What is surge pricing and do all taxi companies apply it?

Thanks to app-based taxi company Uber, surge pricing has become the subject of many negative news stories. But what is surge pricing and do all taxi companies apply it?

In this post I shed some light on surge pricing and how pricing is structured in the taxi industry. If you find this useful please share. I welcome your comments.

So, what is surge pricing?

Surge pricing is based on simple economics: When demand outweighs supply, prices go up. It’s nothing new: Airlines and accommodation providers have used a kind of surge pricing during peak holiday periods for years.

Uber says that increasing the price of a taxi ride when demand is higher than supply encourages more drivers to work, which solves the problem.

Well, “thanks”, Uber. This doesn’t, however, change the fact that surge pricing has upset plenty of Uber’s customers in recent times. For example, how would you like to pay $213 for a 23-minute journey? (http://www.nzherald.co.nz/world/news/article.cfm?c_id=2&objectid=11381271) That’s what Australian woman Jade Wilkes ended up paying for a ride home on New Year’s Eve. Because demand was so high, Uber calculated her fare at 3.1 times the normal rate! What made things worse for Ms Wilkes was that she wasn’t advised of the inflated price and Uber used a base rate of $68.90 when the trip normally costs $35, but that’s another story.

Uber’s pricing structure

Putting aside surge pricing, a standard Uber ride in Auckland is structured as follows:

  • Base fee — $1.50
  • Price per minute — $0.50
  • Price per kilometre — $1.45
  • Safe rides fee — about $1.00.

Their minimum fare is $6.00.

What about traditional taxi companies?

Traditional taxi companies don’t use surge pricing as such. However, their fares do fluctuate considerably and can be difficult to gauge.

Three main factors are taken into account when calculating fares:

  • Flag fall — this is the cost of getting into the cab before you even begin your journey. The flag fall price varies from company to company.
  • Rate/tariff — this is the per-kilometre price. It can vary depending on the taxi company, the time of day and how many passengers there are.
  • Extras — these are for expenses unrelated to time or distance. Extras could be charged for things like waiting time, very low speed during peak traffic, booking over the phone, multiple drop-offs, pick up /drop-off from airport, e-card charges, late night or early morning trips, or carrying a large item, like a bike…

How to avoid unpleasant surprises

If you use Uber, they should advise you how much your trip will cost-not just guesstimate. So, make sure they do or you haggle- sort off- before you accept a ride.

As you can see by the price breakdown above, pricing for traditional taxi companies is more difficult to predict. However, if you are a regular traveller, you can negotiate a fixed rate.

There is also my company, http://www.cabchooze.co.nz. In many ways Cabchooze is like Uber — you book your ride through an app. However, there are several major differences, including we do not use surge pricing. The Cabchooze algorithm is designed to provide customers low fixed-price fares for journeys over 10kms, during peak times, or not.

I hope I was able to shed some light on surge pricing and how taxi fares are calculated. If you found this post useful please share. I also welcome your comments.