Too Few Drivers to Meet Demand as Ride-Hail Companies Recover

Ride-hailing companies are reporting a shortage of drivers as demand for their services pick up. "As vaccination rates increase in the United States, we are observing that consumer demand for mobility is recovering faster than driver availability," Uber reported...

Too Few Drivers to Meet Demand as Ride-Hail Companies Recover

Ride-hailing companies are reporting a shortage of drivers as demand for their services pick up. "As vaccination rates increase in the United States, we are observing that consumer demand for mobility is recovering faster than driver availability," Uber reported in an April 12 filing with the U.S. Securities and Exchange Commission.

Demand for ride-hail services has picked up in the last month. Uber reported its mobility business posted its best month since March 2020, crossing a $30 billion annualized gross bookings run-rate.

"We're seeing big increases in demand for rides, as vaccines roll out and people get ready to start moving again," a Lyft spokesperson told BTN. Corporate transactions expensed for rideshares on Uber and Lyft in March grew 26 percent from February 2021, after increasing in February 7 percent from January 2021, according to expense management provider Emburse Abacus.

Despite the higher demand, driver supply has not kept up. This is due to multiple factors, according to Brandon Sellers, head of marketing for Gridwise, an app for assisting rideshare drivers. Many drivers don't want to risk catching Covid-19 while transporting riders, he said. "Covid is still a big thing on drivers' minds, keeping them off the road," said Sellers. 

Another factor is ongoing government aid, including the Covid-19 relief package passed in March, which increased federal unemployment relief until September 2021. "You have a number of government aid packages, from the stimulus plans to unemployment, which has made it so a lot of drivers don't need to go out on the road. They can stay safe at home," Sellers said. 

Drivers are also earning more from the ongoing boom in demand for delivery services. In March, Uber's delivery business set an all-time record, crossing a $52 billion annualized gross bookings run-rate, growing more than 150 percent year over year. "Where you see driver supply for ride-hail decreasing you see drive supply for delivery increasing," Sellers said.

Ride-hailing companies are offering drivers incentives to stimulate availability in expectation of stronger demand in the months ahead. 

Uber CEO Dara Khosrowshahi in February during Uber's most recent earnings call voiced concerns about a potential shortage: "I'm worried about one thing going into the second half of the year… [will we] have enough drivers to meet the demand that we're going to have in the mobility segment?" On April 7, Uber announced it was investing $250 million in incentives and perks to improve driver availability.

Lyft in February during its most recent earnings call announced plans to invest in bringing back its driver supply in preparation of higher demand. "In quarter one, we plan to invest in driver supply to improve service levels and prepare for stronger demand beginning in quarter two," CEO, cofounder and director Logan Green said. Lyft has been covering the cost of rental cars, offering bonuses of up to $800 for referring former drivers back to the app and adding extra pay for trips lasting over nine minutes, according to the Financial Times.  

Sellers expects the incentives to be successful. "They are going to throw a lot of money at it, and I definitely think it’s going to work," he said, adding that the suppliers needed to strike a balance between hiring and retaining enough drivers to meet demand while keeping costs controlled. Drivers' per-trip earnings during the past few weeks have increased by around 15 percent to 20 percent, according to Sellers. 

As the driver/rider market adjusts, it's unclear whether the cost of the shortage will lead to higher fares for riders. Neither Uber and Lyft have said whether they will raise prices for as demand picks up and driver supply lags. 

Ground transportation consultant David Kilduff said higher prices could come later, after demand accelerates. "It could start off at a lower pricing to attract users and increase prices when they have momentum. That would be logical," he said. "Whether that happens, I don't know."

If fare increases do occur, they most likely would show up in price surges, according to Sellers. "I would bet it would be more from surges than from a base fare increase, but I can't say that with any certainty," he said.