Chennai autos pricing themselves out of higher earnings?

Autos in Chennai may be renouncing optimal earnings by failing to adopt a dynamic pricing system that combines a fair rate of return and a willingness to operate. This is reflected in different developments. For one, there was an attack on bike taxi operators at Koyambedu recently which left some of them injured. Meanwhile, Chennai Metro formally introduced bike taxis run by women as a last mile option, though in a limited way.

Autorickshaw drivers supporting the activist Seeman recently held a demonstration at Valluvar Kottam, demanding a per km tariff of Rs 18 and a minimum of Rs 40 for 1.5 km. In real terms, the current tariff in Chennai is Rs 50 minimum with a per km ask of Rs 25 to Rs 50.

This writer asked one driver, a participant in the protest, what he thought was the remunerative rate for autorickshaw operation in Chennai. The favoured tariff was Rs 18 per km and a minimum of Rs 40.

Even with such clarity of thought, this popular three-wheeled transport sector remains rooted in its traditional economics of relying on demand bottlenecks, an aversion to constant operating to keep wear-and-tear and maintenance costs down, and a failure to see the power of newer technologies that can raise earnings. Evidently, the auto unions have not helped the drivers cut through this steep cultural shift.

Losing patrons
It is common knowledge that before COVID-19 struck, the advent of app-based taxis, shared transport operations including cab shares, a growing base of 7-seater share auto vans now numbering over 60,000, and a shift of younger residents to two-wheelers cut the user base for autorickshaws.

After the pandemic stabilised and Chennai Metro also grew in popularity, autorickshaws should have reaped the benefits of resumed activity by embracing technology to fix fares. It should be kept in mind that unlike normal automotive petrol, autorickshaws use the far cheaper auto LPG and CNG. Today’s rate of Auto LPG is just over Rs 67 a kg compared to about Rs 103 a litre for petrol and about Rs 85 a kg for CNG. It has remained similar throughout the year. Profitability is not a difficult goal with such pricing trends.

A new approach to technology-based fare calculation would be simple. The autorickshaw concerned should quote the rate per km, and calculate the actual distance travelled, multiply that by the rate and charge the passenger. Since use of QR code-based payments is popular and autorickshaw drivers are willing to accept such payments, there is ease of use too.

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The experience of Mumbai cabbies and autorickshaw drivers who lost their virtual monopoly over middle-class commutes when new metro lines became operational in January this year should be an eye-opener for their Chennai colleagues.

More choices to come
Clearly, the era of people using autos to cover longer distances is in its sunset phase. By 2026-27, a large segment of 119 km Phase II Metro lines in the city would be operational, leaving the smaller pickings of local last mile rides for autorickshaws. This may be further shrunk if the CMDA formalises the scheme of last mile connectivity as it claims to be doing, and mandates orderly operations and fixed fares. This has already happened in Chennai Central and Egmore, where passengers have suburban rail and Metro options, with convenient access points.

Autorickshaws are also witnessing a weakening of information asymmetry, since the Metropolitan Transport Corporation introduced the Chennai Bus app, which gives the information on next buses coming on a given route with expected times. One section of users who can tap into this information plan their travel avoiding auto rides. If the base of buses is augmented, that would mean an even leaner clientele for autos.

Lastly, the economics of running transport requires constant operation of the commercial asset, which is the autorickshaw usually purchased with a loan. According to TVS Credit’s EMI calculator, for a one lakh rupee autorickshaw loan repayable over 24 months at 9% interest, the monthly payout is just under Rs 5,000.

On running a profitable autorickshaw business, TVS Credit advises the loanee as follows: “Never say no to any passenger, even if it is for a small trip. It is like saying no to your income. Just accept whatever comes your way and keep working. Some of the auto drivers are now also tying up with Ola and other companies to increase the number of trips. Keep working and have multiple sources of income.”

In addition, TVS Credit gives the handy tip to the driver to maximise his earnings during peak hours, rainy days and so on, through a “negotiation” with the passenger (this may be illegal, of course). During a recent wedding ‘muhurtham’ in Chennai, autorickshaw drivers raised their minimums to Rs 100 near the wedding venues, personally verified by this writer.

The way to go is for autorickshaws to collectively fix a dynamic fare pricing system, based on fuel price and input costs. This tariff could be Rs 18 or even Rs 20 per km. The rate should be advertised prominently on the vehicle, with the final fare calculated on the basis of distance travelled, verifiable by both the driver and passenger on smartphones with GPS. When costs go up, this rate would vary, and likewise reduce when demand/costs are down. Such an elegant and nimble approach would help the autos stay ahead of competing services such as commercial apps, two-wheeled taxis and other taxis, avoiding commissions to app-based companies.

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The shift to electric three-wheelers in the coming years will make the tariff even more attractive, since e-autos also have low maintenance.

Importantly, the sector needs to recognise that passengers want a change of the traditional adversarial relationship into one of mutualism, with no asymmetry on either side. In fact, many people tip beyond the meter at the end of a pleasant ride.