Why Uber And Lyft Rides Got So Expensive - YouTube

If you've taken an Uber or Lyft recently, have you noticed anything different?

Prices. You know, Jim, and I mean, we've all experienced this lately.

There seems to be a bit of a shortage of drivers.

Right. And the prices are exorbitant.

The cost of a ride from a ride sharing app like Uber or Lyft increased 92 percent between January

of 2018 and July of 2021.

Many riders also noticed increased wait times for rides.

So what's behind this change?

To us, the big issue is just that the drivers supply remains fairly constrained.

In early July 2021, Uber and Lyft drivers were about 40 percent below capacity.

The companies have taken notice and are investing millions worth of bonuses and base rates to convince

drivers to return.

While the companies have been spending a ton of money to incentivize drivers to get back on the platform,

you've talked to a lot of drivers that say it's not really trickling through.

Uber is still considered an unprofitable company, and Lyft just recently reached the status of profitable

when considering its adjusted EBITDA.

Profitability was a problem for these companies even before the pandemic, calling into question the

effectiveness of their business models.

It's hard to see how these companies become profitable, but the CEOs have promised that they would

reach that measure adjusted EBITDA profitability within the next few quarters, and Lyft actually did

achieve that. The question is, if they can sustain it.

To turn things around, these ridesharing companies might need to do even more to convince drivers to

return.

I would say the companies don't really look at us as human beings and they just consider us profit.

The pandemic hit almost every industry hard.

Uber and Lyft were no exception to that.

Ben Valdez, a driver and member of the group Rideshare Drivers United remembers what it was like in the

beginning of the pandemic.

Because everything was shutting down in the very beginning around March, the demand went down

drastically. And I'm talking, you know, I used to typically average anywhere between 100 and 150 dollars

a night. Once everything started to slow down, I was making...

I think it was around 85 dollars for 12 hours.

So at that point, I said, you know what, I'm going to take a break.

And a lot of other drivers took the same way out.

First, for the ride share, obviously, the decrease in mobility was a shock to a lot of the drivers that

require this for their incomes.

Right, and it was airport rides, commutes to work, it was just general mobility.

And so I think kind of the sudden drop off in demand.

And then you add to that once demand started to build back, this idea that, you know, was it safe for the

drivers to be driving around passengers?

I think it was an anxiety around that as well.

In fact, many drivers switched to food delivery.

I was making the IV drive like a 150, 200 miles a day to make like 100, 120 bucks.

And then I got turned on to InstaCart and DoorDash, Amazon Flex, and I was driving

like a quarter of the miles and I was like making 200 bucks a day easy.

It was a bit like a gold rush for drivers who were not able to deliver passengers during the pandemic.

While Uber is ride sharing revenue decreased 43 percent between 2019 and 2020, its

delivery revenue increased 179 percent.

There are investors and there are Wall Street analysts who have said that Lyft and Uber are, you know, these

great reopening plays and that Uber is hedged because it now has this food delivery business plus ride

sharing. So if the economy opens back up, it's well positioned.

If we see the rise of the Delta variant than its food delivery business would be well positioned.

We win both ways and we stay relevant to the consumer, whether they want things delivered to their

home or whether they want to go out, whether it's to a party or to a restaurant or to work.

Ride-share drivers are still the bread and butter for these companies.

Uber may have seen a steep increase in delivery revenue in 2020, but mobility, the term Uber uses

for its ride share business earned quite a bit more than its delivery business in the same year.

Uber said that it was spending, I believe, 200 million dollars on driver incentives.

And you really saw that hurt their core business in terms of that adjusted EBITDA profitability and their

latest results.

They lost far more money than Wall Street was expecting.

We're investing so that our consumer and our rider experience is better.

And we can actually bring some of those rider prices down as supply shifts and balances out.

Uber's website says drivers make anywhere between 22 dollars an hour in cities like Orlando to

37 dollars an hour in cities like New York.

Lyft has a long list of incentives and bonuses for drivers.

The minimum driver incomes was to us a very good barometer to try to understand how aggressively they're

trying to woo drivers back.

Right, and there's a host of other incentives that they use for drivers.

They'll give a driver a bonus for running in a specific area.

They'll call it a hot zone.

Right, they'll say you do an incremental ride you get this extra bonus.

