Deregulation, market competition and taxi fares

Mr Speaker, the fact remains that each time ComfortDelgro raises their fares, all the other companies follow suit. Does the Minister agree that this is a clear indicator that there is insufficient competition in the taxi market? And if so, in the absence of sufficient competition, will the Ministry of Transport (MOT) consider re-introducing some form of fare regulation?

Parliament

Parliamentary Question asked on 17 January 2012:

Mr Gerald Giam Yean Song asked the Minister for Transport (a) what measures has the Government put in place to ensure a sufficient level of competition among taxi operators; (b) whether these measures are adequate; and (c) whether further measures to ensure greater competition for the benefit of consumers will be implemented in the near future.

Mr Lui Tuck Yew : Sir, public transport is a service that is available to any member of the public as a means of travel from one location to another for a fare. It includes our public buses, trains and taxis. Taxis are positioned at the higher end of the public transport spectrum, filling the gaps between buses and trains, and providing a door-to-door service that is closer to that of private transport.

The setting of taxi fares was deregulated in 1998 and the supply of taxis was deregulated in 2003. The objectives of these two measures were to inject greater competition within the taxi industry and allow market forces to determine the supply and pricing of taxis that best meet the demand for taxi services.

Since the deregulation of fares, taxi companies have made both upward and downward adjustments to their fare structures in response to changes in demand for taxi service. For example, to encourage commuters to call book for taxis during peak period where demand is high, some of the taxi companies have reduced the call booking surcharge from $4 in 2005 to the current $3.30. Taxi companies have also delayed the commencement of the evening peak surcharge period from 5.00 pm to 6.00 pm given that significant number of commuters now leave work later with the implementation of a five-day work week in Singapore. On the other hand, as the demand for taxis in the evenings after 8.00 pm continue to be high resulting in feedback on the difficulty of getting a taxi after 8.00 pm, taxi companies have extended the evening peak surcharge to midnight, instead of ending it at 8.00 pm to better match the demand and supply for taxi service. Concurrent with the extension of evening peak hours, taxi companies have chosen to soften the impact of this extension by reducing the peak surcharge from 35% of metered fare to 25%.

Besides using fare changes to better match the demand and supply of taxis at different times of the day, taxi companies have also expanded their fleet size to meet the general increase in taxi demand. When compared against the period prior to liberalisation in 2003, the total number of taxi trips increased by 13% from 2003 to 2011 while in the same period, the size of the taxi fleet increased by 27%.

Over the years, the taxi industry has also become more vibrant with the entry of new taxi companies into the market. Consumers can choose among seven taxi companies, up from the previous three companies prior to deregulation. The taxi services rendered have also become more varied, catering to the wide-ranging demands of the commuters. For instance, taxi companies have brought in many more models of taxis into the market, including larger taxis with higher seating capacity up to seven passengers, as well as the introduction of additional modes of fare payment such as credit card, NETS or stored value card which has brought greater convenience to passengers.

The LTA’s role in the liberalised market is to facilitate its workings and ensure that quality service is provided. To do this, LTA sets Quality of Service (QoS) standards for taxi companies to comply and also administers the Vocational Licence Point System (VLPS) on taxi drivers.

Under the QoS framework, taxi companies are required to meet standards on call bookings, safety, taxi drivers’ conduct, etc. Companies that fail to meet the requisite standards are liable to be penalised financially. In October 2011, the LTA tightened the QoS system. Call booking monitoring was extended to the morning peak period on weekdays, from 6.00 am to 11.00 am. LTA also fine-tuned the computation of call booking performances from averaging over a three-hour period to an hourly basis.

Besides regulating the taxi companies, the LTA also takes a serious view against any misconduct on the part of taxi drivers against the interest and safety of taxi passengers. Regular enforcement checks are carried out by LTA at various hotspots to nab errant taxi drivers and deter would-be offenders. Under the Vocational Licence Point System, taxi drivers who infringe the LTA’s rules and regulations will be imposed with composition fines and demerit points based on the severity of the offence. The accumulation of demerit points will lead to the suspension of vocational licence, and in severe cases, the revocation of the licence. Sir, I would like to take this opportunity to encourage members of the public to provide feedback on would have believed to be errant taxi drivers to help LTA step up its enforcement measures and ensure quality taxi service on the ground.

Sir, in summary, the deregulation of the taxi industry has brought about benefits to commuters. Specific to the recent round of fare revisions by the taxi companies, I acknowledge the public’s expectation for better quality service with any fare increase. Hence, besides continuing to monitor the performance of taxi companies with respect to the current QoS, LTA will also study how the QoS system will need to be adjusted.

On Ms Tin’s question regarding the market share of ComfortDelgro’s taxis and whether this constitutes market dominance: allow me to clarify that market share, while it is important factor, is not in itself a sufficient indicator. Other indicators, such as presence of any market barriers, contestability for the industry, degree of service innovation, and so on, should also be considered, and I believe the taxi industry fares well on balance. Ms Tin may also wish to note that ComfortDelgro’s market share has declined from 86% in 2003 to about 58% today, indicating that competition within the taxi industry has indeed intensified over time.

Ms Tin also asked if we would consider defining peak periods. With the deregulation of taxi fares, peak periods are determined by taxi companies based on their assessment of market demand and supply of taxis at different time periods of the day. We currently have no plans to re-regulate taxi fares but we will continue to work closely with the taxi companies to study other measures to better match demand with supply and improve service standards for the benefit of commuters.

Mr Gerald Giam Yean Song (Non-Constituency Member) : Mr Speaker, the fact remains that each time ComfortDelgro raises their fares, all the other companies follow suit. Does the Minister agree that this is a clear indicator that there is insufficient competition in the taxi market? And if so, in the absence of sufficient competition, will the Ministry of Transport (MOT) consider re-introducing some form of fare regulation?

Mr Lui Tuck Yew : Let me thank the Member for the supplementary question. It is a good question. But it is also behaviour that extends beyond the taxi industry. For example, for those of us who drive, we find it somewhat coincidental that petrol prices, when they go up, they go up across the different companies – Shell, Esso, Caltex, and so on.

And I think the Competition Commission had actually investigated and explained this in the past. There are good economic explanations for such behaviours. ComfortDelgro, I think, now has more than 50% of the market share, dropping from 80% plus in the past. We now have more players in the industry. But I think they also, in a sense, draw reference from the behaviour of the market leader. So there is a certain harmonisation in that sense of the fares over time, in terms of, for example, flag down rate increases after every 400 metres, but there are also differences. For example, in the booking fees — in the advanced booking fees and the current booking fees – there are variations across taxi companies. It is not a complete harmonisation across the seven companies.

We have looked at it, we felt that there is no need at this in time to re-regulate the taxi industry according to fares. What we want to do is to look very closely at the quality of service and to see what else needs to be done in this regard.

Author: Gerald Giam

Gerald Giam is the Member of Parliament for Aljunied GRC. He is a member of the Workers' Party of Singapore. The opinions expressed on this page are his alone.

One thought on “Deregulation, market competition and taxi fares”

  1. Hi Gerard,

    Market share of ComfortDelgro from 86% in 2003 to 58% currently still represent significant market share leadership; this translates to be able to exert considerable influence on supply / demand and subsequently cost and profit.

    It would be interesting to see who ultimately own ComfortDelgro and its competitors; if the holding companies ultimately fall into just two or three, then we may have a oligopoly at hand.

    Regards,

    Daniel Lee

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