LETTER | I wish to explain why taxis are getting cheaper than e-hailing service using private vehicles, which has caused consternation among Grab passengers.

MyTeksi was launched on June 5, 2012 in Kuala Lumpur as an app for hailing taxis using smartphones, a system far superior to radio taxis that use a telephone operator as the intermediary.

By 2014, MyTeksi had captured most of the taxi e-hailing market until UberX was launched in Malaysia on Aug 7, 2014.

Uber swiftly succeeded in drawing customers away from MyTeksi by using private cars and offering rates that were much lower than taxis.

Its starting fare was RM1.50, RM12 per hour and 55 sen per km, when rates for budget taxis were RM3, RM17.14 and 87 sen respectively.

Later, it was revealed that Uber passengers pay only 42 percent of the fare on average globally, with the rest subsidised by Uber, which incurred losses of US$2.8b in 2016 and US$4.5b last year.

MyTeksi would have remained as just another local taxi app, now numbering more than 20, had it not taken the bull by the horns by adopting Uber’s business model, which was to capture market share and customer data, as these are more valuable than normal profits.

Uber’s valuation skyrocketed from US$60m in 2011 to US$68b by December 2015. Within these few years, it went up by 1,133 times!

MyTeksi morphed into Grab by offering both traditional taxis with regulated fares and private cars at cheaper rates. Not only did Grab give Uber a run for its money, Grab managed to capture 71 percent of ride-hailing service and 95 percent of the taxi-hailing service in Southeast Asia.

In March, Uber agreed to exit from the Southeast Asia market in exchange for a 27.5 percent stake in Grab. Earlier, Uber had similarly sold off its operations in China in 2016 and in Russia in 2017.

In June, it was reported that Toyota Motor Corp has agreed to buy a US$1b stake in Grab, which was the largest-ever investment globally by an automotive manufacturer in the ride-hailing sector, pushing the value of six-year-old Grab to just over US$10b.

Toyota said it aimed to offer financing, insurance and maintenance services to drivers based on data collected through recorder devices already installed in some Grab vehicles.

In Malaysia, cars licensed as taxis are much cheaper than private vehicles, as they are exempted from excise duty, and many of them run on natural gas for vehicles (NGV), which cost RM1.05 per litre compared to RM2.20 for RON95 petrol.

Most taxis too are insured under third party cover. As such, operating costs for taxis are much lower than private vehicles, and most taxi drivers are not in favour of charging lower than regulated fares.

If Grab does not wish to continue subsidising fares like in its early days, private car drivers too would prefer their e-hailing rates to be equivalent or more than taxi fares to cover higher operating costs.

Moreover, fares for private vehicles are not regulated and subject to dynamic pricing, which goes up or down according to market supply and demand.

It is no surprise for passengers used to paying cheap fares to complain when rates go up, forgetting they have benefited when Uber and Grab battled it out in the market.

The most effective way for e-hailing rates to come down is for another strong competitor to Grab. MyCar, a local startup which began operations on February 1, was officially launched on April 4.

It remains to be seen whether it can bring down e-hailing fares for private cars. If so, it would be at the detriment of taxi drivers charging regulated fares.

Just as we abhor exploitation by others, we should also promote healthy and sustainable industries by not expecting a free lunch or paying below costs.

Ultimately, Malaysians must learn to pay reasonably for all kinds of services, just as we wish to be paid fairly for our services.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.