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Why ComfortDelGro needs to up its game to catch up

Why ComfortDelGro needs to up its game to catch up
ComfortDelGro was likely banking on its fleet size to weather the competition from ride-hailing apps, say analysts. Photo: Bloomberg

Why ComfortDelGro needs to up its game to catch up

Transport giant ComfortDelGro has had a bumpy ride in recent weeks, after a double dose of bad news.

Its taxi business — accounting for nearly a third of the group’s revenue — is in danger of losing thousands of drivers to its rivals, after ride-hailing company Grab dangled heavily-discounted rentals to entice the cabbies.

Then came the news that SMRT Trains had beaten ComfortDelGro subsidiary SBS Transit to bag the tender to run and maintain the upcoming Thomson-East Coast Line.

The transport operator’s shares promptly tumbled below the S$2-mark for the first time in almost 3.5 years, as investors deserted the stock in droves.

Although the stock has recovered slightly since, dark clouds still loom over the company.

Its lacklusture earnings for the second quarter of this year, released in August, showed its revenue falling by S$35.1 million or 3.4 per cent year-on-year. Operating profit declined by 9 per cent.

Revenue from its taxi business — squeezed by intense competition, not least from private-hire car operators — dropped 10.7 per cent.

In August, its taxi fleet declined for the eighth straight month, although it remains Singapore’s largest.

It had 15,127 Comfort and CityCab taxis on its books, a fraction of the more than 40,000 private-hire vehicles here.

Grab and Uber are not exactly new kids on the block, having operated here for about four years.

So the question is whether ComfortDelGro could have heeded the warning signs and upped its game sooner?

PLAYING CATCH-UP

ComfortDelGro is not new to competition, having seen new taxi companies break its monopoly more than a decade ago when the market was further liberalised.

But with its fleet far outstripping that of the other taxi operators, ComfortDelGro still largely commanded the space for point-to-point transport.

Uber and Grab clearly provided competition of a radically-different nature.

The ride-hailing giants, buoyed by cutting-edge technology and the wherewithal to dish out attractive incentives to both drivers and riders, have slowly but surely usurped market share, leaving traditional taxi operators in the dust.

ComfortDelGro has attempted to fight back.

For instance, in 2015, it unveiled a new-look taxi-booking app with the ability to recommend routes and give estimated metered fares, and other features.

That same year, ComfortDelGro announced that commuters could start paying taxi fares without using a physical credit or debit card for pre-booked rides through digital payment service Masterpass.

In August this year, the Masterpass service was expanded to include street-hails.

ComfortDelGro has made other strides on the digital-payments front. For instance, it made Alipay, the Chinese digital-payment service, available across its fleet in July.

Alas, these efforts, belated as they are, beg the question if ComfortDelGro has been aggressive enough in guarding its market share.

Uber, for instance, has offered remote card payments since it was set up here in 2013.

Consider also ComfortDelGro’s CabRewards programme to reward riders who make cashless payments, for instance.

Launched in March 2014, it required passengers to log in to a website, open an account and register up to two EZ-Link cards which will double up as “membership cards” to earn points. These can be used to redeem perks such as taxi vouchers or free transfers to the airport.

In contrast, Grab’s GrabRewards programme launched last December automatically credits points in riders’ accounts which they can use to redeem rewards, including discounts on rides.

In June, ComfortDelGro fought back with a new rewards initiative called CabRewards+, which gives riders double the reward points if they hop onto ComfortDelGro’s cabs within 24 hours of alighting from buses or trains.

But it again drew brickbats from commuters who found it too complicated.

Meanwhile, Grab has since expanded its rewards programme to include more than 150 merchants in South-east Asia as reward partners.

Besides redeeming discounts on Grab rides, users can snag offers on shopping, food and travel, among other things.

Earlier this week, Grab upped the ante again, under a partnership with national carrier Singapore Airlines. Soon, GrabRewards users will have the flexibility to convert their points into the national carrier’s KrisFlyer miles.

Experts note that examples like these show that ComfortDelGro is still lagging behind the ride-sharing apps in using technology to better serve and attract riders.

While ComfortDelGro once had the most advanced real-time booking and taxi-location system, its app emerged “a little late” and fell behind in popularity for a while, said Singapore Management University transport specialist Terence Fan.

“If ComfortDelGro could have developed a more user-friendly app earlier, introduced admin-fee-free credit-card charging earlier, and massively advertised these, perhaps it might be able to hold onto its fleet advantage somewhat longer,” said Assistant Professor Fan.

