Uber restarts surge pricing in Bengaluru

Ride hailing service Uber Inc has resumed surge pricing in Bengaluru, one of its three biggest markets in the country along with Mumbai and Delhi, even though the Karnataka transport department had opposed the dynamic pricing mechanism.

Surge pricing comes into effect when ride hailing services such as Uber and Ola (ANI Technologies Pvt. Ltd) charge consumers multiples of the base fare during peak hours. The companies contend that such a practice help them attract more cars on the road when demand exceeds supply by luring drivers with higher fare.

Uber had stopped dynamic pricing between June and August in Bengaluru following a communication from the state transport department in May that all ride hailing services operating without valid licences under the Karnataka On-demand Transportation Technology Aggregator Rules, 2016, will asked to stop operations. The rules were notified in April.

Uber subsequently dragged the government to the court, questioning its “competence” in formulating the on-demand aggregators rules and its provisions, which the company claims contravenes the Central Motor Vehicles Act, 1988. The company has resumed surge pricing in the last one month.

“All fares on Uber are shown upfront and are within government prescribed maximum fares. In the event a rider is ever charged over the government prescribed fares, we proactively refund the excess amount within 72 hours,” an Uber India spokesperson said in an email response.

The Karnataka On-demand Transportation Technology Aggregator Rules, 2016, among other things states that ride hailing services cannot charge more than Rs. 19.50 per km for air-conditioned cabs and Rs. 14.50 for the ones without air-conditioning.

The state government had impounded about 1,000 vehicles affiliated to Uber and its arch rival in India, Ola, for surge pricing based on complaints from consumers and non-compliance to the new set of rules between March and May.

Incidentally, the cap mandated by the state government gives ample room to both Ola and Uber to charge multiples of their fares.

For instance, UberGo, Uber’s cheapest option, is priced at Rs.7 per km in Karnataka, which implies that it allows Uber to charge consumers up to 2.7 times the cheapest rate. Ola’s cheapest variant, Micro, costs at Rs.6 per km, which essentially allows surge pricing of up to 3 times the cheapest option.

“They are not supposed to charge surge pricing. We can seize the vehicle if they are found to be applying surge,” said H.G.Kumar, additional transport commissioner, Karnataka.

According to industry experts, surge pricing not only allows ride hailing services ensure better supply, but also adds significantly to their revenues. Ola and Uber charge drivers about 20-25% of the fare as commission.

In June, Uber rolled out an upfront fare feature in India and the US, which it will disclose the exact cost of rides before customers book them, a move that could help them deflect some of the criticism over surge pricing practice. Consequently, unlike before, consumers will not be shown the multiple of base fare they would be required to shell out if surge pricing was effected.

(Sharan Poovanna contributed to this story)