Uber and Lyft Struggle Amid Multiple Headwinds

Elusive Profits

Uber (UBER) and Lyft (LYFT) are struggling to post a profit amid slackening demand and rising costs. In the industry’s early years, ride-hailing companies focused on building their customer bases at the expense of their bottom lines. Riders were lured in with company-subsidized fares. Those sizable losses amassed and eventually became unacceptable after the companies went public and investors demanded profits.

Escalating gas prices helped fuel a shortage of drivers, which prompted the companies to boost pay rates. Attempts to pass price increases on to consumers then eroded demand. Market researchers report the companies served 20% fewer riders and saw a 35% drop in the number of trips in the first quarter, compared with three years ago.

Driver and Rider Seesaw

The companies are now trying to balance business operations by making the gig more appealing to drivers while hopefully attracting more riders. To this end, Uber has partnered with its former adversaries, taxis. Cabdrivers in some cities can be listed on its app and represent one way Uber is addressing the driver-shortage issue. Lyft is approaching the problem by offering more juicy bonuses to its drivers.

To give demand a lift, both companies are re-introducing ride-pooling, which they hope will attract the budget-minded consumer. Lyft is also trying to reach that consumer group with its rental bikes.

Not So Cheap

Market observers say ride-sharing is no longer a relatively inexpensive option. The thinking is rooted in a belief that the size of the market was overestimated, and with a new focus on profits, fares are unlikely to trend downward.

Uber has gotten creative by adding sweeteners to entice passengers to book with them. These include the ability to import hotel and flight reservations, and the availability of vouchers for events like weddings. Still, in the current inflationary environment, some consumers might think twice about ridesharing and may come to instead view the service as an occasional splurge.

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