[By Regina Clewlow]
Since their initial public offerings earlier this year, both Uber and Lyft have posted significant quarterly losses, leading some to question whether or not mobility services can ever be profitable. And just this week, it was also reported that Lime, one of the world’s largest shared scooter companies, will lose more than $300 million this year, on more than $420 million of gross revenue.
As a former transportation researcher who spent far too many years in academia, I know a broad network of people who have spent the majority of their lives researching, planning, and developing policy for transportation services. Within this network, I’ve had a variety of conversations with the brightest transportation minds – some who believe there is zero chance that Uber or Lyft will ever be profitable, as well as others who have joined these companies because they believe that they will fundamentally transform transportation in cities for the better, while also becoming profitable.
Is important to note that there are examples of transportation services that are profitable today, as well as examples throughout history:
- In the United States, most urban transit services before the 1950s were initially operated by private companies that were regulated by public agencies – and were profitable!
- The majority of airlines are profitable, although often with slim margins, and a history of restructuring (usually to reduce labor costs).
- Many mass transit services in Asia are actually run by private companies, a prime example being Japan’s urban metro and intercity rail systems.
What is common in the rise and fall of private transportation services is that they are linked to the decisions that public agencies make about how to regulate and subsidize them. In many ways, the profitability of private shared mobility companies lies in the hands of the public sector. The following are some of the key issues controlled by public agencies that could lead to their success or demise
1. Regulation of the number of players and total supply could improve or destroy business economics.
In some cities around the world, shared electric scooters continue to be completely unregulated, where nearly any operator can launch a service with as many vehicles as they like. In these markets, few operators have any hope of being profitable. As I understand it through conversations with cities, utilization rates barely reach 2 rides per vehicle per day, well under the 5+ rides per vehicle per day necessary to reach a state of profitability.
On the flip side, overly constraining supply with too few vehicles for people to feel they can rely on them as a transportation option, and where operators’ fixed costs end up being too high leads to poor outcomes as well.
Smart regulation that restricts the number of operators and number of vehicles (without overly constraining supply), gives these operators a chance to achieve profitability. In fact, Lime itself is advocating for such policies in San Diego.
2. Cities could prioritize the physical space needed for mobility services to operate successfully.
Shared electric scooters arrived in large numbers in cities where there was insufficient space for riding or parking bikes, let alone scooters. In some regions, such as Arlington County, transportation planners have been proactive about carving out new parking space for shared bikes and scooters. The County has plans to also expand the space that their users have to safely ride on streets.
There are limits to growth for shared scooters and bikes, and a key factor is the portion of people who actually feel safe enough to ride these services on our city streets.
3. Public agencies could subsidize services, where it provides value.
The majority of transportation services receive some form of public subsidy. In the airline industry, public subsidies are provided to ensure that routes to smaller tier cities continue to be serviced. In mass transit, in the cases where private operators still deliver service, subsidies are available to ensure that transit services are available in traditionally underserved areas (e.g. geographically) as well as offering subsidies for lower-income riders.
In the case of scooters, which are more easily regulated than Uber or Lyft, we are seeing policies that set unfunded mandates to deliver service in lower income neighborhoods. These are well intentioned policies. Expanding mobility equity is a fundamental objective for all cities – transportation impacts one’s ability to access jobs and provide for one’s family. Two key questions that many public agencies should ask themselves are: 1) do we want these new mobility services to stick around because they could improve transportation equity in our city? If yes, 2) what are the sources of financing that could be leveraged to subsidize them to achieve certain goals, for example, ensuring that they are accessible to all?
Transportation companies that can figure out how to most effectively work with public agencies, not against them, are the ones that have the greatest chance of achieving profitability in what will always be a highly regulated sector. Even automakers would not be where they are today if federal and regional agencies hadn’t set policies and made large public investments into transportation infrastructure that resulted in large subsidies for parking, roads, and highways that these vehicles rely on.
The viability of shared mobility services is still uncertain, but if public agencies believe that these new options can and should fit into the fabric of our cities, they can be successful private enterprises as well.