The Cabcharge Taxi Surcharge.

Free Taxi Rides Down Under! (Photo credit: cogdogblog)

By Kenneth Robson on December 12, 2012 • ( 0 )

Geraldine Doogue’s take on the Cabcharge ‘story’ on Saturday morning ABC Radio was concerning. Renowned for impeccable presentations of well researched material, her unbalanced report stunned me as something unexpected for the ABC.Although just an everyday Mum I have a very small share-holding in Cabcharge which I acquired recently on the basis I believe of carefully researched fundamental analysis.The recent fall in Cabcharge’s share-price from $6 to as little as $3.57 following the release in July of the Draft report of the Victorian Taxi Industry Inquiry was alarming. The Chairman, Professor Allan Fels, in July, has been highly critical of the 10% surcharge on credit cards payments. Believing that this is a significant and unnecessarily high charge, Professor Fels has recommended that it be lowered to 5%, and has referred the matter to the Reserve Bank of Australia (RBA) for adjudication.I question the reasonableness of this recommendation for the following reasons:

I consider that governments should encourage private enterprise, and that the best business outcomes result from minimal government interference.Cabcharge has supported the taxi industry since 1976. It is an industry 85-year-old founder Reg Kermode knows well. The Cabcharge payment system ensures drivers are promptly and reliably paid for their services.

The 10% Cabcharge surcharge on credit card payments is a service charge from which the company derives the bulk of its revenue. It is not comparable to the retail surcharge. Retail outlets are able to add a surcharge for credit card payments ostensibly just to meet the card provider’s merchant fee and any extra accounting cost. This fee can vary from about 1% to as much as 4%, and is in addition to the normal retail component of the purchase price. Airlines have been known to charge as much as $30 for customers paying for a $200 airfare with a credit card on the internet.One suspects that this recommendation revives old prejudices against Cabcharge.

In 2010 Cabcharge was fined $15 million dollars for predatory pricing to stifle competition. As I understand it, the complaint was due to the company charging a high fee for “free-loading” (as they saw it) competitors use of the advanced payment system they had developed at considerable expense. The ACCC argued that the payment system was infrastructure for which competitors need only pay a nominal fee.

Cabcharge accepts payment with any credit card. Paying with cash avoids the surcharge.

Cabcharge has formed associations with the taxi network Yellow Cabs, and more recently the bus operator ComfortDelGro, regarded by the Inquiry as examples of anti-competitive vertical integration. Both parties however see mutual benefits in their relationships. It is worth noting that other non aligned taxi operators have chosen the advanced Cabcharge payment system on merit. As a result the company has achieved 97% penetration of the taxi market,

Cabcharge returns surplus revenue to the taxi industry, to improve driver education, and taxi standards.

What is the rationale for lowering the 10% surcharge to 5%

Why is 10% just too much. Are present company profits excessive? Salient features of the 2012 profit report:

Total revenue $192.4m, up 4.2% with $90m derived from members taxi related services
Net profit after tax $60m, with 28% of group profit before one-offs, derived from Associates.
Full year dividend payments are 35 cents/share, fully franked a yield of about 8.5%.

These are financially good results, but hardly excessive. Bear in mind that many shareholders may have lost as much as 50% of their capital investment in holding Cabcharge shares. It is mean-spirited to begrudge share-holders a reasonable dividend return. This is the cost of capital. Better taxis and drivers come at a price.

In her presentation Geraldine Doogue quoted a 25% dissatisfaction rate with the taxi industry. This may seem high, but conversely it can be considered that the satisfaction rate is of the order of 75%.

Many of the complaints emanate from inability to procure taxis at night, not the standard of service. Solo owner drivers chosing convenient working hours are unlikely to correct this problem. There is also greater risk to their safety at night, and non-payment more likely. It is the taxi networks who are best positioned to respond to this need.

I consider the standard of our taxi service compares favourably with other forms of transport.

Cabcharge and the Chairman Reg Kermode have been unfairly maligned. It is my opinion that Reg Kermode deserves credit for doing much to improve the taxi industry. Cabcharge has established a model for private enterprise involvement. It has, and will continue to help provide safer taxis, more helpful drivers, more responsive booking arrangements, in addition to their flexible documented and honest payment system.

We need a financially viable, high quality taxi industry. This can be achieved through private enterprise, and hard work. The industry does not need more burdensome regulation.

Everyday Australians want to see a fair go for all participants, including Cabcharge.

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Categories: Community Issues

Tags: Political issues, Private enterprise