Facing a Price War, Uber Bets on Volume 

The U.S. operation cuts fares while promising imminent profit. 

It’s becoming a bit of a holiday tradition for Uber: ringing in the new year by lowering fares. Amid a price war with rival Lyft, the ride-hailing leader reduced its rates by 10 percent to 45 percent in 100 cities across North America. In Detroit, Uber drivers’ per-mile rate is less than it takes to cover their gas and the depreciation of their cars, according to IRS figures. “It’s depressing,” says Bill Scroggins, an Uber driver in Indianapolis. “I’m not even sure I want to drive anymore. It feels like I’m doing it for free.”

This is the third year in a row Uber has discounted fares in January. It calls the cuts seasonal but says they could last indefinitely. Last year rates never rose again in almost a third of cities; only in two did they return to precut prices. Uber has instituted temporary hourly wage guarantees to limit drivers’ earnings declines. It’s assured Scroggins and other outraged drivers they’ll come out ahead by making more trips an hour thanks to increased demand.

That may be what Uber is telling itself, too. A few months ago, Chief Executive Officer Travis Kalanick told employees that North American operations would turn a profit in the second quarter of this year. The goal sounds less realistic in light of the price cuts. “Uber has to sacrifice profits for growth,” says Evan Rawley, a professor at Columbia Business School.

“We care deeply about driver earnings,” says Andrew MacDonald, a regional general manager for Uber. “We believe in price cuts when demand slows.”

On Jan. 15, Lyft said it would cut fares, too. “With recent price changes from the competition, we need to take action,” Lyft wrote in an e-mail to drivers. The company also announced a $1 billion round of funding on Jan. 4 to help keep its pink-mustachioed cars on the road. That brought Lyft’s fundraising total to about $2 billion—a ways from Uber’s $10 billion, but enough to dash Kalanick’s hopes of knocking Lyft out of the market.

Uber is also churning through cash a lot faster than Lyft, having said it will spend billions to push its way into China, India, and Southeast Asia. In the first quarter of 2015, Uber lost $385.1 million on $287.3 million in revenue, according to leaked figures published by the Information, a tech news site. And losses are growing: In the third quarter, Uber lost $697 million on $498 million in revenue, according to a person briefed on the numbers.

Over the first three quarters of 2015, Uber lost $1.7 billion on $1.2 billion in revenue. For perspective, during Amazon.com’s worst-ever four quarters, in 2000, it lost $1.4 billion on $2.8 billion in revenue. CEO Jeff Bezos responded by firing more than 15 percent of his workforce.

As it tries to expand abroad, Uber is counting on North America as a moneymaker. Kalanick predicted the continent’s imminent profitability last September, during a companywide gathering in Las Vegas. (Beyoncé also performed.) Globally, Uber tends to lose money per ride, but ridership is growing. Total trips increased about 40 percent from the second to the third quarter of 2015, says a person familiar with the data. On a November call with investors, acting Chief Financial Officer Gautam Gupta said the company is profitable in two of its biggest countries, though he wouldn’t name them.

In North America, Uber has inched toward profit, even with lower fares, in large part by leaning harder on drivers. It takes as much as 30 percent of a driver’s fares now, up from 20 percent two years ago. Since 2014 it’s been charging riders an upfront Safe Rides fee, which goes directly to Uber. The fee started at $1 per ride; it’s up to $2.50 in some cities. Uber has said it uses the charge to help fund things such as safety education and background checks.

If drivers win rights as employees or manage to form unions, Uber may have to change strategies. For now, a steady influx of contractors means the company can get away with added fees and rate cuts, says Simon Kwok, a Boston driver who runs a blog about Uber and Lyft. While veterans complain that rates used to be higher, he says, “the new guys just don’t know.”

The bottom line: Uber’s third year of January rate cuts is complicating its efforts to eke out a profit in North America by June.

http://www.bloomberg.com/news/articles/2016-01-21/facing-a-price-war-uber-bets-on-volume

------------------------------------------------------------------------------------

Uber has announced that it will stop offering flat rates to customers travelling to London airports.

The private hire company previously offered a series of set fares for trips to Heathrow and Gatwick.

Rates to Heathrow started at just £30 for a journey from west London, while passengers could travel to Gatwick from south east London for £50.

In an email to customers Uber said: "Flat rate fares between London airports and central London will no longer apply — instead, fares will be calculated using Uber's time and distance rates — just as they are for normal Uber trips.

"Whether you're heading off on a business trip or coming back from holiday, you can always get a fare estimate in–app to see how much your ride will cost."

The email also warned that airport pick-ups will incur an additional surcharge to cover minimum parking costs.

Several customers took to social media to voice their disappointment at the news.

Jon Tarsey tweeted: "Very disappointed that Uber are moving to calculated airport fares - the flat rates were one less thing to worry about when travelling." 

The flat rates will be scrapped from tomorrow - Monday January 25.

http://www.standard.co.uk/news/transport/uber-scraps-flat-rate-fares-to-london-airports-a3163876.html