This is a post on Radio Taxi business in India. I am using Meru just as an example to understand the economics of business. There are simple back of an envelop calculations and hope someone gives me a better insight on this business. The numbers look too tempting to be real.
I was traveling with Meru yesterday (27th July 2008) and I happened to strike a conversation with the driver. During our conversation, he gave me following stats
- No of Meru taxis on Mumbai roads: 800
- No of taxis by EOY in Mumbai: 1300
- Average occupancy: 100% in peak-hours and 80%+ in non-peak hours
- Peak Hours: 7AM to 10AM and 6PM to 10PM. He said that its impossible to get a Meru Cab in peak hours. This vindicates the business model and demand in the market for these call cabs.
- Average Fare: Rs. 15 per KM. Compare this with regular taxis in Mumbai. A regular taxi is Rs. 13 per KM and a premium of Rs. 2 is not very steep considering the convenience and comfort of a call cab.
With these numbers the business sure makes a lot of sense. Only deterrents I can think of are:
- High fixed cost of acquiring taxis. Not a huge problem. They can take long term loans from banks or PE players. They can also acquire more cabs by using the part-ownership model (where each driver pools in some money to own the taxi and Meru is just a brand name).
- Setup of call center. Obviously each taxi needs to have a GPS device and a two-way radio. There has to be a way to connect the cab with the nearest available free taxi. And since this is a pure service offering, call center is very important.
- Capped Potential: The earnings is directly proportional to number of taxis on the road. The scope of innovating on income stream is really low. At max you can use your taxi as an advertising medium.
- Traffic rules and regulations: Registration with transport authorities in India is a very cumbersome and long process. Although this is a one-time stumbling block, companies would have to divert a lot of attention there initially.
- What else? Am I missing something here?
- I would want to what percentage of bookings is done for immediate travel and what percentage is booked at least 2 hours in advance. If the pre-planned travel is very high, then these companies can better utilize their capacities and go for some kind of planning.
- I would also want to know what percentage of bookings is for large corporates (say institutional). Because moment Meru gets institutional bookings, they can again manage the fleet better and can be assured of certain minimum number of bookings.
- Is their a merit in getting into contracts with airlines, hotels,
coporate parks etc to manage their taxi services? Again its of those
things where you convert huge one time capex for companies into on-demand opex.
- What innovations are possible so as to maximize the utilization of fleet and make more money from the same number of taxis? Would a thing like car-pooling work with radio taxis? Say junta going from Andheri to Town everyday can pool a Meru.
- What else? Please send in your suggestions.
From the Meru website, I could get following details
- After Mumbai, Meru is now available in Hyderabad, Bangalore and Delhi. As I said earlier also, the business potential is vindicated by simple calculations.
- India Value Fund has already invested in Meru. Although I am no fortune teller, but I can easily foresee a handsome return on the investment. And I can’t understand why the Penguin effect is absent in this industry. If I had money, I would have loved to get into this business. Obviously at the right time and right price.
Other Radio Taxi Players in India
If anyone can help me connect to someone with Meru or any other radio cab owners/managers, please drop a line. I will keep on updating this post on my wiki at s4ur4bh.pbwiki.com.
Image Credits: Andertho via Flickr
Disclaimer: I am assuming that the occupancy rates given by that driver are correct and the taxi service would have similar occupancy numbers in other cities.
Posted originally on my blog here.
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I am not convinced on the viability of the model in a place like Mumbai. The biggest cost for a service such as this is a Service & Maintenance Yard, which is very expensive to set-up in a city like Mumbai. Which means it has to be set-up outside the city. This is what is done in Manhattan, where Yellow Cab yards are in Queens.
In Mumbai, if the Yard is in Thane, the that is a daily 60 KM up-down commute for the vehicle for servicing and maintenance.
While the fleet is young, all is well, but once the fleet starts aging, the lack of maintenance will show up very quickly.
Also keep in mind current taxi fares in India are not sustainable for an A grade fleet. The low fares you pay for taxis come on account of very poor quality vehicles and bad maintenance. With Meru and others charging barely 8% more than Black n Yellows, its inevitable that they too will be unable to keep up the standard of their fleet.
FYI, there are some long articles on the same subject in the previous months editions of DARE magazine.
Well, can any of you give pointers on where can I find equipments for call taxi in india? Any idea of how much should be the capital needed?
I’m from Mumbai, and while I used to be a strong advocate of Meru Cabs a few months ago – I have stopped using their service (ironically) because they’ve become so popular that it is absolutely impossible to book a taxi. Indeed after having been on the line for 30 minutes – because when you SMS them they don’t always get back to you (‘you are caller number 5000, please hold the line, your call is important to us’ – sound familiar?). Even when you do manage to get through to a call centre exec, you are told that a taxi will most certainly be available… but in 1h15mins – which is of course no good.
I then used to accept my fate – and go looking for a black cab.
Very good comments and analysis. The radio cabs will work great if one has to travel a short distance say a pickup from airport and drop off at home or vice versa. However, in cases when one needs the car for the entire day, these will be extremely expensive.
BTW, does any one know of a similar study being done on car rentals in India. Recently, I bumped into http://www.savaari.com.
Given that India still doesn’t have a “all pervasive” car rental company, wonder how well the concept of a brand for an across India car rentals work.