SINGAPORE: The entry of GrabCab into Singapore's taxi industry could disrupt the current market and draw drivers away from established operators. 

This is due to Grab having the resources to potentially dole out incentives to drivers on the tech firm’s street-hailing and ride-hailing platforms, transport analysts said.

This new entrant with such a big platform to leverage is a wake-up call to other taxi operators, said Associate Professor Raymond Ong from the National University of Singapore (NUS).  

“It’s a reality (check) to the traditional taxi companies, or even taxi companies that are relying on the Grab app to maintain their operations,” he said.

“What we have to (look out for) now is, how will GrabCab be getting its supply of taxi drivers? Will it be attracting taxi drivers who are not so happy with existing operators and are looking to jump to GrabCab?” 

GrabCab, a subsidiary of Grab Rentals and a sister company of GrabCar, received its street-hail licence from the Land Transport Authority (LTA) on Wednesday (Apr 2), making it the sixth licensed taxi operator in Singapore.

The company will have a three-year grace period to grow its fleet to the required minimum of 800 taxis.

In a media statement, Grab said it plans to launch a green fleet comprising low- and zero-emission hybrid and electric vehicles.

The company will also cover the course fees for a Taxi Driver’s Vocational Licence and six-month National Taxi Association membership fees for new GrabCab drivers.

ADDED COMPETITION COULD KEEP TAXI OPERATORS ON THEIR TOES 

Associate Professor Walter Theseira from the Singapore University of Social Sciences highlighted that unlike a pure taxi fleet operator, GrabCab has the opportunity to leverage the larger Grab platform to create incentives for taxi drivers to join the company. 

For example, this could come in the form of renting out a taxi to the driver at a lower rate, with the condition that drivers provide “a certain amount of service on the platform”. 

“Or (Grab) could rent (to drivers) at the standard rate, but could rebate the rental progressively, depending on the more service that you provided on the platform,” he added. 

“These are strategies that a combined fleet operator and platform can do, but a pure (taxi) fleet operator cannot,” he said.

He added that for a start, to grow the number of drivers on GrabCab, the company will encourage private hire drivers on its platform to switch over to become taxi drivers on GrabCab, while also urging taxi drivers from other operators to make the switch as well. 

“The combination of these things will probably reduce the demand for the other taxi operators, and they’ll start to see their rental utilisation fall,” he said. 

“And then, if they cannot compete … they’ll probably have to let their taxi fleet numbers decline.” 

Transport analyst Terence Fan added that Grab also has the technical know-how to attract more customers to its product.

“While it is not necessarily the case that Grab would have to lower taxi fares to entice commuters to its taxis, Grab (does) have a history of using promotional codes in abundance in its early days to acquire new users,” said Asst Prof Fan, who is from the Singapore Management University. 

He added that it has the existing IT infrastructure to generate these customer incentives in a “relatively cost-effective way”. 

Agreeing, Assoc Prof Ong, who is the deputy head of research and enterprise at the NUS Department of Civil and Environmental Engineering, said that the above conditions will create pressure on the existing taxi companies. 

“I believe that most of the taxi operators today, their drivers are heavily relying on Grab’s app to get their customers,” he said. 

“I think we will need to take a look at how Grab is going to provide the salaries and benefits for the taxi drivers in this new setup.” 

In response to a CNA query on whether the standard taxi option currently available on the Grab app will be phased out, Grab said that it was "committed to maintaining an open platform" accessible to all taxi and private hire vehicle drivers.

It will also share more details on GrabCab at a later date.

Responding to queries from CNA, ComfortDelGro, which operates both the Comfort and CityCab taxi fleets, said: “We are confident in our ability to continue serving our long-time drivers and customers effectively, given our extensive experience in fleet management, established infrastructure, and large vehicle fleet.

It added that competition is “a natural part of the market dynamics”, and that it will continue to build up its ecosystem, driver benefits, and adapt its strategies as necessary to “ensure we remain a leading provider of taxi services in Singapore”. 

“As Singapore's largest taxi operator, ComfortDelGro has served Singaporeans for decades, building a strong and reliable taxi network, and remains committed to providing safe and high-quality rides.”

WHAT DOES IT MEAN FOR CONSUMERS AND TAXI DRIVERS? 

In the long run, taxi fares and taxi driver salaries are likely to remain the same, said experts. 

Assoc Prof Theseira said that there is little incentive for taxi operators to lower fares in a bid to attract more customers. 

“In the street-hail market, passengers typically do not want to wait for a different taxi to come by just to take advantage of a small difference in price … people will just try to flag down the first cab they see,” he said. 

Thus, pricing strategy for metered taxi fares has generally been to follow the market leader or largest player.

As for driver salaries, it will not deviate much either, at least not far from what private-hire drivers are earning. 

This is because if Grab tries to compete with lower fares, then taxi drivers will earn less compared to drivers on other platforms, and have no reason to join GrabCab. 

If Grab offers cheaper rentals of taxis, then taxi drivers will simply take advantage of the cheaper rental to provide ride-hailing services at “street-hail fares”, hence defeating the purpose of creating a taxi model in the first place. 

The above assumes that Grab will be operating GrabCab under the standard operating model, where the taxi driver rents the vehicle and keeps all the fares, said Assoc Prof Theseira.

“Fares are not actually kept by the taxi operator, unless Grab wants to change the model,” he said. 

WHY WAS GRABCAB’S LICENCE APPROVED? 

The licence was approved because it could help to grow the supply of taxis in Singapore and provide drivers and consumers with more options, said analysts. 

Grab said in its statement that the street-hail licence enables it to “address unmet consumer demand and improve ride availability, particularly during peak hours, late nights and in areas only accessible by taxis”. 

It also positions Grab to better serve the anticipated growth in point-to-point rides in the coming years, while catering to consumers who prefer street-hailing. 

“This means that they are a new entrant to the taxi operator market, so from a supply perspective, there is potentially more stable taxi supply … that could provide options for commuters and drivers,” Assoc Prof Ong said. 

He added that it is a vastly different proposition from Grab’s proposed acquisition of taxi operator Trans-cab. 

“The Trans-cab (acquisition) is basically about reducing the number of market players, because they (would) just buy over Trans-cab’s assets and operations,” he said. 

While the supply of taxis can increase, the challenge remains to attract more Singaporeans to become drivers. 

“What would be interesting to see is whether Grab can reinvigorate more drivers to enter the taxi profession – which has seen many elderly drivers retire altogether during the pandemic,” said Asst Prof Fan.