I am proud to present to you the first interview in the series “Interviews With Taxi Experts.”
My guest was Allan Fels of Australia and New Zealand School of Government. Professor Fels was chairman of the Australian Competition and Consumer Commission, Trade Practices Commission and The Price Surveillance Authority, but what is most important for you is that Professor Fels is the Chair of Inquiry into the Victorian Taxi and For-Hire Car Industry.
You can download the mp3 version of the interview using this link: Tom Terrence interviews Allan Fels
The inquiry’s draft report can be downloaded here: Customers First: Service, Safety, Choice
Backup link:Customers First: Service, Safety, Choice
Full Text of the interview:
TOM: Hi. This is Tom Terrence with Taxi Business Advice. Today with me is Professor Allan Fels of Australia and New Zealand School of Government. Professor Fels was chairman of the Australian Competition and Consumer Commission, Trade Practices Commission and The Price Surveillance Authority, but what is most important for us today is that Professor Fels is the Chair of Inquiry into the Victorian Taxi and For-Hire Car Industry. Today he’ll answer several of my questions regarding the Inquiry and his work in the taxi industry. Hello Professor Fels.
TOM: Your Report is called Customers First. The overview section of the Report talks about how Victoria’s taxi industry is performing poorly and is not working well for consumers. What’s more, with the overall number of taxi trips remaining static and occupancy rates of taxi vehicles remaining low, the effects of this poor performance are also felt by many in the industry.
I have clients from all over the world and even in the countries and areas where taxis aren’t heavily regulated, the service is usually horrible. I even have a special category on my website where I post negative feedback from customers about taxi services. I do it for two reasons. First, I want every taxi business owner in the world to admit that terrible service is terrible service and it’s not acceptable. Second, I very often point out that succeeding in the taxi industry these days isn’t that hard because the competitors’ service is so bad.
I feel that what I teach my clients is very much in tune with the inquiry and what it has found out. What are you thoughts in this issue, what do you think about the quality of taxi service and why it is happening?
ALLAN: Now, report is called Customers First and that was really to drive home the point that this is not industry first, an industry exists to serve customers. We found that the current structure of the industry protects a relevantly small number of [unclear] from the effects of competition in the taxi market. We found that these restrictions are detrimental to competition and innovation and make it very difficult for a wide arrange of people to operate taxi businesses.
In addition, the holders of licenses are able to capture a substantial share of industry’s income without reinvesting their rewards back into the industry. This adds a direct impact on the consumers by driving up fares. The direct expense of consumers; taxi operators and taxi fares are all negatively affected. The inquiry confirmed no strong public interest for continuing to restrict entry into the taxi market.
The taxi industry here in Victoria Australia and of course the rest of Australia has reached record lows in customer satisfaction. [unclear] As that rent goes up, more pressure is placed on operators and less revenue is available to pay drivers.
Operators will also turn to cost cutting measures such as hiring cheaper labor, for example international students or temporary industry participants. This cohort replaces older and more experienced drivers, who demand higher income and better conditions. It’s a vicious circle.
Our package of reforms aims to deliver a number of outcomes for consumers: better services and a greater choice of services that are safe, reliable and affordable and that offer a bigger range of travel options and prices. For industry: a more diverse and dynamic industry, a reduction of regulatory burden and new opportunities to expand in new markets and accept more customers.
For taxi operators: more choice in the network they joined, the services and the equipment they purchased and the type of service they provide. For drivers: good working conditions, greater valuing of driver’s experience and quality and more opportunities to start their own taxi business. For government, a more effective industry regulated and better targeted, less complex regulation that protects consumers and improves safety.
Now, regarding the thought you raised and that question on the issue, we do indeed find widespread customer dissatisfaction with customer services, particularly about the quality of drivers and the reliability and accountability of booking services. The availability of services at peak periods and the value for money provided by services. Our reform puts customers first and aims to restore trust and confidence in the taxi industry.
The reform will deliver better services, higher quality drivers and greater choice in range of services. There’s no doubt that anyone with an understanding of customer service could make a dent in the taxi industry. The problem here in Australia and other close markets is that the industry is very hard to break into and just one taxi license in Australia currently costs half a million dollars. That’s about the same as half million dollars US.
Taxi services work best in networks and many taxis [unclear] the services at the current pace. The proposed reforms in the inquiry will free up the market through a fixed $20,000 a year fee per license, meaning that the entrepreneur could either rent licenses from a current license holder at about $20,000 a year or get them directly from the regulator.
Removing the barrier on quantity restrictions, that is removing the law that says there are a fixed number of taxis, leaving it to the market, to demand, to determine how many taxis there would be at a cost of $20,000 a year. That would protect current license values from falling to zero. They would fall to zero if you open the market and anyone who’s qualified could get a license for nothing or virtually nothing from the government. We say you have to pay $20,000 a year in order to protect to reasonable extent the value of current licenses and also have a side effect of imposing a market limitation on the amount of entry or potential flooding of the market. We believe that the changes are manageable.
