The route to life after lockdown - operating challenges for Uber and Lyft suggest a bumpy ride

Even before the pandemic struck, this wasn’t shaping up to be a great year for the likes of Uber and Lyft, as regulators and legislators around the globe put the road travelled by the gig economy transport champions firmly in their headlights.

For example, just last week, California Attorney General Xavier Becerra filed a lawsuit against Uber and Lyft, alleging evasion of state law by declaring their workers to be contractors rather than employees, while in London Uber’s still waiting its day in court after regulator Transport for London banned the firm from operating there.

So far, so pretty much as expected for some time. Little of that came as a surprise to anyone, least of all Uber and Lyft. But then along came COVID-19 and everything got a whole lot worse on a totally unexpected scale. With shelter-at-home orders in place and travel severely curtailed, no-one’s up for ride sharing and who needs to get to the airport anyway?

As attention now begins to turn to re-opening economies around the world, the question for such Transport-as-a-Service operators is what their business model looks like post lockdown and what impact societal changes stemming from the pandemic will have on their future strategic direction. Uber CEO Dara Khosrowshahi has a goal in mind:

My objective is based on the old Wayne Gretzky quote, ‘Skate to where the puck is going, not where it has been.’

That’s a sound enough sentiment, albeit a hugely challenging one given the almost total lack of certainties about what happens next, as he acknowledges:

Cities are beginning to open up or at the very least plan for recovery, [there are] early, but promising results in clinical trials for potential treatments in vaccines and perhaps most inspiring of all, global solidarity in support of those on the frontlines. But there remains a lot unknown. It’s clear that the cities, states, and countries will take action to re-open at different speeds and in different ways and there is little consensus over the right way to do it.

As to where Uber has been of late - and is now - the answer is, not in a good place:

Our Rides business is down significantly due to shelter-in-place…I won't sugarcoat it - COVID-19 has had a dramatic impact on Rides, with the business down globally around 80% in April.

There are tentative signs of some improvement, he adds. In the US, bookings are up, even in COVID-19 hotbed New York City - up 14% last week on the previous one -  and  firmly-locked-down San Francisco, up 8%. As for cities across Georgia and Texas, where legislators have been pushing to re-open quickly and on a large scale, bookings are significantly up, 43% and 50% respectively:

It's very early days. Our expectation is that the recovery will vary geographically and will be nonlinear, meaning we'll see some markets or recovery while others temporarily retreat. As the only truly scale global player, we think this represents an advantage, both in terms of revenue coming in, as well as operational insights we can apply across markets.

The route ahead

But as workplaces outside the home re-open, Khosrowshahi is optimistic that Uber is well-placed:

Today we've seen that the rebound has been led by weekday ‘9-to-5’ trips, including commute use cases. For reference, in 2019 80% of our gross bookings were delivered from trips in a user's home city, meaning people traveled around their own communities and 95% from trips in a user's home country. We expect that a recovery led primarily by commute trips will open up exciting new prospects for Uber for business, as companies look to move their employees to and from offices, as well as partnership opportunities with transit agencies to move essential workers.

He adds:

It does seem like commute is going to be the use case that's going to lead. I wouldn't be surprised if there's some share shift from transit, but it's too early to tell at this point. I will also say that we believe that we can help transit come back. We absolutely believe in partnerships with transit agencies. You've seen us put transit on our app, but more and more we're offering services to transit…during hours when it just doesn't make sense to run a transit system or they’re not going to clean [them].

That said, new behavioral norms will kick-in. Social distancing principles aren’t particularly compatible with jumping in the back of an unfamiliar vehicle whose previous occupants - and their medical status - are a mystery. Inevitably, health and safety concerns are going to play a larger part in the Uber operating model - or an even larger part, by Khosrowshahi’s way of it:

Safety has been an absolute priority of this company ever since I joined. We were leaders in terms of safety for riders and drivers previously…it’s a combination of logistics and technology. We're shipping millions of PPE and masks, cleaning supplies, etc to our drivers to make sure that that the first drive and the second and the continuing drives that our riders take are safe and they feel safe.  

We are looking at technologies such as, for example, our selfie technology, where we make sure that the driver who has been signed up is the actual driver who's driving. We can use that technology, potentially, to make sure that the driver is wearing a mask where appropriate. So, we're absolutely exploring technology. You need a combination of technology, logistics and local know-how in order to operate safely at the kind of scale that we do on a global basis. So, we absolutely believe we’re going to be the leaders in defining the safety of this platform going forward.

