Uber and Lyft drivers are coming back, but prices aren’t falling
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5 min read . Updated: 07 Aug 2021, 09:30 PM IST Data show average fares were at a record in July despite improvement in pandemic-driven shortage of drivers
Drivers are returning to Uber Technologies Inc. and Lyft Inc. after the companies spent big on incentives to address a pandemic-driven labor shortage. That shift isn’t bringing down fares from record highs, new data show.
The average Uber and Lyft fare in the U.S. rose month-to-month from February through July, touching new highs every time, according to data from Rakuten Intelligence, a market-research firm that based its analysis on e-receipts from more than one million consumers. While the average fare in July edged up slightly from June, it meant consumers paid over 50% more for a ride last month compared with January 2020, before the pandemic.
That’s the most Americans have paid for Uber and Lyft rides in at least three years, according to Rakuten.
The sky-high prices, which the companies say are driven by the continuing labor shortage, come despite a recent influx of drivers. Uber said Wednesday that 30% more drivers signed up in July compared with the month before. Lyft said Tuesday that 50% more drivers signed up in the three-month period that ended in June compared with the preceding three months.
“The data is clear: Driver supply has not kept pace with the surge of demand from riders, throwing the ride-share market out of balance," a Lyft spokeswoman said, adding that the company would continue to invest in driver incentives to ease the shortage.
Soaring prices haven’t crimped bookings, reflecting consumers’ tolerance for high prices after widespread lockdowns kept many at home last year. Uber and Lyft’s ride business rebounded in the second quarter from the lows of last year, and data from Edison Trends show that consumer spending on ride-hailing remained elevated for the week ended July 19 compared with the same week a year earlier.
The Covid-19 Delta variant “might hurt everything again, but this time things will bounce back a lot faster," said Brad Erickson, an analyst at RBC Capital Markets who covers both companies. “Bookings aren’t going to go down 90%. It’s not going to be anywhere close to the magnitude of last year," he said.
Neither company has publicly disclosed how ride prices have fared nationwide in recent months. Nor have they said how many more drivers are needed to meet demand. But Uber said this week that prices were returning to pre-Covid levels in cities or states that had ended unemployment benefits. That shift pushed more drivers to work for Uber in cities like Miami, Atlanta and Houston, alleviating the continuing labor crunch and tempering high prices, executives said.
In New York, San Francisco and Los Angeles—Uber’s top domestic markets—“demand continues to outplay supply, and prices and wait times remain above our comfort levels," Chief Executive Dara Khosrowshahi told analysts Wednesday after the company reported quarterly results.
An Uber spokesman reiterated that the situation varies city-by-city. In some, he said, prices are inching closer to pre-pandemic levels, while they continue to remain high in others.
Early signs point to the driver shortage and high prices abating at the end of the current quarter next month, as Lyft continues to offer bonuses to drivers and as other states phase out unemployment benefits. Uber said 90% of the 90,000 inactive drivers it surveyed in June indicated they planned to return by September.
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Uber and Lyft’s elevated spending on driver incentives, combined with the uncertainty around the looming Delta variant, sent their stocks tumbling earlier in the week even though they beat analysts’ second-quarter demand projections. Both stocks recovered from their lows this past week.
In the extreme scenario that demand tapers off and drivers shun ride-share all over again, “it will make a lot of this investment the companies have just done irrelevant," said RBC’s Mr. Erickson. Uber and Lyft have the muscle to pump in the money again, but it’ll translate to “a lot of lost dollars."
Lyft said its third-quarter revenue would take a hit as it planned to spend more on driver incentives, after spending $572 million on them through the second quarter. “We are maintaining elevated supply investments to help lower prices," Lyft CFO Brian Roberts told analysts on Tuesday. Mr. Roberts said he didn’t think prices would remain this high in the long run.
Uber spent more on incentives than analysts had expected in the second quarter. The company said it doesn’t plan to spend significantly more on them in the current quarter because it has been acquiring drivers in recent weeks despite pulling back on incentives.
As Uber and Lyft eye long-term profits, analysts say consumers should expect to pay more per ride compared with the discounted rates before the pandemic. But analysts also don’t think prices will stay at their current heights.
Drivers’ earnings are at an all-time high, thanks to the continuing bonuses. Uber said its drivers are making more than $40 an hour in its busiest markets. But a near-term challenge is retaining them once the incentives go away.
Derrick Stanfield Kivoi, who runs a small digital marketing business in Miami and has driven for Uber on the side for several years, took to driving again this year after a year-long hiatus because the incentives were too good to turn down. Uber offered him $100 for three consecutive rides, he said, and then followed with a $250 bonus for 40 rides completed during the weekday.
The bonuses tapered off in recent weeks—Uber’s $250 bonus dropped to $50—and Mr. Kivoi turned off the app earlier this week. “As soon as the incentives stop, I’m stopping," he said.
Uber and Lyft are trying to address the shifting dynamics of gig labor. Uber announced free online language classes for drivers late last month. It also started showing drivers what passengers paid for a ride overall, instead of showing them only the fare portion.
Lyft said last month it was exploring a partnership to trim one of drivers’ biggest expenses, which could involve sizable discounts on gas or insurance or help with buying vehicles.
This story has been published from a wire agency feed without modifications to the text.
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