Introduction For those who have traveled to New York City know that the streets are filled with yellow cabs. To the casual people, it seems that these vehicles can be owned by anyone, anyone can drive it and must collect a lot of money. Let's take a few minutes at how these cab companies work; there is a lot more than meets the eye when it comes to making money with a cab in NYC. During the Great Depression, which lasted from 1929 through the 1930s, working men were laid off. With basically nowhere else to work, thousands of those men became NYC taxicab drivers. Almost overnight the number of cabs on the road increased tremendously, and suddenly supply was far greater than the demand. The cab industry was destined for destruction, so the government decided to step in. In 1937, New York City created the taxicab medallion system. How does the New York taxicab industry work? The NYC cab medallion is a piece of metal that is attached to the hood of the taxi means that the vehicle is legally able to operate as a taxi in New York. The city issues a limited number of medallions, which controls the taxi market in the city. Historically, the value of these medallions was quite high as a limited number were issued, and the steady demand for taxi services. Some medallion owners are individual taxi drivers who own and operate their vehicles. However, some fleet owners have multiple medallions and operate larger taxi companies. These fleet owners often lease out their medallions to individual drivers. Licensed taxi drivers undergo extensive background checks and training and must obtain a taxi driver's license issued by the Taxi and Limousine Commission (TLC) in New York City. Currently, there are about 13,500 medallion taxis in NYC. This number is closely regulated by the New York City government, and “new” taxis are the result of a medallion being bought and sold in the private market. That means, the city rarely creates new ones. This also helps in the regulation of supply for taxis down, and the taxi companies in business. The Taxi and Limousine Commission (TLC) regulates how much a cab can charge per mile and minute, determines a cab company's leasing fees for drivers, monitors routes taken by the drivers (to ensure they are not artificially generating profits), and much more. In essence, a taxi company (or a taxi driver) can only make as much money as the government allows them to make. What are the fixed versus variable costs? Fixed Cost: Fixed costs are expenses that remain relatively constant regardless of the level of business activity or the number of trips taken. These costs do not vary with the number of passengers served or the distance traveled. Some examples of fixed costs for a New York taxicab owner or operator include Medallion lease, Medallion taxes & fees, Insurance Premiums, Loan Payments, Vehicle Depreciation, and Other Licensing and Regulatory Cost. Variable Cost: Variable costs are expenses that fluctuate with the level of business activity, or the number of trips taken. As the number of trips increases, variable costs also increase. Some examples of variable costs for a New York taxicab include Fuel, Toll Chargers, Maintenance and Repairs, Other Operating Expenses, and Credit Card Processing Fees. It is important for taxi operators to carefully track both fixed and variable costs to understand their overall expenses and plan their pricing and business strategies effectively. What is the profitability? You may be wondering how these taxi drivers and taxi companies make money. It does vary based on who owns the vehicle, how they have their business set up, and a variety of other factors. But for the most part, taxi companies own these vehicles. They lease these vehicles to drivers who in turn get to keep 100% of the fares and tips, these fares are set by the TLC, and the amount of the lease of the taxi is also set. Taxi company as an independent contractor leases a vehicle for about $150 per shift (10-12 hours). This lease amount varies depending on the day of the week and time (daytime or overnight shift). During their shift, drivers collect 100% of fares and tips. The difference between what they bring in, and what they pay to lease the vehicle, is how much they make in wages (around $25,000 - $40,000 per year). Drivers are considered independent contractors, so they bear all expenses and are not the owner of the taxi. The real beneficiary here, of course, is the taxi companies. If they have their taxis leased out every day of the year, they can bring in around an estimated ($80,000 per year). That’s a substantial sum for one vehicle, but that does not include any taxes, insurance, maintenance, and the fact that the vehicles must be replaced every 3 years. Even so, if that is eliminated the returns would be estimated ($25,000 per year), and the vehicle is still earning estimated ($55,000 each year). Suppose the cab company