Taxis - why you're paying so much

By Geoff Cumming

Auckland cab drivers feel they have become public enemy number one in the past few weeks, over the city's high fares. Geoff Cumming discovers the problem goes to the heart of the industry.

Photo / Dean Purcell.
Photo / Dean Purcell.

If you want to know how a city works, ask a taxi driver. Just don't get them started on the taxi industry.

Getting around public transport-deprived Auckland by taxi ranks up there with severely congested world capitals like Berlin and London, surveys tell us.

Getting a handle on why takes as many twists and turns as the scenic route to the airport in rush hour.

The low-down from taxi drivers: it's the market, stupid.

Deregulation in 1989 was supposed to usher in a world of choice, with the only bottom lines around passenger safety. The theory was fares would be cheaper as barriers to entry were removed.

But only one part of the theory worked: newcomers flooded in. Auckland went from 1000 cabs to 3500 in four years and the NZ Transport Authority estimates the city now has around 5000 drivers working for 40 firms. But while supply has far outstripped growth in demand, fares haven't fallen. Quite the opposite, industry leaders concede.

Fares here are claimed to be twice as high as in Sydney - whose taxi drivers were the butt of our cautionary jibes in the pre-deregulation era. The CheapFlights survey, which triggered a deluge of disgruntled passenger feedback to the Herald last week, found the average charge for a taxi from the airport to the city was $3.50/km, two places behind the most expensive city, Berlin ($4.06/km). A Deutsche Bank report this week had the average price at closer to $3/km and $4 in Wellington - up with Zurich, Berlin and London.

Yet, some countries frustrated with their state-controlled taxi services - where both fares and the number of taxis are limited - hold up New Zealand as the holy grail of taxi industry reform. Australian states, notably Victoria, have looked to remove limits on the number of licence holders, while lobbyists in some Canadian cities are touting the supposed gains of the New Zealand model.

But here, many support a degree of re-regulation - with limits on fares and the the number of taxis that can operate in an area.

Deregulation has undoubtedly broadened consumer choice: cabs range from 20-year-old Japanese imports to shiny limousines, while names vary from Cheap, Discount, Budget and Economy to Corporate Cabs with their uniformed owner-drivers. But prices don't necessarily vary accordingly - just as the more modest cars can be sparkling clean and well-maintained.

It's fine if you're out late on a Friday or Saturday night in downtown Auckland, long after the buses and trains have gone to bed. "Raise your hand in Queen St and you'll get 10 taxis lining up," says one driver. "It's not a healthy environment."

Why hasn't increased availability brought fares down?

"It's simple," says Auckland Co-op general manager Barrie White. "It's a deregulated market ... people can charge whatever they like."

The industry consensus is that with too many taxis for a city the size of Auckland, drivers aren't getting enough work and the fares set by taxi companies in part reflect the drivers' need to make a living.

It doesn't excuse the abuses of trust highlighted in the Herald's campaign over fares - but it helps to explain why drivers might get tempted.

From a consumer viewpoint, this particular free market is tilted too much in favour of the supplier. A customer in a shop can browse, compare prices and walk away - once seated in a cab with the meter ticking, you're a captive market. While taxis must display fares both outside and inside the cab, there's fine print and it's complicated: there's a flagfall charge; a distance (per km) tariff with up to four variations reflecting time of day or a group of passengers; and a waiting charge for time stuck at the lights or in congestion. Flagfall charges vary from around 60c to $4.60. But firms at the low end on flagfall may compensate with high waiting charges. Figure that out while the driver waits.

And the choice is not as dizzying as the number of firms suggests. The pre-deregulation oligarchs, Co-op and Alert, have responded to the open market in the finest traditions of capitalism - by swallowing at least some of the competition. Their reasons include closing-down threats, expanding their market share (both cars and drivers) in high demand areas, or buying out rivals with lucrative contracts - as happens with markets everywhere. According to Companies Office records, Alert's stable includes brands like Quality, Chequer, Kiwi, North Harbour Cabs, Regency, Eastern, Western and Waiheke. Auckland Co-op has A1 Cabs, North Shore Taxis, Black Cabs, Western Cabs and Kwik Taxicabs.

