Cab-apocalypse? ‘Dead’ regulator supporting abuse in ride hailing sector

Stakeholders in the ride hailing sector fear that long-term concerns about the sustainability of a sector defined by lawlessness and lack of enforcement will boil over this summer, as a perfect storm of problems may fundamentally change the dynamics of the industry.

Although various stakeholders have long argued that the market does not operate sustainably, figures tabled in response to two parliamentary questions earlier this year led many observers to raise an eyebrow.

There are now almost 5,000 cabs in Malta, was one headline figure.

The industry brought in almost €50 million in 2023, was the other.

Impressive figures, at first glance, but once you work out the sums, it amounts to a paltry €10,000 per vehicle – hardly enough to cover its annualised cost, insurance premium, and maintenance, let alone wages, fuel and profits.

Industry insiders believe that the real figure may be close to triple that amount, with the declarations only showing the card charges – none of the cash.

At the same time, the industry is squeezing out many of the smaller operators, as can be readily observed by browsing Facebook Marketplace for ‘Y-plates’.

BusinessNow.mt reached out to some of the operators selling their vehicles – who were overwhelmingly Maltese – to understand why the industry was no longer as attractive as it once was.

“I make roughly €20 per hour – maybe €25 in summer,” says one. “From that, you need to deduct the platform’s commission and the VAT. Then you need to factor in insurance – which comes in at around €10 daily. Then there are the fuel costs. So what you’re really left with is just €6, even €5, per hour.”

Another driver-operator points out that the vehicle’s depreciation also needs to be considered: “A €30,000 car depreciates by €250 every month, which needs to be deducted from the turnover. This is like a block of ice. As soon as you drive it out of the showroom, its value plummets.”

Several operators openly spoke of their suspicions regarding the rapid increase in the fleet size of the major operators: “How do the big operators crunch the numbers and decide it’s a good idea to pour more capital into the industry?”

Several believe that the answer is to be found in these operators’ business models: “Thing is, many of them also have a recruitment business, so they get paid for every driver they bring over. They are not just making money from the cab itself, but also from the fees the worker would pay them to arrange his passage to Malta. Others also operate in the food delivery business, which has better margins. Either way, it is approached as a global business model.”

Another fleet operator acknowledged the same fundamental reality, but adopted a more cautious tone in his assessment: “It is true that the money in fleet operations simply isn’t there. It is evident that it is very difficult to see a return on your investment if you are engaged solely in ride-hailing.”

Another reason for large operators’ continuing dominance is that many employ foreign drivers willing to work twice as many hours as local ones – notwithstanding the risk to the workers’ own safety, not to mention that of their passengers.

Most drivers work on a 50/50 basis. Typically, these drivers are employed on a minimum wage basis, and any income generated beyond that amount is split in half with the fleet operator.

For foreign workers, though, this is entirely illegal: “You need a VAT book to run that arrangement, and foreign workers are not eligible for one. The whole industry is breaking the law.”

In essence, the more they drive, the more they earn, making the industry attractive to foreign workers who are here to save as much money as possible – even if it entails working 16-hour days.

“The regulator is dead,” says one stakeholder. “If it acts, it acts years too late. It’s simply lawless, meaning that those bold enough to operate while flagrantly breaking multiple laws have a competitive advantage.”

In other words, cowboys have free reign to shape the industry as they will, with law-abiding and smaller operators forced to keep up as best they can – or quit the sector altogether, as many are doing.

On the ground, the outlook for the ride hailing sector is far from positive, with more than one likening it to a bubble, while another likens it to a gold rush: “As the saying goes: ‘during a gold rush, sell shovels.'”

And the shovel sellers are certainly doing well, with the growth of the sector seeing car importers benefit from an uptick in demand for new vehicles, while insurers are able to demand higher premiums. The three platforms available locally – Bolt, eCabs and Uber – provide the technology, and get their cut, while recruitment agencies bring over the foreign drivers. The drivers, meanwhile, certainly work long hours, but the money’s better than back home, ultimately making it worth their while.

The losers in all of this, of course, are the small operators, but users should also be concerned.

The number of licensed cabs actually for the first time in seven years during the first quarter of 2024, workers and vehicles alike are exiting the industry: “We are about to witness a summer where the dynamics of demand and supply can be seen in full swing. Usually, new entrants match the increased demand and mitigate the effects of surge pricing.

“With people actually leaving the sector, prices will increase – are users ready?”