Home >companies >start-ups >Uber takes the fight to Ola, cuts fares in Delhi

Bengaluru: Flush with funds, Uber Inc. has slashed fares in Delhi to match rival Ola’s (ANI Technologies Pvt. Ltd) cheapest offering Micro, a move that could trigger a price war between the companies in the quest for a bigger market share.

In an email to consumers on Monday, Uber said it has dropped the price of UberGo to 6 per km from 8 earlier, which is on a par with what Didi Kuaidi and SoftBank-backed rival Ola charges for its cheapest variant Micro, setting the stage for an impending price war to extend its stranglehold over the Indian market.

“We experiment with new ways to offer riders more affordable and reliable ways to get from one place to another. Over the years we have learned that one of the most effective ways to boost demand is to cut prices for riders. Price cuts are designed to get more riders in cars and ensure drivers spend more time moving people, less time spent waiting around," an Uber India spokesperson said in an email response.

Uber, the world’s most valuable start-up at $68 billion, had raised $3.5 billion from Saudi Arabia’s Public Investment Fund earlier this month, taking the total funds raised by the San Francisco-headquartered company to about $11 billion.

The company is now scouting for another $1-2 billion in leveraged loan, the Wall Street Journal reported on 14 June. Uber has hired Morgan Stanley, Barclays PLC, Citigroup Inc. and Goldman Sachs Group Inc. to sell a leveraged loan of $1-2 billion to institutional investors, but there is no guarantee that the deal will materialise.

Such an enormous war chest has given Uber the fire power to invest heavily in India, which is an important market for Uber, especially since it is possibly the last frontier in Asia with lucrative market potential. In China, Uber is still a distant second to Didi Kuaidi, which is also an investor in Ola.

Didi itself raised $1 billion in May from iPhone maker Apple Inc. and followed it up with another $600 million in fresh funds from a Chinese insurance company this week.

To be sure, Delhi, along with Mumbai and Bangalore, is one of the top three markets for ride-hailing services. Despite their spawning presence across various cities in the country—Uber is present in 27 cities and Ola in 102—both companies generate about 90% of their business from the top 8-10 cities.

Both companies have been trying to wean away consumers from rivals with cheaper rides that not only throws profitability for a toss, but also significantly increases cash burn.

Though Uber currently has the financial muscle to splurge, Ola too has initiated talks with investors to raise about $300-400 million, Mint reported on 15 June.

Ola’s fund-raising efforts come at a time when the company has regained the initiative from Uber.

Over the course of 2015, Uber significantly increased its market share by spending heavily on recruiting new cabs, paying huge subsidies to drivers, offering attractive low prices to customers and accepting cash payments from riders. Uber’s market share soared to roughly 40% at the beginning of this year from just 5% a year ago, according to Uber executives.

To be sure, in response to Micro, Uber had announced on 12 April that the company will slash fares by up to 22% in 10 non-metro cities for UberGo. The latest price cut in Delhi now brings the fight to key revenue generating markets.

However, Micro has helped turn Ola’s fortune, at least for now.

Since its launch in early March, Ola has reversed much of last year’s market share loss to Uber and opened up a big gap against its rival. While its market share has jumped since the launch of Micro, so has the company’s cash burn.

The fresh round of fund will give Ola the much needed cushion as well as the ability to step up investments to match Uber. Ola has so far raised $1.2 billion from investors, while Uber had committed an investment of $1 billion in India in July last year.

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