The main players hold sway in the NZ Taxi Federation and are often in the regulator's ear about alleged wrongdoings among the cut-price brigade. Former executive director Tim Reddish told Associate Transport Minister Michael Woodhouse last year that taxi security cameras were creating as many problems as they were solving, with some "rogue drivers" getting away with murder. "Our people can be trusted but unfortunately there are a lot in the industry that went for the cheapest solution ... and we know anecdotally there are a huge number of cameras not working out there."

Reddish also claimed, in his editorial in Taxi magazine last December, that operators at the "lower end" of the market were being allowed to operate despite obvious non-compliance with licensing rules.

The Transport Authority does monitor the industry (though to what extent it could not immediately tell us), conducting roadside spot checks, often with police help, and auditing companies for compliance with regulations. But its primary concern is safety, not fares - operators are free to set fares at whatever level they think the market will take and are merely required to register the schedule with the authority.

The authority rarely gets complaints about fares, which are supposed to be dealt with by the company. Feedback from Herald readers suggests this is far from satisfactory.

The light-handed regulatory environment can sometimes resemble the Wild West. A few years ago, Co-op struck a deal with the Auckland Council for a dedicated rank on Galway St, beside the Britomart railway station. For all the other companies, there's just one official rank within a drunk's stagger of Queen St, on Wyndham St. with space for five cars. Between jobs, taxis lurk in loading bays and in pay-and-display areas, risking heavy fines if parking wardens descend.

On Shortland St, a pay-and-display zone has become an unofficial taxi rank, with sometimes aggressive manoeuvring as allcomers jostle for space - and that's just by day. Co-op is also the preferred supplier of taxis at the ferry terminal, rivals say. "If I go down there the Co-op drivers will hang me," says one. "I'm the enemy."

Auckland Council says providing more taxi ranks would reduce public parking.

Meanwhile, another market force is in play. The difficulties which many migrants have had in securing long-term jobs in New Zealand, coupled with general unemployment, ensures an endless supply of applicants for a passenger service licence. Unemployed people can even get financial help from Winz to enter the industry, including short-term wage subsidies and help with driver's licence costs. Winz won't say how many it has helped, nor the sums involved, without an Official Information Act request. A passenger service licence, including the cost of police vetting, costs about $480. But drivers who are company employees are not required to hold a passenger service licence. Nor do drivers necessarily need their own car - taxis can be rented or sub-leased.

These low barriers and constant demand put more power in the hands of the employer - if drivers can't hack the terms, plenty more are in line. Those terms include a levy paid weekly or monthly to the taxi firm for services like 24-hour phone bookings, advertising, marketing and administration. Drivers' costs usually also include an in-car camera, alarm and eftpos machine. Some firms take a slice off eftpos transactions to cover costs. Drivers must pay GST every six months. Some are employees on $35 an hour, others are independent contractors. Co-op's drivers buy a share in the co-operative society and most expenses are paid - the entry cost has soared but White says there's a waiting list to join.

On a slow, wet Wednesday waiting for passengers off Queen St, listening to a driver we'll call Fa'avii (while most drivers are happy to talk, none want to be named), it's hard not to feel some sympathy for the cabbies who front an industry accused of ripping off tourists and locals alike with extortionate charges, wayward routes, intimidation and worse.

"There are so many drivers that there's not enough work," Fa'avii tells me. "Ten years ago I made about $150 a day or sometimes $200 if I got an airport fare. Now I earn more like $60 or $70 for eight hours. I blame the NZTA for allowing too many drivers."

Another driver, Ivan, complains that his company doesn't do enough marketing so he relies on walk-up patronage. "They would give me more jobs if I paid a higher levy but they don't have enough jobs to provide." Operators try to secure contracts with hotels, hospital boards and corporates so they are less reliant on phone bookings and walk-up custom, Ivan says.

