RIDE-HAILING application Grab may continue to see its bottom line bleeding in the next one and a half years—totaling P7.5 billion—if regulatory regimes and price caps continue to persist.
Since its foray into the Philippine market, Grab has incurred P4.5 billion in losses, and while it hopes to see its bottom line turn from red to black by 2020, it is still keen on investing P3 billion to develop the market.
“We’re still committed to investing in the market. In the next 12 to 18 months, our budget is around P3 billion or less, so that might be another loss for us,” Grab Philippines Country Head Brian P. Cu told the BusinessMirror.
Based on its financial statement, Grab posted a net loss of P2.9 billion in 2017, wider than its P1.6-billion net loss in 2016.
The losses may widen further as Grab plans to subsidize fares for booking request considered “too far.”
“We have posted a net loss of about P4.5 billion in the last five years—that excludes incentives in payout and promos given to customers,” he said.
Cu likened this to how Amazon, a Seattle, Washington-based e-commerce web site, rose from a decade of net loss until it finally convinced people to shift to internet shopping, and gained profit thereafter.
“We want to change the way people move, and we want Grab to be a ubiquitous service. We’re looking to gain a profit because we’re not in the business to be a charity, but it’s just not the right time. We’re still building the foundations,” he said.
“If in the next 12 months to 18 months, we are able to post again, then well and good,” he added.
Currently, Grab is grappling with price and supply caps imposed by the Land Transportation Franchising and Regulatory Board (LTFRB).
In a market research conducted by research firm Statista, there were about 2.96 million users of transportation network companies (TNCs) in the Philippines. This is expected to increase this year to 3.5 million, and balloon to 5.4 million by 2022.
Current supply shows there are more or less 35,000 private cars in the system—at least for Grab. The regulator has allowed the supply of transportation network vehicle service (TNVS) providers—or drivers enrolled in a TNC—to be capped at 66,750 units from 45,700 units previously.
Broken down, the new allocations are as follows: 65,000 for Metro Manila (from 45,000); 2,500 for Cebu (from 500); and 250 for Pampanga (from 200).
Grab is allowed to charge users a P40 base fare and a per kilometer rate ranging from P10 to P14.
Surge pricing is also capped at two times.
“Honestly in the current conditions, we’re just looking to minimize the losses through efficiency of platform. Once you hit the economies of scale of the platform, you will see recovery from costs,” Cu said.
Thus, Grab is seeking to increase caps on supply and pricing, as Cu claimed this would create a more sustainable market that serves hundreds and thousands of Filipinos daily.
“We have to increase caps on supply and pricing. This will create an environment that promotes sustainability of business,” he said.
Grab receives about 600,000 booking requests on a regular day, but on “peak days” it receives about 800,000 booking requests.
It has a 35,000 strong fleet of TNVS-registered cars. On the average, a driver can do about 12 trips per day, translating to a capacity of 396,000 booking requests daily.
This is almost half of the demand for the service, which, Grab Head for FourWheels Ronald G. Roda said, could help improve with the addition of 35,000 more vehicles on the road.
“We need about 70,000 cars in order meet demand, which just keeps going up,” he said.
LTFRB Board Member Aileen B. Lizada said the regulator is studying ways on how to properly address the issues raised by Grab, starting with the supply aspect.
“What is clear is there is a need for regulation. We have to revisit certain department orders on fare and supply regulations,” she said.
Lizada said this is currently being undertaken by the Department of Transportation, which hopes to complete the review in “the soonest possible time.”
Issues on pricing and supply were discussed by Grab officials days after the Philippine Competition Commission raised concerns about increasing fares and declining service levels.
The antitrust watchdog claimed in an initial report that users of Grab have had to pay more and experience lower quality of service after the company’s acquisition of sole-rival Uber, hence significantly lessening competition in a captive market.
The commission noted that prior to the transaction, Grab’s prices were on a steady decline, due to pressures from more affordable Uber riders.
However, notable spikes in prices were recorded post transaction. This is based on price monitoring conducted by the commission a few days prior and after the consummation of the deal.
It also noted an irregularity on the dynamic pricing scheme applied by Grab, which bases prices on supply-demand ratio, traffic condition and length of ride.