He adds that as a core part of that, Uber intends to be responsible around social distancing:

We want to be part of the solution, and not part of the problem. For example, with our app when there were shelter-in-place [regulations] and someone tried to use the Uber app, we'd make sure that they really needed to use the Uber app…We're a very big platform and as part of being a big platform, we're going to work with city, states, and our constituencies to make sure that we are helping educate the public so that we can have a return to the kind of the life that we all loved, but also do so in a responsible way,. We’re absolutely going to be part of that solution…We are going to be there step-by-step, and to be part, again of turning these cities back on, but making sure that we're turning back on in a safe way.

Don’t share and share alike

Apart from high levels of engagement with users, Khosrowshahi does see one other advantage that Uber might inherit from the current crisis as business picks up again:

We expect that shared rides will be less important in the near-term. This was historically a sweet spot for a primary competitor in the US with around a 50% category position on shared rides.

That competitor would be Lyft and certainly its CEO Logan Green has struggled with a “sharp decline in rides” as a result of the crisis. For April, total rides were down 75% year-on-year. While that slump appears to have bottomed out now and there are signs of some growth, the reality is that for the year-to-date, rides are still down 70% overall and there’s no obvious answer to what comes next:

We cannot predict the trajectory or timing of the eventual recovery, but it is clear that macro trends will continue to negatively impact our business. Even as shelter-in-place orders and travel restrictions are modified or lifted, we anticipate that continued social distancing, altered consumer behavior and expected corporate cost-cutting will be significant headwinds for Lyft. The strength and duration of these headwinds cannot presently be estimated. These are the hard truths we're facing…Looking forward, we face a new reality…we expect that rider demand on our platform will be down for the foreseeable future.

Those truths have led to a reduction in the firm’s 5,000-strong headcount of 17% and the furloughing of many others, along with pay cuts for all salaried staff.

These are necessary cuts if Lyft is to emerge from the current crisis, argues John Zimmer, Lyft Co-Founder & President. The firm has adapted its working practices to accommodate COVID-19, he adds, such as  developing Essential Commute programs to allow organizations to offer staff an alternative to public transit for essential workers:

In just a few weeks, we developed programs for organizations across the US, including Fortune 500 companies such as Kroger and Estée Lauder. Lyft has also secured new partnerships with over a dozen health systems in the US, helping more than 10,000 essential workers across more than 160 hospitals and clinics get to and from work. Through these programs, our platform is enabling important rides for workers, who are depending on Lyft as their new transportation solution.

As to life after lockdown, Zimmer calls legislators and regulators to take the current situation as an opportunity to reflect on how they should respond to operators like his firm in the post-pandemic world:

COVID-19 highlights how Lyft has become essential for modern transportation systems. Governors and Mayors have recognized this and many have partnered with us as a critical link for non-emergency medical transport, food banks and other essential needs. The economic impact of this pandemic will also highlight the unique value and importance of flexible work. When the economy opens up again, ride-sharing will be the first place many people turn to earn. We have long supported policies that allow for this flexibility along with portable benefits. The challenge historically has been that outdated labor laws prevent this.

This needs to change, he argues, pointing to Lyft’s backing of a ballot initiative in California which it claims would allow companies to pay into specific benefits while protecting independent flexible work to support his case:

We recently delivered the signatures needed to qualify the ballot initiative and it is progressing well. As we track public opinion around the proposal, we are finding significant and growing support. This is an excellent opportunity for us to establish a new model that both addresses this need for flexibility along with important benefits.

Beyond that, there will be day-to-day changes ahead that need to be accommodated, he adds:

I think there's a couple of trends to watch. We believe that affordable transportation is going to be critical for consumers. A lot of people are going to be navigating a challenging economic environment. We believe that that means people will be reconsidering high fixed costs and owning a vehicle is a very high fixed cost to maintain.

We do think that consumers may also choose to avoid public transportation in favor of ride sharing and bike and scooter sharing. In terms of personal car use, I think it's worth noting that car ownership rates in some of our biggest markets like New York City, San Francisco, Chicago are already well, well below the national average. So, for example, New York has 250 cars per 1,000 people, while San Francisco and Chicago have about 450 cars per 1,000 people, which are both well below the national average of 700 cars per 1,000 people according to Census data.

As it relates to exactly what type of trips people take, we definitely can't speculate on that,  but we do think that Lyft is going to play an incredibly important role on the other side. And we don't think that the crisis will impact the long-term secular shift away from car ownership and towards Transport-as-a-Service.

My take

When disruptors are disrupted by circumstances beyond their control…