After the crisis, the real work begins

THERE APPEARS TO BE AN AIR OF hope and optimism that the worst of the Covid-19 pandemic has passed, and life in this industry may start to ebb toward normality.

Whether this is wishful thinking, hope over experience or reality we will no doubt discover. One thing is certain - there will eventually be a turning point, and when it comes, the real work begins.

The fog and chaos of Covid has shielded much and tested many but it has also hidden problems and put many things in abeyance. As the fog and the chaos drift away, those things that the industry struggled with before Covid will come off the back burner and be at the forefront of everyone’s thoughts and actions.

The industry collectively entered this period already unsure, challenged and frustrated. During the Covid period some have thrived, some have sunk without trace and others have survived. The skills needed, and if we are honest acquired and deployed very quickly during the Covid period, won’t be the same skills that will be required to strategise and build a profitable and successful future.

Happily, costs will be lower as everyone has had to take tough decisions which will set companies up to cope with volumes which without much doubt will be lower. Cash will have been eaten up or exhausted, cars will need replacing and staff will want more money. So old problems and challenges will mix with new.

The oft-claimed driver shortage appears to me to be nothing of the sort – instead I would suggest it is simply an economic issue. Supply has unsurprisingly diminished through a mixture of Brexit and not being able to earn a living as a taxi or private hire driver, and other work has been found. Fares are relatively low and in some cases at historically low levels.

Demand has yet to be seen. During brief forays over recent months into a near-normal state, it did appear that demand has been stellar and quickly outstripped supply leading to the claims of a driver shortage.

Simple economics dictates thatwhen demand is relatively high and supply is relatively low prices rise to burn off some demand and to stimulate additional supply. We are in that situation. Fares across the industry are on average much too low and have been for a long time.

We are in an inflationary situation, fuel is at breathtaking prices; secondhand cars are costing more; repairs and parts cost more and earning aspirations are growing as shopping and fuel costs rise. Add into this the need to migrate to electric cars and fund whatever additional requirements local councils decide are necessary to comply with the new statutory guidance and there you have a quick demonstration of why fares will not only have to rise now but continue rising for some time.

The ‘skill’ of being able to reduce prices and compete against venture capital-funded operators, some of whom have subsidised fares by up to 60%, is not much use now. The here and now and foreseeable future will require the skill of moving prices steadily up to address the supply situation, and in all likelihood to burn off some demand.

The new situation will require drivers to earn much more in order for operators to compete with the competition for their services – for example, deliveries. It will also require customers to pay much more if they want a service. The recent madness of the past seven years or so, where prices have reduced from an already low base, is firmly over.

Operators will need to continue to monitor and control costs effectively as I believe this will be a smaller industry so therefore there will be less opportunity to generate revenue based on increasing volume. This situation, with all its downsides and risks, and the new skills and propositions needed to retain and gain market share, will be a great leveller.

It was starting to become obvious before Covid that the lack of a path to profitability among the more proliferate of the new entrants was stressing their ‘investors’. A gentle move up in interest rates will reduce high wealth individuals’ appetite for risk and VC money may be harder to find.

No one will be immune from having to charge more to customers and pay more to drivers and if, like some, the only tool in your bag is low fares… well, the future is looking somewhat difficult!

This industry is never boring and this phase of our collective careers will prove no different. As always, action will be more important than hope. After the energy and focus expended by everyone who hassurvived or thrived during the last two years it would be a shame to relax now and simply hope that somehow business will get back to what it was and that drivers will magically migrate back to taxi and private hire. The work begins now.

Dr Michael Galvin

https://mobility serviceslimited .com