April 19, 2017

Uber flat fares

Parastoo Jabbari

At the beginning of the March, I received an offer from Uber to purchase a flat fare riding package for one month. The offer guaranteed a $2.49 flat-fare for UberPool and $4.49 flat-fare for UberX rides within a specific zone as shown in the following map. The flat fare zone did not include the entire city of Seattle when I used it. For example, Lake City was out of the boundaries of this zone. However, based on the updated map which is available here it seems it is expanded to support some parts of the Lake City and also some portions of the City of Bellevue (even though the same website shows that there is not flat fare packages is available right now).  This flat fare program is available in 9 major cities at the moment: Boston, Chicago, Los Angeles, Miami, New York City, San Diego, San Francisco, Seattle and Washington, D.C but it has to be offered by Uber to users and it is not open to all. The fare is different for different cities, but it is very cheap for all of them. It ranges from $1.99 to $2.49 for UberPool and $3.99 to $4.99 for UberX rides.

There were 3 packages for me to choose from in Seattle:

• 10 flat fare rides with $5 activation fee
• 20 flat fare rides with $10 activation fee
• 40 flat fare rides with $20 activation fee

It seemed too good to be true! Since I had guests coming from out of town, I decided to give it a try and purchased the first package; 10 rides for a month. Considering that for every bus ride, a passenger has to pay a fare of $2.50-$2.75, depending on the bus line, it seemed economical to use this package of Uber to get around the city. Even though I could not find an official statement from Uber to indicate how flat fares are affected by surge pricing, but I find some information about the last year packages.  Based on this info there is a ceiling for the price of trips that can be covered by flat fare package. For example, the ceiling for trips in Seattle was $25 last year. I assume that if there is surge pricing for a trip but it is still cost less than $25 it would be eligible for flat fare package.

Based on the statistics Uber provided me, after using all my rides, I saved $115 in total over 10 trips by using this package.

To verify these savings, let’s compare some trips that I made within the flat fare zone over a one week period.

To travel from my work at the department of civil and environmental engineering at the UW to my home on Sandpoint Way, the normal fare would be $5.99 for UberPool or $12.75 for UberX. The cost of going to the Fremont neighborhood for a happy hour after work would be $4.79 for UberPool or $11.89 for UberX. If I were to go grocery shopping at the closest shop, it would cost me $5.14 with UberPool or $7.03 with UberX.

In the end, I used 8 UberX and 2 UberPool rides. Including the activation fee, I paid a total amount of $46 for trips ranging from 10 minutes to 30 minutes. I used the same origins and destinations to estimate their regular costs to verify the savings myself. It would have cost me approximately $159 to take my 10 trips without flat fare offer. Therefore, I saved around $113 for the trips I took. The reason my results are different from Uber’s savings estimate might be that I used different days and times of the day to estimate the fares.

Using this offer definitely made my life easier. If this offer were not available, the other options we had were to take a bus, ride with others, take regular Uber, or even change destinations to closer places and give up visiting attractions in other parts of Seattle! So how much more did we pay than if we had taken the bus?

In my 8 UberX trips, there were 3 of us, and in my 2 of UberPool trips  it was just me. I have U-PASS so I do not have to pay for bus rides, but my guests did not have transit passes. Therefore, for the 8 UberX trips we would have paid $2.50 per person or $5.00 per trip. My two UberPool trips would have been free with my U-PASS. So, we would have spent a total of $40 taking these ten trips by bus. The amount we saved on time and the convenience of the car rides were more valuable than that extra $6 we had to pay to take Uber.

Overall, it seems that these packages are a good deal for an Uber user like me. This package improved our mobility and comfort, though I cannot generalize this to its impacts at the community level since these flat fare packages have not been around for long or offered to many people.

What if these packages were not special offers anymore and anyone could purchase a package whenever they wanted to? Here are some of the likely effects of such a service:

• It would provide a new source of competition for public transit. People who pay for their own bus or light rail trips (who are not getting free or discounted passes by their employer) may replace longer and exhausting transit trips with this more comfortable option. Including the activation fee, the average price for Uber is $2.99 for a Pool trip or $4.99 for an UberX trip, versus maximum of $2.75 for a transit trip in the flat fare zone.
• It could unlock latent demand (new trips that are not currently taken, because of their cost or inconvenience). For example, if you use bus or carpool for grocery shopping, you will try to minimize number of trips you take and choose nearest grocery store. Nevertheless, if you have the option to go shopping wherever you want and come back home whenever you want for only $5, you may change your shopping behavior.
• It may encourage people to not purchase a new vehicle. In large and crowded cities like Seattle, where finding a parking spot can be a real challenge, a lot of people do not use personal vehicles for commuting to work. However, they purchase a car anyway to use for their other activities such as shopping, attending events, and many others. Making Uber more cost competitive can discourage people from buying a car, or at least cause them to delay their purchase.

It is less clear how beneficial these packages are for the company or the drivers in their current form. Certainly, they can help Uber to compete with other carsharing and ride-hailing companies and maintain a larger share of the market. Previously, in 2016, Uber tested a similar program in 6 cities. It had an activation fee of $20 and a flat fare of $2 for UberPool and $7 for UberX. Back then it was said that the drivers would earn the regular price of a trip (based on travel time and distance) not just a portion of the flat fare. It is hard to imagine that Uber is making a direct profit from this program as currently priced, and to me it seems that the program may be primarily a tool to evaluate how people react to low prices. This could be relevant in the future if driverless vehicles become available, which would allow Uber to reduce their prices considerably.