"Many airport operators have contracts with hotels and charge a fixed rate, with the hotel taking a cut. It's very corruptive."

Retired driver Gary Ohms says deregulation brought in unsavoury characters - "people who didn't know their way around, [there were] sexual assaults, filthy cabs and GST avoidance".

Reforms have improved passenger safety but increased costs for drivers. "The guys making the money are the owners of the companies. They don't care if the drivers only last three months and go broke because someone else will walk in. All they do is provide a phone service.

"I know heaps of drivers who couldn't keep it up. When I finished in 2000 I reckon I was earning less than a kid working at McDonald's. It's heartbreaking - you'd sit on a rank for an hour and a lady would come along wanting a lift up the road with her shopping for $2.20. There are doctors and nurses and all sorts pushing a cab around for $7 an hour."

Current drivers point to the same issues. Airport fares reflect the huge sums companies pay the airport company for rights to the airport's ranks - either dedicated company spaces, for which a premium is charged, or spaces on "free flow" ranks.

The last tendering round allowed 700 drivers to operate from the airport, ensuring too many taxis are available, some drivers argue. The airport also collects a $2 barrier fee each time a taxi enters the terminal.

Vikkram Maan, an emerging force in the Auckland industry with five companies to his name, successfully bid for 50 spaces in the last tendering round. But he found not enough drivers willing to take the spots because of the costs involved, and relinquished 25. "It costs me $184 a week per car and that's what I charge my drivers."

He says drivers can wait hours at the airport for a fare and, if they only get two or three rides in a shift, they may take home less than $50.

Airport chief executive Adrian Littlewood won't disclose how much the airport company makes from the tendering system and barrier fees. He says the cost is reflected in the additional fares of $6-$10, which taxi companies pass on. He rejects claims that the costs are so onerous they jeopardise taxi firms' survival prospects. "We have seen companies disappear but this is generally down to wider problems they have."

Part of the income - $250,000 from the latest tendering round - has been put into improved facilities for drivers such as toilets and shade and better signage. The "management measures" were introduced in part to prevent arriving tourists getting a bad first impression of Auckland, he says.

"We had literally the Wild West," says Littlewood. "There were physical fights on the forecourts and generally very poor standards."

Maan began driving at the airport with City Cabs in 2008 but says the company fell victim to a combination of the financial downturn and the airport's fees. He launched his own firm, Silver, in 2010 and his stable now includes Summit, Premier, Economy and Star.

He says buying firms is a way to get more drivers and cars to meet customer demand - and more income.

Auckland Co-op's Barrie White represents the old guard in this story by default - Alert's directors did not return calls. He says there's a huge range of pricing with flagfall, distance and waiting charges. "I don't know how some of them set their fares. I would suspect many don't get phone calls and don't want them because they would have to maintain a 24-hour call centre. A lot of [drivers] only come out on Friday and Saturday nights. They rely on one-time users around the Viaduct at night and getting away with what they charge."

White was with Co-op's Wellington equivalent, Combined, until moving to Auckland six years ago. He says the old heavily regulated environment had its own drawbacks, such as taxis in Courtenay Place hand-picking passengers who had the furthest to go.

But he agrees deregulation has proved far from perfect.

"I think there's an over-supply here - people who catch taxis may say differently. I don't think what we've ended up with is the answer. But I don't know what the answer is - maybe a mix of both."

Perhaps, however, the power will ultimately lie in consumer's hands. Smartphone apps allowing punters to order a taxi from a range of bidders may bring this unruly market to heel - certainly the industry's established players are uneasy. The Taxi Federation wrote to the Secretary of Transport and the Transport Agency last year urging that "the public need to be warned of the dangers of rogue apps".

Zoomy is currently offering airport fixed fares starting from $50.

• geoff.cumming@nzherald.co.nz

- NZ Herald

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