walkers and prostitutes. We have seen this act before, as retail stores are vanishing like Ebola victims, replaced by the new continuum of digital ordering, and door-to-door warehouse-to-customer delivery services. Failing to adapt, most of the U.S. motorcoach industry will be swallowed up by TNCs like guppies.

Targets and Laughingstocks

Many public transportation modes have nothing to fear from the TNC trend. That is because many of them, highly subsidized, are protected - lest their subsidies increase if their densities are thinned. Among these modes are fixed route bus service, intercity passenger rail service, complementary paratransit service, non-emergency medical service, and even most motorcoach-oriented commuter- express services (at least until the TNC's figure out how to skew the bid processes that procure them and underbid conventional operators). At risk are those modes which actually make some form of profit - as old-fashioned, fragmented, analog and devoid of creativity as they are. Especially with the plethora of "cosmetic" motorcoaches flooding the market (i.e., body-on-chassis "conversions"), the three remaining sectors of the motorcoach industry - intercity/scheduled service, charter and tour operations - are nothing but bait for the next shark attack. And sharks can smell a drop of blood a mile away, even in the briny, rakish, polluted waters we have bequeathed to them.

TNCs have leap-frogged our outdated anachronistic transportation modes by eliminating the distinction between labor and capital (e.g., taxi owners leasing vehicles to taxi drivers), and consolidating them into a diluted porridge than any slob can buy into, where any dreamer can instantly become a franchise-holder, where any ex-con can find a haven of new opportunities, and where the natural dynamics of thinning one another's density is the owner-operator's problem, not that of the franchiser to whom every new owner-operator must "pay the vigorish."

Particularly unregulated, the maximum number of vehicles will reach a level where the franchiser's profits will "max out," while the owner-operators' profits will shrink to a level where those left in operations will only be those who can stay alive from the scraps of their unregulated over-population of every service area. An obvious concern would be far less attention being paid to safety.

Effective Responses

So you see: Just like I told you in the first installment, this is all about density. If you do not understand density, start thinking of your business as something that will soon become a memory. But you cannot merely understand this.You must do things about it. Not something. Things. At the Greater California Livery Association Expo held last September, 2014, key speakers exposed the charade of TNCs. Yet they were also realistic enough to suggest the changes that the limousine industry needed to make in order to survive their assault. These same changes will be needed by the motorcoach industry.

I will expound on the major themes in future articles. For now, a few phrases to the stunned must be sufficient:

• You must become hopelessly and needlessly digital
• Motorcoach service must morph into an integrated mix of demand-responsive and advanced reservation transportation - not merely provide the latter
• You must weed out the chaff and consolidate the wheat
• You must use the media - including the array of social media - to get the truth out to not only to those fashioning our toothless regulations, but to existing and would-be travelers and passengers
• You must focus on branding - an evolutionary step beyond advertising
• You must find a way to hold the TNC's accountable and make the nature of their operations

transparent

• Your website must have top-notch SEO
• And you must begin to sell the best thing you have to offer - what I have been begging you to sell since I began writing for this magazine: Your safety record

You also need to start thinking about new inclusions in your management team, whether comprised of in-house staff or consultants. The team you will need to compete with the TNCs of the world must include at least one super-geek (more likely a small army of them), and someone who actually understands the fundamentals - much less the intricate nuances of - density. I mastered this concept in the paratransit systems I designed and operated 30 years ago, just as Mitchell Rouse mastered it in his initial design of SuperShuttle (see NATIONAL BUS TRADER, July, 2015).

In contrast to the array of arbitrary ignorance that characterized my competitors' paratransit services, those systems I designed or operated employed a "service concept" (an element of system design). As a result, we grossly-outperformed even the most modern of today's services whose efficiencies are established only by some software program's ability to optimize the chaos of every system's failure to be designed in the first place. This is also where the temporal and spatial relationships were not only not optimized, but where the owners and managers of these services were oblivious to the very existence of these concepts as variables, much less as competitive necessities. But to compete with the oncoming wave of TNCs, you must not only be aware of these necessities, you must embrace them, master them.

In all of this, the motorcoach industry has one thing going for it: Sixty percent of our passengers are elderly. Our riders may own and use computers. But their lives do not revolve around cell-phones, and they do not purchase almost everything via an app. For this audience, let the bidding for the domain wegetthephone.com now begin. And if you get this domain, or one like it, make sure you hire and train people to answer it. Since TNCs are all about robots and illusions, it is the only genuinely valuable tool you have left.

This author thanks Vanity Fair (December, 2014) and Limousine, Charter and Tour magazines for their many facts employed in this article.

The opinions expressed in this article are that of the author and do not necessarily represent the opinions of NATIONAL BUS TRADER, Inc. or its staff and management.