bought a medallion for $1 million, they are now making $55,000 per year off that medallion. That’s a 5.5% real return on their investment. What are the growing pressures on the New York taxicab industry? The New York taxi industry has been facing various growing pressures that have been challenging its traditional business model and profitability. Some significant pressure includes competition from ride-sharing services like Uber, Lyft, and other similar platforms, high operating costs, a decline in medallion values and changing customer preferences, regulatory challenges, the impact of the COVID-19 pandemic, and labor issues and driver rights. Uber and Lyft’s growth in New York City has decreased the value of yellow taxi medallions destroying an investment that taxi companies and taxi operators once saw as solid as a gold bar. The precipitous decline of the yellow taxi business led to a record 510 foreclosures of taxi medallion-backed loans in 2019. In 2012, when taxis ruled the streets, the daily ridership was nearly 500,00 trips per day. With each passing year, the ridership number fell further, while the number of foreclosed taxi medallions rise. In 2019 taxis count was 230,000 rides a day less than half of what they had sold seven years ago. The steep drop in ridership also explains why medallion prices have plunged from around $1 million before Uber and Lyft arrived in 2013 and 2014 to between $120,000 and $130,000 today. By 2019, the number of rides sold by Uber, Lyft, and other apps had grown to around 700,000 per day. Uber and Lyft are two of the most well-known ride-sharing companies in the world, providing app-based transportation services worldwide. Both companies operate on a similar business model, connecting riders with drivers through their respective mobile applications. Now let’s discuss their fixed and variable costs, as well as their profitability. Fixed Costs for Uber and Lyft would be technology development, marketing and advertising, insurance, and regulatory compliance. Variable Costs would be driver earnings, riders' incentives and promotions, payment processing fees, and customer support. Uber and Lyft both provide professional ridesharing services. Riders input their destinations into an app and the drivers use navigational software to get there. Drivers are generally polite and well-spoken. They don't even know your destination before they accept your request. Unprofessional drivers are eliminated because riders get to rate the driver’s performance. A consistently low rating will keep drivers out of Uber and its competitors. It is not possible to come up with a definitive or average price for an Uber. Its pricing varies with every city, and that surge pricing model changes the prices constantly based on demand. According to Consumer Reports, longer trips are cheaper by Uber, but short trips can be expensive, and most trips by Uber are short. So, an Uber ride from the airport to a suburb would be fairly cheaper, but a mile-long trip across a neighborhood could well be cheaper in a cab and would be cheaper by public transportation (bus or subway). Consumer Reports also warns that the surge pricing model for both Uber and Lyft can be much higher prices at busy times of the day and after midnight as there are few drivers available. The bottom line Uber can be less expensive than a taxi or car service, but not consistently. One point in its favor, though, is that Uber tells you exactly what the prices will be for the options available at that time before you confirm the trip. Safety is also an important advantage for drivers working with Uber and Lyft services. The riders using the service have registered their identities and their credit card numbers on the app. Uber & Lyft transactions are cashless, a driver doesn't risk unpaid fares or need to carry cash for change. As drivers are rated in Uber and Lyft riders are also being rated rude, aggressive, and disruptive passengers are out. Unlike taxi drivers who work 12-hour shifts or black car drivers who are scheduled by dispatchers, Uber and Lyft drivers enjoy considerable flexibility and freedom. Drivers pick their working hours (many part-timers do Uber and Lyft for extra cash) they can log in and out according to their schedule. Uber and Lyft drivers avoid expensive taxi rental leases by using their vehicles. They also pay their own fuel and maintenance costs. Everything else being equal, this means more profit for drivers. Drivers are also spared from any office politics because the app renders dispatchers irrelevant. https://www.nydailynews.com/new-york/ny-medallion-foreclosures-taxi-bailout-plan-uber-lyft20200130-s2mjkhjubzgptdxasoxddwdote-story.html https://www.investopedia.com/articles/professionals/092515/how-nycs-yellow-cab-works-andmakes-money.asp https://www.investopedia.com/articles/investing/110614/taxi-industry-pros-cons-uber-andother-ehail-apps.asp