Taxis should be a key part of any urban transportation
system, bridging the gap between the convenience
of the private car and the efficiency of public
transit.
An effective taxi system could reduce private
automobile use, and the need to own an automobile
in the first place. It could reduce congestion,
and the need to devote land to parking. Better
taxi service would improve mobility for those
without cars, particularly seniors and people
with disabilities, and give visitors a better
image of the city. And taxi drivers and taxi
companies would benefit from the increased revenue.
Taxis in San Francisco, however, are not fulfilling
their potential. More than half of local residents
take a cab just a few times a year or less often,
and most people perceive the service as unreliable.
This is not suprising given the fact that someone
telephoning for a cab has just a 40% chance
of one arriving.
The San Francisco Planning and Urban Research
Association asked Nelson\Nygaard to develop
a package of recommendations to improve service
and increase the use of taxis. The study involved
a comprehensive literature review, interviews
with key stakeholders, and a study of innovations
in peer cities in North America, Australia and
Europe.
When this study was conceived and begun, the
San Francisco economy was experiencing a boom
that has been likened to the second Gold Rush.
Not surprisingly, complaints about lack of availability
of cabs had never been higher. By the time of
publication of the study, the economy had considerably
cooled, and the events of September 11 had had
an additional chilling effect on San Francisco's
visitor travel, and consequent use of cabs.
A key aim of the study, however, was to develop
a robust regulatory framework that would improve
taxi service at any stage of an economic cycle,
developing policies that would work for passengers,
for drivers and for customers in good times
and in bad. We believe we have succeeded in
this goal.
WHY DON'T PEOPLE TAKE CABS?
Poor avaliability
and reliability
The most pressing complaint about the San
Francisco taxi system over the long run is
its extremely poor reliability. According
to surveys for the Taxi Commission, if a passenger
telephones for a cab, there is only a 40%
chance that one would arrive. Of 588 test
calls made in a survey in Fall 2000, 170 were
not even answered, and 20 callers were told
there was no cab available. Of the remaining
calls, just 237 cabs arrived, and there were
161 'no shows.'
No one in the taxi industry
has an incentive to increase ridership
The primary reason for this unreliability
is that neither the drivers nor the companies
have a direct interest in attracting passengers.
Taxi companies are currently not in the
business of carrying passengers. They might
more accurately be described as vehicle
leasing firms, rather than taxi companies.
They derive revenue from leasing vehicles
to drivers, for a flat fee per shift. It
makes no difference to a firm's revenues
if the driver carries one passenger or fifty
passengers during his or her shift, at least
in the short run.
This means that firms have little interest
in improvements that could help to boost
overall taxi ridership. Marketing is virtually
non-existent, and there is little incentive
to improve efficiency, in terms of the percentage
of time a taxi is carrying passengers, or
performance.
Taxi companies do not compete for passengers.
Instead, they compete to attract the individuals
that hold the City-issued taxi medallions
(permits), without which the firm cannot
continue to exist.
Drivers are more concerned about competing
for a finite pool of passengers in the short-run,
than increasing the long-run size of the
pool of business. Any increase in taxi numbers,
through increasing the number of medallions,
is seen as reducing the amount of business
for existing taxis, even if this increase
is required to cater for growth in ridership.
Drivers focus on the short-term, seeking
to maximize the profit from each individual
trip, rather than helping to create a reliable
service that would expand the overall market
share for taxis.
There is no objective
process for setting taxi numbers
The number of taxis on the streets is
determined by the Taxi Commission, which
has the power to set the number of medallions
(permits). Decisions are highly politicized,
and bear little relationship to any objective
measure of the need for more taxis. The
hotel and restaurant industry has vociferously
advocated for more cabs, believing this
will solve problems of availability and
reliability. Drivers have equally vociferously
opposed issuing any more taxis permits,
claiming there are too many cabs on the
streets at the moment.
A root cause of this dispute is the lack
of incentives for firms to carry more
passengers, meaning that it is difficult
to judge the extent to which availability
problems are caused by too few taxis.
Availability is not the same as supply,
since both the supply of cabs and their
distribution determine availability. For
example, poor availability in some parts
of the city may be due to taxis clustering
at the airport or downtown hotels, rather
than an overall shortage of cabs. Dispatch
technology, the number of taxis handled
by each dispatch service, and the incentives
for drivers to accept radio orders are
other important factors that affect availability.
Until firms have a strong incentive to
improve the efficiency of their fleet,
it is difficult to say whether lack of
supply or inefficient distribution is
behind the severe problems of availability
and reliability.
RECOMMENDATIONS
Three structural reforms
are at the heart of Nelson\Nygaard's package
of recommendations:
- Split the "meter." At present, firms
derive their revenue by leasing vehicles
to drivers, through a flat fee per shift.
Their income is the same regardless
of how many passengers are carried.
Instead, we recommend that firms should
receive a share of fare revenue, rather
than a flat fee. This would provide
a direct financial incentive for them
to carry more passengers, improve service
and increase the market. Taxi firms
would become real taxi firms, rather
than vehicle leasing firms.
- Allow firms to grow based on performance.
A firm's ability to expand, through
taking in new medallion holders, should
be made conditional on meeting performance
targets for availability. These targets
are already spelled out in Taxi Commission
regulations. A taxi must arrive within
ten minutes 70% of the time, within
15 minutes 80% of the time, and within
30 minutes 99% of the time. We recommend
that these targets be given the teeth
that they lack at present. Firms that
failed to meet them would not be permitted
to take on new medallion holders. In
a worst-case scenario, after failing
to meet the targets over a three-year
period, the firm would lose its permit
to operate and be closed down.
- Depoliticize the process of setting
cab numbers. Rather than being set by
who screams the loudest, taxi numbers
should be determined by availability.
If availability targets are not being
met, more medallions should be automatically
issued. Due to the split meter, firms
would have every incentive to maximize
the efficiency of the existing fleet.
If they are still unable to meet demand,
more taxis would be put on the streets.
Nelson\Nygaard's 23 other recommendations
will improve the information available
to passengers, give priority for medallions
to better drivers, and integrate taxis
more closely with the transit system.
Firms should bear the primary responsibility
for increasing taxi use and improving
performance. Regulators should use every
tool available to give firms the incentives
to increase ridership and improve performance.
A wide variety of strategies are available
to improve availability, such as better
dispatch equipment, rewards to drivers
that accept hard-to-fill orders, staggering
shift changes, and order sharing between
firms. Firms should be free to develop
their own preferred package of options,
and to pursue innovative strategies to
improve performance.
WHO BENEFITS?
The recommendations
represent a win-win-win package of reforms,
benefiting firms, drivers and passengers
alike.
Firms
will benefit, provided they
rise to the challenge of improving performance.
The best-performing firms will be allowed
to expand and increase market share. There
will also be far greater scope for firms
to increase revenue under the split-meter
system through carrying more passengers,
compared to the flat, capped per shift fee.
Drivers
will benefit, as the split-meter
system means that they will share the
risks of slow business and traffic congestion
with firms. They can also expect their
incomes to rise, as firms' interests will
be aligned with drivers in maximizing
the number of passengers per shift. They
will benefit from measures that firms
will take to improve efficiency.
Passengers
will benefit, through
the incentives given to firms to carry
more passengers and improve service;
the automatic release of more medallions
if availability targets fail to be met;
the introduction of advanced dispatch
technology; the consolidation of dispatch
organizations; and the guarantee that
the City will regulate the cab industry
based primarily upon availability for
passengers.
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