TOM: Great. Thank you. On to the next question, your report is quite long. I feel that you’ve done a tremendous and fabulous job in serving the market and understanding what’s going on with it. I always tell my customers in the taxi industry who are interested about how to make money that the answer to making money is actually simple.
It is customers who pay money for taxi services. If a taxi business owner wants to make money, they got to go, find out what the customers want and then just give it to them. If they are fulfilling a need that a customer has, then the customer would gladly pay for the fulfillment of that need. That is one of the reasons why I think that the Inquiry is a must read for every taxi business owner in the world.
I would like you to be talk a little about how you were collecting the data. What was your biggest challenge in doing all the surveys and collecting all information? What discoveries that you’ve made where the most unexpected when it comes to taxi market in Australia?
ALLAN: To respond to the third part of question, continuous improvement is the only way to succeed in business. Now, regarding data, we commissioned the organization itself to independently measure customer satisfaction. That means daily data, telephone surveys taking 15-20 minutes each, focus groups and number of things like that.
Also, we can get the term called latitude to measure customer detriment. That was one of the first things available to the inquiry we’ve thought of. They get an excellent guide to improve customer service. We’re not sure that the current taxi industry in Victoria understands the value in this work. At a more general level, we found in Victoria that there was a general lack of very good data to understand what was going on in the industry.
Major players did not have great information, so we have said that in future we need to have better data available collected by the network and made available to the regulator and in some other instances, they should be available to the consumer, who maybe gets into the taxi with their iPhone pointed at the back of, picks up a bit of information about the license or the driver. Also, that the network to which the driver belongs to can track their performance.
TOM: Great. Did you have any surprises when you did you the inquiry? Was something really surprising to you? Did you find something that you would not expect when you are working on it or was everything pretty much predictable and corresponded to your expectations?
ALLAN: Personally, when I arrived, I had a perfectly traditional view of economists that the main problem is the licensing restrictions. What I’ve picked up on is that there was a very wide range of problems with the industry that goes well beyond licensing.
The major issues are about safety, driver quality, the quality of car itself, the treatment of people with disability, the performance for the networks and more deeply underlying that restrictions on competitions that had quite far reaching effects. Over the years, neglect to the licensing issue has caught a wide array of problems that I had anticipated. In a way that was the main surprise.
TOM: I see. It totally corresponds to what I see around the world and what I mentioned in the first question and it is that the customers are not happy and that the service is usually of very low quality everywhere. I just again want to underline this and to everybody who’s listening: service is of very low quality. Succeeding is not that hard. Just listen to your customers, talk to them and give them what they want.
Let’s move on to the next question. According to my experience, when I talked to taxi business owners all around the world and I asked them, “What do you feel your biggest problem is? Where do you think you have most issues?” The number one problem, everybody tells me, in the United States, in Russia, in Canada, they say, it’s drivers.
Your inquiry suggests something very obvious yet missed by a lot of business owners in the industry. If you want better drivers, you need to pay them more, because good people are not going to work for free. Would you please talk a little bit about that and what your inquiry suggests?
Also, in Inquiry, you were talking about how attracting better people would be actually beneficial to business and would eventually bring more rides to the business, because the perception and image of taxi industry would improve among customers.
I feel that this is something that a lot of taxi business owners do not understand that the main principle is give more and people will use you more, so could you please elaborate a little on this very issue?
ALLAN: Yes. We’re proud to share that philosophy. We have recommended a number of things be done about draw, but first of all it will be easier in the future for them to be become earnest with licenses. Secondly, they need more training. We say we need to improve traffic qualification for the new knowledge exam, that is your geographic knowledge and control the revenue that’s [unclear] at 20,000 a year, because you can get it from the government for that amount.
Next, this means more money in the system to go in to the service delivery label of the industry where the effect of [unclear] income or your fare as a customer, more to the driver and not the operator. I know that operators will have to pay drivers more. Drivers who earn a good income will be incentivized to stay in the industry. Although more experienced drivers now consider coming back to the industry.
Most of the driver-operators wouldn’t face the pressure of ever increasing rent and can keep more of the revenue for themselves. I’ve also recommended that there should be direct increase in income for drivers, now in Melbourne the mechanism broadly speaking is that drivers get 50 percent of the fare, paying 50 percent of the fare back. We’ve recommended an increase in that share.
TOM: In many countries and areas there are no training requirements for taxi drivers. Sometimes all that’s needed to become a taxi driver is to have a driver license and some driver experience for a few years and that’s it. No training, no knowledge of anything, just the ability to drive. The inquiry pays a lot of attention to the issue of taxi driver training and it does right fully so, because, again if the taxi business owner wants to provide quality service; the employees and the drivers need to know what to do and how to do and how to provide service.
Will you please talk about that a little and what would you tell to a taxi business owner in whose area there’s no regulation regarding taxi driver training to a taxi business owner who does not train their drivers and does not think that it’s important and the thought of providing training to the drivers does not occur in their head.