But to us, the minimum income was a nice way to kind of encapsulate all of that was happening into one

number.

But for those who are still making a living, or at least trying to, from ride sharing platforms, the

companies are not offering enough.

Look at how they treat us.

Don't be scared, guys. We pay your salaries, you ********. You know we're all drivers, right?

You know we're all drivers, right?

60 cents a mile, driving around, it's not an adequate rate.

You know, at a dollar to a dollar fifty per mile, I would say, you know, people would be content.

There are some transparency issues as well in terms of how much drivers are actually earning and in which

markets and where there is that imbalance.

It's hard to say exactly how much an Uber or Lyft driver makes sense the amount would be different

depending on the location, ride frequency and other factors.

There is a base pay for drivers that differs from city to city.

The full rate is calculated from the distance of the ride and the amount of time the ride took.

Uber and Lyft both take their cut of this calculation .

In the second quarter of 2021, Uber take rate for rides was about 19 percent.

But some drivers are saying that's not what they see.

So they started taking the bulk of the fare.

And so that's how Lyft has now achieved profitability off the backs of the drivers.

Drivers do get to keep tips and bonuses, but to some drivers, the bonuses can feel too much like a game.

An example would be right now during the peak hours, they are offering anywhere between 15 and 18 dollars

for every three rides that you take.

The problem is, is because there's such a shortage on drivers, you now have to drive 20 minutes to go pick

somebody up and potentially make 3 to 4 dollars.

And so, you know, a lot of these incentives are games and they're just designed to keep people

thinking that they're making money off of it.

The driver shortage calls into question the ride share business model and whether it's a sustainable one.

A lot of these companies, the playbook was the same: spend big, grow fast, pay people as little as you

can and expand your service, knock competitors out of the market, establish market dominance and then

raise your prices. And now we are seeing the last phase of that strategy.

And now those competitors, in many cases, they didn't make it.

New York City lost over 10,000 yellow cab drivers from January 2015 to January

2020 before the pandemic when Uber and Lyft were both rapidly growing.

Back then, ride-share companies were subsidizing the price of rides with promotions, discounts and even just

lowering the cost of rides to bring in new customers.

It was a heavily promotional environment, and part of that was to try to drive market share, was to try to

drive people to test, right, and to understand how these products work.

To me, it's not dissimilar than getting a taste of something at Costco.

Right, I mean, you try it and then hopefully if you like it, you become a customer for life.

And it was a cost associated with that sample.

So the capital raised by these companies in part went to making rides more affordable and making sure

drivers were happy with their compensation.

But now that Lyft and Uber are public companies, they have to worry more about making a profit.

You can't compete as a regular business with a startup that is, you know, is basically

paying dollars for dimes.

And so a lot of these competitors have gone out of the market now.

And so there isn't really a lot of choice left.

You have to pay the increased fees or just give up on the service altogether.

And some investors are anxious to hear what solutions Uber and Lyft come up with.

I mean, it's a key part of the business, right?

This is a platform that relies on connecting drivers with riders.

So there is no business if there isn't any drivers.

You know, what's interesting is there does seem to be a little bit of a battle between the two companies.

And so, you know, you can get into a geography and turn on your Uber app and not see any cars and turn

left and see a ton of cars and vice versa.

So I think there is still this very competitive and liquid market for these drivers that over time should

normalize.

Uber declined to comment for this story, but did provide CNBC with some of the information in this

story. And Lyft said we've added thousands of drivers to the platform and expect rider wait times and

prices to improve moving forward.

Both Uber and Lyft know how important drivers are to their businesses

We're increasing incentives for drivers to get back out on the road.

Drivers are earning more per hour and typically some markets there at all time highs between

thirty five dollars and forty dollars in top markets.

The question is, will they be able to make amends with the driver community who even before the pandemic were

disgruntled with the companies and convince them to come back?

Over time, we'll see some of that balance out where I think you're going to see drivers that are going to do

combinations of things; they might do ride share, they might do food, they might do package delivery.

You know, there are ways that I think the ride-share companies have figured out that putting more volumes to

the network, right, having different types of volume, right, and particularly packages can help better

optimize kind of the economics for both the driver as well as for the ride-share company.

There's so many help wanted signs.

And yet there's this tremendous mismatch between what the help wanted and what people want to do.

And to get drivers, they're going to have to pay them more.