Agreeing, Singapore University of Social Sciences transport economist Walter Theseira said ComfortDelGro “did itself no favours” by sticking to a taxi-booking system widely seen as slower and less effective than Grab’s and Uber’s.

“ComfortDelGro had a huge market-share lead, an existing widely-used booking system, lots of data on booking and matching, and yet it could not offer a product that was as user-friendly as the entrants’,” he said.

As competition renders the taxi business increasingly untenable on its own, ComfortDelGro’s rivals have warmed up to collaborations to net more riders and boost driver earnings.

In March, SMRT Taxis, Prime Taxi, Premier Taxis, Trans-Cab and HDT Singapore Taxi joined forces with Grab to roll out JustGrab, a fixed-fare service subject to dynamic pricing that also draws on Grab’s private-hire car fleet.

ComfortDelGro’s response? A flat-fare option.

This was followed by a partnership with third-party booking app Ryde — which has a far smaller user base than Grab and Uber — to allow commuters to book a Comfort or CityCab ride through the app.

Finally, in August, ComfortDelGro announced it was in talks with Uber on a potential collaboration, which could include teaming up on fleet management and booking software solutions.

The talks also include making its fleet available on Uber’s app.

While ComfortDelGro and Uber have stayed mum on the progress of discussions, the potential tie-up could not have come sooner.

Asst Prof Fan reckoned that ComfortDelGro was likely banking on its fleet size to weather the storm that was brewing.

“When business was still good, it was not clear how urgent the need to change was,” he said.

Still, he noted that a tie-up between ComfortDelGro and Uber may not be too late, if it allows both to raise prices and stem further contraction in ComfortDelGro’s fleet, for instance.

If ComfortDelGro’s fleet is added to Uber’s pool of vehicles, this may reduce the incentive for Uber to keep expanding its fleet, enabling it to relax some of the discounts it is offering and raise prices gradually.

THE WAY FORWARD

Another area where ComfortDelGro has remained somewhat passive is the fight for drivers.

Amid an exodus of drivers to its rivals, ComfortDelGro is doling out rental rebates less attractive than what Grab is offering.

Grab’s campaign, broadcast to thousands of ComfortDelGro cabbies in September, promised drivers a S$50 daily discount for six months on rents — amounting to about S$9,000 in savings — if they join any of Grab’s five partner taxi firms.

The discounts are higher if they switch to a private-hire car through Grab’s rental arm.

ComfortDelGro’s counter offer paled in comparison, with rental rebates totalling S$3,600 over six months.

More than 3,000 ComfortDelGro drivers have joined Grab as part of its recruitment campaign, with the majority signing up as private hire car drivers.

National Taxi Association executive adviser Ang Hin Kee said the association hopes ComfortDelGro will come up with a package to attract and retain its remaining drivers.

“If people haven’t quite responded the way you wanted, you have to rethink what is an attractive package,” he told TODAY.

Many drivers had told Mr Ang that they wanted to stay on, but for the moment, ComfortDelGro’s terms seemed less attractive.

Long-time drivers who spoke to me echoed this, and were keen to stick it out with the company but only if it lowers its rents substantially.

As its driver pool comes under threat, ComfortDelGro can ill afford to be passive.

Hit by falling earnings, drivers can seek alternatives easily and are drawn to whichever operator offers the best deal.

Dr Theseira said ComfortDelGro should look into improving its driver-loyalty programmes and pricing structure.

“A more creative and proactive approach towards addressing the longstanding pain points that taxi drivers have — ranging from insurance deductibles to costs and lost earnings when the taxi is out of service, to lost income from sick days — could go a long way to addressing the rental-price disparities,” he added.

Right now, ComfortDelGro’s taxi hirers receive benefits such as loyalty and performance incentives, and compassionate leave.

For the time being, it is still too early to write off ComfortDelGro.

SUSS transport analyst Park Byung Joon said that to prevent further erosion of its market position, it has no choice but to offer incentives to win drivers back.

ComfortDelGro, said Asst Prof Fan, must develop other advantages to hold onto its market-leader position, noting the “switching cost for commuters from one platform to another is not sky-high”.

Indeed, with innovation and technology disrupting the taxi industry at breakneck speed, ComfortDelGro must draw up a sound game-plan laying out a more far-reaching package for its drivers, one that will withstand the heftiest of discounts offered by rivals.

For customers, it ought to improve its app’s agility and user-friendliness, and offer more regular and fuss-free promotions to regain market share.

ComfortDelGro owes it to its passengers and drivers — many of whom have stood by it through the decades — to act decisively now.

 

ABOUT THE AUTHOR:

Kenneth Cheng is a journalist covering transport on TODAY's Local Desk.