ALLAN: The most common concern in current drivers with inadequate local knowledge is short trip fare refusal, poor personal behavior, being unhelpful or rude, unsafe driving practices, dirty cabs. All of the customer satisfaction surveys showed that the driver is the most important part of the service. The behavior and knowledge of the driver supersede all other factors. Taxi companies that don’t pay attention to the conduct of their drivers, which is happening in Victoria, are often to fail.
Now, by law we require in Victoria a certain level of training and confidence by drivers. We have recommended to step up the requirements, the knowledge test, the better training and the training dealing with people with disabilities. In that way, there will be people coming back to the industry.
TOM: One of the pages of your inquiry mentions that one of the suggestions from drivers to improve the status and the perception of taxi drivers includes a driver code of conduct for drivers, public signals of recognition for experienced drivers such as badges and certificates. What would you suggest to a taxi business owner who has never done anything like that, who has never done any kind of recognition for their taxi drivers and other employees?
ALLAN: A basic point here is the state of competition in the industry that has a few competing firms. We have such know that in our neighboring country New Zealand, when suddenly a competitor who wants to get business and to do that they have to look at the customers and give them good customer service. Now, we heard that whole package of reforms will transform competition in due cost.
We think there are number of obvious things that could be done on top from the training that I’ve mentioned. That includes giving the drivers incentives, like rewarded badges and in car stickers that clearly identify them as a more qualified driver and that are highly visible to passengers. At the label it would have some impact on changing the culture of drivers and taxi operators in earnest.
TOM: On to the next question, I am based in New York. Currently in the United States 65 percent of the discretional spending is in the hands of those who are 60 years old and above. Therefore, making sure that taxis are senior- and disabled citizens- friendly is not only the right thing to do from social perspective, but it’s also smart business.
I’m not just talking about disability issues. I’m talking, say, about a senior citizen with a walker. I know from my own experience and from the experience of my clients in the taxi business that a lot of times a senior citizen who needs a little bit of help getting in to the taxi and out of the car does not get any help at all.
That’s why senior citizens stay at home, they do no travel and what’s most important for taxi business owners, they do not spend any money on taxis. Let’s now talk a little about disability issues and the importance of disability issues, because I feel that it is really and really important.
ALLAN: I’m finding once the taxi services is [unclear] with the disability were particularly poor. For customers with disabilities services are rather poor and unreliable. That of course has more serious consequences for them than it has for other users. Unacceptably, long waiting turns for wheelchair acceptable taxis, drivers tend to be rather poorly trained in dealing with people disability.
There is fairly limited scope in the taxi market, who care for the special needs of people with disabilities. Many people with a disability had lost confidence in the booked taxi system and they private arrange into trusted drivers on the taxi network. We believe we need more training on special issues with disability and more sensitivity.
We also think there is a case for a specialized booking network for people with disability, who would be connected with wheelchair accessible taxis specifically.
The London taxis are inclusive, were one example, but my more general point is that in the medium and longer term the industry needs to [unclear] perfect fit for taxi purposes, including looking out the people with disability.
TOM: To the next question, one of the chapters in the inquiry talks about innovation and future possibilities in the taxi industry and in the taxi business. That’s another question that I’d like to talk about because a lot of taxi business owners see themselves as being in one business and one business only and, say, give rides to passengers just in this kind of taxi from point A to point B.
They completely neglect all the opportunities that they have that can be taxi sharing or bus taxis or any kind of those opportunities and new markets that emerge and evolve. Would you please talk about gaps in the market and new opportunities and, especially, I found taxi bus and share rides, taxi services very interesting. Can you please tell us about what the inquiry suggests in regards to all of that?
ALLAN: We found that long standing and intense problem is the competition and innovation, in the chapter nine of the draft report, we talked about innovation and new market. One of the points that the inquiry has made, is that taxis are flexible and more cost effective alternatives to other forms of public transport, such as trains and buses.
The most credible advance is the restriction on the number of taxi licenses which makes licenses very expensive and prevents more people from entering the industry. The ability to acquire a license [unclear], complex ownership and management structure that restrict competition, limited intend of the taxi operators to develop new services.
The industry is continuing to rely on the code of temporary poorly paid drivers. Taxis and pre-booked taxis have the potential to fill gaps in public transport services especially in country areas, helping to reduce further exclusion and isolation, providing a support offer for aging regional population.
Under our proposal taxis would be considered a compliment or alternatives to community and public transport where they are more commercially viable and more economical and more efficient than buses. Tender processes would be reviewed to ensure that taxis and pre-booked taxis actually could compete for government contract work in areas where a public transport service is needed. We have also talked about shared rides and taxi contracts and that kind of thing.
TOM: Thank you very much. This was my last question and to everybody who’s listening to the interview I wish a lot of luck in your business. Again, there is a lot of money, a lot of opportunities, just listen to what your costumers want and give it to them. It’s really that simple.