Radio Taxi Industry in India

With a market size of INR1 14.4 billion in 2011-12, the five-year-old Indian radio cab industry was expected to grow by 30.9 per cent in the next five years.2  The industry was dominated by four companies - Meru Cabs, Easy Cabs, Mega Cabs and TABcab (see Exhibit 1). The still fledgling industry offered no obvious or accepted business model that could be emulated. By refining their models through trial and error, radio cab companies in India stumbled upon two types of fleet-based business models - company owned and franchise based (see Exhibit 2). Typically, radio cab companies relied on two streams of revenue generation- fares and advertisements (commonly referred to as “cabvertising”).
 
Though it was in a nascent stage, the radio taxi industry in India witnessed huge demand and high growth. The fleet size of radio cabs, mainly concentrated in four Indian metros,3 was about 15,000 in 2011-12. With demand far outstripping supply, the total number of radio cabs was expected to increase at a compound annual growth rate (CAGR) of 25 percent.The decline in the fleet size of non-radio taxis due to ageing cabs, the significant growth of India’s urban population, increase in disposable incomes, high traffic on other forms of public transport, greater perceived comfort compared to driving one’s own vehicle official reimbursement of taxi fares, influx of tourists and increased airport trips, were some of the factors that contributed to the soaring demand for radio cabs. However, constraints on the supply side due to the shortage of suitable and educated drivers, high cab maintenance costs and varying government regulations in every state hindered growth. Many drivers who already owned their own cabs or worked for other non-radio cab operators balked at paying the high daily rental fee to the radio cab company. Even though radio cab drivers typically earned 70 per cent more than their non-radio taxi counterparts, many drivers preferred not to join radio cab companies. The fact that it was compulsory for them to pay daily rentals even if they were not driving the cab meant that they had to work every day of the week. Issues such as these reduced the availability of drivers. Further, the radio cab industry was highly regulated and government regulations were state specific. Red tape, the ceiling on the number of permits that could be held by a radio cab operator, stringent criteria for qualifying to become a radio cab driver, restrictions on size of the radio cab and government regulations regarding fares, were some of the negatives of the regulatory environment in which the radio cab industry operated. Factors such as these contributed to the sub-optimal supply of radio cabs, resulting in high rates of denial of service (see Exhibit 3). Given the existing demand scenario, the four big radio cab companies were estimated to have a shortfall of 3,619-5,467 cabs in the major cities in which they operated.5
 
Rajiv Vij, CEO, Easy Cabs, was quoted as saying, “Over the next five years, we expect to see 5-6 big cities, each with a population of about 20,000 radio taxis, with three large operators controlling 80 per cent market share. We also see the rise of 20 Tier II cities, with a population of 5,000-10,000 radio taxis each, with 5-6 players controlling up to 70 per cent market share.”6 For radio cab operators, airport trips were the most preferred service, but point-to-point commuting services were also expected to become increasingly lucrative. Analysts predicted that three to four years post 2011 there would still be huge demand for radio cabs; however there would be significant competition from online car aggregators7 and car rental companies. In addition to providing services similar to radio cab operators, these companies offered inter-city services, which were not offered by radio cab operators. Competition would also come from economy radio cabs, which did not have a sizeable place in metros, but were expected to successfully operate in other Tier I and Tier II cities, where the four major radio cab operators planned to make their foray in the future. 
 
To meet the existing demand, the major radio cab companies had to scale up their operations. This required greater investment, which the companies managed by infusing equity capital into their businesses. Thus, even after five years in the business, major radio cab companies had not yet become profitable.

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INR stands for Indian Rupee. 1US$=INR 59.27 (as on June 22, 2013)
2 “Indian Radio Cab Market 2012 - Challenges and Growth Opportunities,” UR Associates Research, August 2012.
3 Mumbai, Delhi NCR (National Capital Region), Bengaluru and Hyderabad.
4 “The Radio Cab Market - India 2012,” Netscribes report; June 2012.
5 “Indian Radio Cab Market 2012 ¾ Challenges and Growth Opportunities,” UR Associates Research, August 2012, p.15.
6 Rajiv Vij’s quote is from a study by Sunstone Business School and was cited in the following article: “Report: 30-50% Revenue of Radio Cab Market Comes from Airport Transfers, Availability of Cabs Still a Challenge,” Nextbigwhat.com, October 17, 2012, http://www.nextbigwhat.com/report-on-radio-cab-industry-297/, last accessed on March 14, 2013.
7 Aggregators, such as Ola, Savaari and Taxiforsure, do not own a single taxi but take online cab bookings and provide cabs by forging partnerships with local taxi operators who, in turn, employ the drivers, who can get their own customers and the aggregator’s. The aggregator earns a commission of 10-20 per cent per trip.
8 Going by the classification of Indian cities based on the real estate market, there are primarily three tiers. Tier I cities are characterized by a fairly well-established real estate market, where the demand drivers are quite pronounced. Tier II cities are characterized by growing real estate markets, experiencing heightened demand and investments. Source: http://www.india-reports.com/Products/try/IR-tier-2-3-011208-Try.pdf, last accessed on March 1, 2012.