Franchised cabs investment ‘too risky’ say Hong Kong’s four key premium taxi groups

Operators question viability of three proposed franchises and wonder whether cash-rich mainland firms will become involved and disrupt the market

PUBLISHED : Sunday, 02 April, 2017, 8:41pm
UPDATED : Monday, 03 April, 2017, 12:15pm

Hong Kong’s four key premium taxi groups have cast doubt over a government plan to introduce franchised cabs, questioning its commercial viability despite the significant incentives on offer, including the waiver of close to HK$4 billion in licence fees.

The five-year trial may eventually benefit only cash-rich mainland investors who are eyeing a slice of the fragmented city taxi market, industry players say.

Those in the taxi trade are up in arms over the government’s plan to allow an additional 600 franchised taxis to charge up to 50 per cent more in fares by providing upgraded services without the need to pay for a taxi licence, each of which currently sells for about HK$6.5 million.

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Adding fuel to the fire, the four premium taxi groups – SynCab, Jumbo Taxi, PrimeCab and Diamond Cab – all questioned the scheme, with none showing definite interest in bidding for franchise rights.

The four operators now run more than 200 premium taxis and this number will rise to 300 by the end of the year, providing larger compartments and upgraded facilities. Many of the vehicles will offer wheelchair access.

Under the proposed scheme, three taxi-operating franchises will each be granted 200 taxis. Cabs will charge higher fares, ranging from HK$32 to HK$36 for initial charges, about 35 to 50 per cent more than current fares.

SynCab director Sonia Cheng Man-yee said she was not interested in a franchise as the business model was risky.

“Each franchise operator will need to put up at least HK$200 million in capital to run a fleet of 200 franchised taxis. It usually takes at least a few years for a large-scale business like this to break even,” she told the Post.

It usually takes at least a few years for a large-scale business like this to break even
Sonia Cheng Man-yee, SynCab director

But the five-year scheme presented an even greater risk because the operator would not be able to predict if he or she could renew the franchise, she said.

“But a taxi licence can guarantee a sustainable future for our business,” she added.

Taking SynCab, which has run a fleet of 140 premium cabs since early 2015, as an example, Cheng said the operation once suffered an accumulated loss of about HK$20 million and recently was just able to break even.

“Franchised taxis are expected to be converted from some well-known brands as a selling point,” she said. But unlike taxis, which are designed for heavy use, private cars would be worn down after five years of running non-stop day and night, Cheng said.

She predicted that the franchise rights would eventually be handed over to mainland conglomerates that knew nothing about the transport needs of the city’s passengers.

Jumbo Taxi owner Chau Kwok-keung said he would consider bidding for a franchise only as a last resort.

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“I personally don’t support the scheme as it will only polarise the taxi trade with its inequitable status. But if no industry player is interested, in order to prevent outsiders from becoming franchisees to disrupt our market, I may reluctantly consider tendering for a franchise,” he said.

“But for now, we just want the government to scrap the whole scheme which will threaten the taxi trade’s business.”

Chau, who operates a fleet of 70 premium taxis and plans to expand it to 100 cabs by June, said the government should introduce a regulatory framework with the aim of upgrading ordinary taxis to premium vehicles.

I just don’t understand why the government refuses to regulate and upgrade the existing taxi services
Chau Kwok-keung, Jumbo Taxi owner

“The current premium taxis already satisfy all the requirements for being franchised taxis. I just don’t understand why the government refuses to regulate and upgrade the existing taxi services,” he said.

Doris Leung, CEO of Diamond Cab, which caters to wheelchair users with seven barrier-free taxis, said operating a franchise would require a lot of investment, and that it was not easy to find an investor who supported her firm’s goals.

“Our vision is to cater to the needs of wheelchair users, not profit maximisation. There isn’t such a demand for 200 barrier-free cabs. But will I be able to find an investor who is willing to let me run only 50 or 100 wheelchair-friendly cabs? I need to study it,” she said.

PrimeCab shareholder Tran Chau, who runs a fleet of about 20 premium cabs, said that if franchise fees were low, it would be unfair to existing taxi licence holders and would easily attract conglomerates, which would carve up the market.

But he said a franchise operator might have difficulties recruiting drivers as they like a carefree working style without being subject to a strict code of conduct.

“I am only managing the work of 20 premium cabbies and I already feel pressure because every driver has his own working style. I can’t imagine how this scheme will ensure the service standards of franchised taxi drivers,” he said.