Cabcharge Criticised

I was horrified to hear Geraldine Doogue’s take on the Cabcharge ‘story’ on Saturday morning ABC Radio. Renowned for impeccable presentations of well researched material, her unbalanced report stunned me as something I have not met on the ABC before.

I’m just an everyday Mum but I have a very small shareholding in Cabcharge which I acquired recently on the basis I believe of carefully researched fundamental analysis.

The recent fall in Cabcharge’s share-price from $6 to as little as $3.57 following the release in July of the Draft report of the Victorian Taxi Industry Inquiry has been alarming. The Chairman, Professor Allan Fels, in July, has been highly critical of the 10% surcharge on credit cards payments. Believing that this is a significant and unnecessarily high charge, Professor Fels has recommended that it be lowered to 5%, and has referred the matter to the Reserve Bank of Australia (RBA) for adjudication.

I question the reasonableness of this recommendation for the following reasons:

I consider that governments should encourage private enterprise, and that the best business outcomes result from minimal government interference.

 Cabcharge has supported the taxi industry since 1976. It is an industry 85 year old founder Reg Kermode knows well. I believe the changes he has introduced have benefited taxi drivers by ensuring that they are paid promptly for their services.

 The 10% Cabcharge surcharge on credit card payments is a service charge from which the company derives the bulk of its revenue.
It should not be measured against the retail surcharge. Retail outlets are able to add a surcharge for credit card payments ostensibly just to meet the card provider’s merchant fee and any extra accounting cost. This fee can vary from about 1% to as much as 4%, and is in addition to the normal retail component of the purchase cost.
Airlines have been known to charge as much as $30 for customers paying for a $200 airfare with a credit card on the internet.

One suspects that this recommendation revives old prejudices against Cabcharge.

 In 2010 Cabcharge was fined $15 million dollars for predatory pricing to stifle competition. As I understand it, the essence of the complaint was that the company considered that competitors were seeking to “free-load” on the advanced payment system they had developed at considerable expense. The ACCC argued that the payment system should be regarded as infrastructure for which competitors need only pay a nominal fee.

Cabcharge accepts payment with any credit card, and the charge is avoided by paying with cash.

Cabcharge has formed associations with the taxi network Yellow Cabs, and more recently the bus operator ComfortDelGro, regarded by the Inquiry as examples of anti-competitive vertical integration.
Both parties however see mutual benefits in their relationships. It is worth noting that other non aligned taxi operators have chosen the advanced Cabcharge payment system on merit. As a result the company has achieved 97% penetration of the taxi market,

Surplus revenue from Cabcharge is ploughed back into the taxi industry in the form of driver education, and improvements in taxi equipment.

What is the rationale for considering a 5% surcharge more appropriate than 10%?

The simple assertion that 10% is just too much begs the question as to why this is so. Do they regard present company profits as excessive?
Salient features of the 2012 profit report:

  • Total revenue $192.4m, up 4.2% with $90m derived from members taxi related services
  • Net profit after tax $60m, with 28% of group profit before one-offs, derived from Associates.
  • An increase in FY dividend payments to 35c/s, fully franked a yield of about 8.5%.

These are financially good results, but hardly excessive. Bear in mind that many shareholders would have lost as much as 50% of their capital investment.

If we want a better taxi service, capital is needed. Capital comes at a cost with earnings meeting reasonable interest and dividend payments.

In Geraldine’s radio presentation it was stated that there is a 25% dissatisfaction rate with the taxi industry.
This may seem high, but conversely it can be considered that the satisfaction rate is of the order of 75%. Many of the complaints emanate from inability to procure taxis at night, rather than a problem with the standard of service
This problem is unlikely to be met by owner drivers who wish to work at hours convenient for them. The safety of drivers is more of a problem at night, together with non-payment. Hence, more not less taxis should be network linked.
I believe the standard of taxi service equates favourably with other forms of transport.

 Cabcharge and the Chairman Reg Kermode have been unfairly maligned.
It is my opinion that Reg Kermode should be applauded for doing much to improve the taxi industry. The capital requirements of the industry are growing as the public demands safer taxis, more helpful drivers, more responsive booking arrangements, and a flexible documented and honest payment system.
I consider that better outcomes will be achieved if private enterprise is involved in the provision of the capital intensive aspects of the taxi industry such as vehicles specifically designed for the industry, with advanced communication, navigation, security, metering and payment systems. Licence ownership, driver education and insurance coverage would also be met by the taxi networks.
On the other hand, drivers should be employees on an award rate, covered with insurance and superannuation, and have leave entitlements; or engaged as contractors for negotiated fees.

We need a viable, high quality taxi industry. The way to achieve this is through private enterprise, and hard work, rather than more bossy regulation.

Everday Australians want to see a fair go for all participants, including Cabcharge.



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  1. The Cabcharge Taxi Surcharge. | This Everyday Australian

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