Taxi aggregator service Uber has been operating in India for almost two years without anyone bothering about ‘surge pricing’ -- where cab fares multiple with rising demand.
But the controversial model hit the headlines during the ongoing second phase of the odd-even scheme in Delhi, when fares on Ola and Uber went by up to five times the usual price due to high demand.
The ensuing outcry led the Arvind Kejriwal-led Delhi government to ban surge pricing, a move that upsets the business model of cab aggregators.
What is surge pricing?
Fares of taxis surge when the demand exceeds the supply. This means, the number of people requesting for cabs is more than the number of cabs available in the city. The surge happens on the base fare fixed by cab aggregators.
How does it work for cab aggregation apps?
Cab aggregators such as Ola Cabs and Uber create algorithms that calculate the number of requests at any given point, and equate it with the number of cabs available. The process and fares are dynamic. The higher the demand, the higher the surge, at times as high as four times the base fare.
During surge, cab drivers clock higher fares. A portion of this goes to the cab aggregators. For example, Uber takes 20% of the total fare. The higher the surge, Uber makes more commission. Surge also helps in prioritising travel. A person who needs to go for a meeting or reach the airport takes the cab at the surged price, but anyone who wants to go out for shopping waits till the surge ends.
How are prices calculated during a surge: who calculates it, does the driver have a role ?
The mechanism of calculating surge prices is similar to ticket prices in airlines – cost of travelling drops or increases closer to the date of travel and on occupancy. It’s dynamic.
Uber and Ola Cabs use proprietary software and algorithm to calculate demand and supply, and it happens by the minute. Cab aggregators do not have control over supply, but according to some company officials, surge helps in getting idle capacity out on the roads.
What happens once surge prices come into effect?
Once, the surge happens drivers are who are at home also come out – it’s like a bait to earn more. That helps in increasing supply and bringing down the surge. Surge helps in maintaining equilibrium, the companies say.
Why is Arvind Kejriwal against it?
Kejriwal mentioned in his tweet that cab aggregating companies who refuse to operate without surge are blackmailing commuters and the government won’t allow it. Surge is equal to looting Delhizens, said Kejriwal. A ban was introduced for the period of the odd-even scheme. However, on Wednesday, the Delhi government said that the ban on surge will be permanent, and not restricted to the 15 days of the road-rationing scheme.