ComfortDelGro Corporation Ltd (SGX: C52), or Comfort for short, is a land transportation behemoth with business interests in bus, rail, and taxis. Aside from Singapore, the group has a presence in six other countries – China, the UK, Australia, Malaysia, Ireland and Vietnam.
Investors can recall the troubles associated with Comfort’s taxi fleet when Uber Technologies Inc (NYSE: UBER) started to operate and expand its fleet aggressively in Singapore back in 2013. In that same year, Grab Singapore (a home-grown ride hailing company) also started its operations and expanded aggressively with the assistance from venture capitalists.
The price wars got so bad from 2013 through to 2018 that Comfort’s taxi fleet shrank to its lowest level in a decade, to just 13,244 (down 22% from its December 2015 fleet size). In March 2018, Uber was sent packing from Singapore when Grab acquired its Southeast Asian operations, just months after Comfort had signed a strategic collaboration deal with Uber.
So the key issue is one many Singaporean companies will have to grapple with – potential disruption. More specifically for Comfort though, are ride-hailing companies such as Grab and Gojek (a new Indonesian ride-hailing company which entered Singapore in late-2018) still a major threat to it?
Comfort adding 200 taxis to its fleet
Comfort announced recently that it was adding 200 new taxis to its fleet, in what was the first addition to the fleet in 18 months. According to the group, this was due to more people switching from driving private hire cars to driving taxis instead, as driving taxis was more “stable”. The last time Comfort placed an order for taxis was in December 2016.
Dynamic fare implementation
Barely two weeks ago, Comfort declared its intention to implement dynamic pricing, along with a plan to open up its booking app to Grab and Gojek drivers. Though reasons remain unclear at this point, this move may be an attempt to stem the exodus of taxi drivers into the private hire market. The problem is that this move may backfire as it will start to blur the lines between taxis and private hire cars, with commuters lumping them together as one and the same.
Grab and Gojek attempt to become “super-apps”
Grab and Gojek are also not sitting still, with both companies adding to their respective fleets too. However, these companies also have a larger purpose in mind, which is to become a “super-app” for users to access all kinds of services, similar to the concept of an “app within an app” developed by Chinese companies such as Tencent Holdings Ltd (HKSE: 700). This goal makes them spread their resources out to different functions rather than simply ride-hailing alone and could provide some respite to Comfort.
The above evidence points to a stabilising situation for Comfort, as they are beginning to order new taxis again, possibly signalling increased demand for taxis in the near future. However, the planned implementation of dynamic pricing could work against Comfort if it cannot differentiate itself from the ride-hailing companies. This is something investors need to watch closely for developments.
In addition, Grab and Gojek are no pushovers either as both companies, though unprofitable, have massive funding backing them. So even if it looks as though the battle may be over for now, another war could be about to commence.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned. The Motley Fool Singapore has recommended shares of Tencent Holdings Ltd.
Motley Fool Singapore 2019