Uber aims for surge-pricing transparency with ‘upfront fares’

The ride-hailing company will eliminate lightning bolt warnings about price hikes with a promise of upfront fares in Toronto and Ottawa.

TheStar.com
Sept. 13, 2016
By Vanessa Lu

Uber is taking away its lightning bolt warning about surge pricing with a new feature called Upfront Fares, launched in Toronto and Ottawa on Tuesday.

The ride-hailing company says the feature will tell passengers ahead of time what their fares will be, based on “the expected time and distance of the trip and local traffic, as well as how many riders and nearby drivers are using Uber at that moment.”

Uber has come under fire for hiking prices with its surge model during natural disasters or during events such as a hostage-taking in Sydney, Australia.

The company has always insisted the model, based on an algorithm, is a positive thing because it lets drivers know where demand is high, to ensure that cars are available and that supply meets demand. However, some would-be passengers just give up or wait until the price-hike period ends.

With the new fare system, “when fares go up due to increased demand, instead of surge lightning bolts and pop-up screens, riders are given the actual fare before they request their ride,” the company said in a blog post. Passengers will be told they face increased demand at the time of booking - essentially, that surge pricing is in place.

Uber said it first began calculating and offering upfront fares in its UberPool service, which matches riders headed in the same direction.

It has already tested the upfront fare model in some U.S. cities for UberX drivers - people using their own cars to ferry passengers around.

Kevin Bryan, an assistant professor of strategic management at the University of Toronto’s Rotman School of Management, said there are advantages and disadvantages for Uber users.

“Making surge pricing less transparent makes it harder for consumers to compare fares across different types of car-sharing services or taxis,” he said.

On the other hand, Bryan said, because of Uber’s massive database, there is little uncertainty about how long the trip will take or how much it will cost.

“Uber can use a set fare that might be a little bit harder for a traditional taxi service to come up with,” he said.

Uber, which operates in 495 cities around the world, according to its website, introduced surge pricing on Halloween 2011 as a way to ensure drivers were available where demand was greatest.

In a 2012 blog post, Uber’s chief executive officer, Travis Kalanick, defended the company’s use of dynamic pricing, pointing out that such systems are also used by hotels, airlines and car-rental companies.

Toronto’s contentious vehicle-for-hire bylaw, passed by council in May, says Uber and any other Private Transportation Company (PTC) must maintain a $3.25 minimum fare but can allow for surge pricing when the service is busy. Taxis can also use surge pricing, but only for rides booked via an app.

In May, taxi companies including Beck, City, Co-op, Brown, Diamond and Maple Leaf rejected surge pricing, saying it “has no place in superior customer service.”

With files from Alicja Siekierska