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Hong Kong taxis

Hong Kong’s taxi trade must face up to competition and technology, through gradual change to the industry

Gilly Wong says the taxi industry’s objections to the Consumer Council’s proposal to liberalise the market progressively do not stand up to scrutiny. Modest changes must be introduced not only to increase consumer choice, but also to raise service quality

PUBLISHED : Friday, 02 February, 2018, 9:55am
UPDATED : Friday, 02 February, 2018, 7:06pm

The Consumer Council proposal to the government to liberalise car-hailing services in Hong Kong through a progressive approach, unveiled in its recent report on the car transport service market, has attracted much public attention and sparked a debate in the community. Not unexpectedly, it has drawn some stiff opposition from the taxi industry.

The need for taxi service improvements has reached a critical point, requiring an urgent solution. The council’s proposal to introduce competition into the pre-booked service segment will help kick-start the momentum for improvement. This will help Hong Kong’s taxi sector meet the challenges of a new age of innovative technology.

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Those in the traditional taxi industry who oppose the proposal say opening up the market to e-hailing services is unfair. Currently, drivers with three years of experience have to go through a process of testing and certification before they could qualify as taxi drivers. The council’s proposal that drivers for e-hailing services need only three years of experience, without similar test requirements, was, in their opinion, much too lax.

But the council also recommends that all e-hailing drivers undergo background security checks, have the necessary language skills and are sufficiently healthy before they are considered suitable candidates. This will act as an additional safeguard for passenger safety.

As technology advances, we must all face up to the emerging challenges

In terms of fare charges, the industry questions why, while taxi fares are bound by the meter, e-hailing services are not subject to any fare control and are free to set their own fare according to the road conditions and rush-hour periods. As taxis – whether traditional operators or the e-hailing kind – are part of the public transport system, it is only natural that their fares should be regulated. Indeed, e-hailing taxi services in different territories are subject to fare controls of one kind or another.

For instance, in Beijing, Singapore and London, their charges at different times of day are regulated accordingly. In London, pre-booked taxis can charge only up to a stipulated upper limit. In Toronto and New South Wales, though e-hailing taxis can freely set their own fare, they must disclose to the passengers beforehand the estimated fare of a journey. The government can, therefore, take reference of these overseas experiences in devising appropriate regulatory oversight of e-hailing service charges.

The taxi industry has also pointed out the hefty licence fees that taxi owners have to pay to the government, citing the example of the government’s issue of 25 taxi licences for Lantau Island in 2016, in which successful bidders had to pay as much as HK$5 million for a single taxi licence. In contrast, the proposed e-hailing services require only that the vehicles be less than seven years old, without payment of a large licence fee. Taxi drivers complain that this amounts to a substantial reduction of business costs for their competitors.

Any direct comparison of costs for traditional operators and the e-hailing service providers would be difficult. Presently, Hong Kong’s taxi licences are, once issued, permanent and irrevocable, precluding any attempt by the government to change or withdraw a licence from its holder. Whereas, in the case of e-hailing services, should drivers fail to comply with the requirements, the government has every right to refuse to issue the licence. In the interests of passenger safety, the proposed vehicle age of e-hailing services is set at less than 7 years. This indirectly limits the commercial lifespan of the vehicle. Taxi drivers face no such restriction.

According to the Transport Department, more than half of Hong Kong’s taxis are at least seven years old, but they may continue to operate as long as the vehicles pass their annual car inspection. Taxi owners, therefore, stand to benefit from the longer use of their vehicle.

Furthermore, the government has, for a long time, capped the number of taxi licences at around 18,000, which serves to ensure the market value of a taxi licence stays high. Car owners can exercise their selling rights any time when the price is right. Naturally, as with any other investment, car owners must also bear the risk of any downturn in price.

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The taxi industry is also concerned that embracing e-hailing services will bring abrupt changes and major challenges to the trade. The council proposes that changes should be introduced gradually. Reform can start with opening up the pre-booked segment of the market, with the existing 1,500 hire-car permits (for limousines, hotel services and so on). In any case, this segment is by no means operated by the taxi industry alone. And this will not directly affect taxi drivers’ business at taxi stands and from street hailing.

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What is important to consider is how the introduction of more competition will affect consumers and the industry as a whole. Will consumer rights be enhanced by having more choice? Will the taxi industry get an opportunity to improve its service quality? These are questions we should ask.

What is important to consider is how the introduction of more competition will affect consumers and the industry as a whole

In 2016, in Illinois in the US, a lawsuit was brought against the local government for introducing e-hailing services. The taxi association was seeking compensation for the shortfall in business income and devaluation in the licence price. They also demanded that identical regulatory oversight of fare control and a licensing regime be imposed on the e-hailing services.

In the end, the taxi industry lost the case. In the ruling, the judge wrote that if the technology or business model of the older generation is to be constitutionally protected, barring new developments in the market, economic progress may well stall. Indeed, if we adopted this approach, we may still be riding in horse-drawn carriages rather than taxis, or use a ruler instead of a computer.

As technology advances, we must all face up to the emerging competition and challenges. The competition between traditional taxis and e-hailing services is not unfair; it is no takeover bid for the old by the new. Both can grow together in coexistence.

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There is no question that the taxi industry has made an enormous contribution to Hong Kong’s public transport system. In weighing the pros and cons of all concerned, the Consumer Council believes that adopting a progressive approach can minimise the impact of market disruption to the taxi industry brought on by e-hailing services.

Gilly Wong is chief executive of the Hong Kong Consumer Council