THE coronavirus pandemic has been destructive but it could prove to be a blessing in disguise for mainboard-listed transport giant ComfortDelGro Group, as a dampening of demand seems to have catalysed the private hire industry' s right-sizing.

 

The number of private hire cars has been declining for six straight months from its peak at 77,815 in February to 72,679 in August, the latest statistics from the Land Transport Authority showed. It would appear that the coronavirus has stopped these taxi competitors in their expansion tracks.

 

In contrast, the taxi population added 178 units to reach a total of 16,264 in August. This represented a rebounding from the trough at 16,086 in July and a reversal of a downward trend that began in May 2015. The ride-hailing operators began making their inroads into Singapore in 2013.

 

ComfortDelGro has maintained its share of slightly over 60 per cent of the taxi fleet. But it remains to be seen if this fleet expansion also means that there is light at the end of the taxi business tunnel.

 

The reduction of the private hire fleet is certainly a positive.

 

UOB Kay Hian analyst Lucas Teng, in a Sept 21 report, wrote that if the private hire fleet shrinks by 2,500 cars, the market share for taxis could rise by 2 per cent. This is on the premise that demand for point-to-point trips stays at current levels - i.e. 70 per cent of pre-pandemic levels - and the average number of trips per private hire car remains constant.

 

DBS analyst Andy Sim told The Business Times that he was not surprised by the drop in the fleet of private hire cars.

 

" Given the huge growth of private rental cars that has grown manifold since the entry of ride hailing, it seems that there is an oversupply of cars, along with crimped demand."

 

That the pandemic should catalyse a consolidation of the private rental car industry, causing weaker players to exit, was also unsurprising, he said.

 

It is more difficult to draw any definite conclusions from the increase in the taxi fleet. Ong Khang Chuen, analyst at CGS-CIMB Securities (Singapore), said the one-month uptick in taxi numbers could just be because taxi operators took delivery of a pre-committed purchase.

 

He therefore said he would not read too much into it.

 

Mr Sim of DBS, meanwhile, thinks the increase in fleet is a good sign. But he also said one would still need to see if this trend continues.

 

The brokerage house had earlier noted that the challenging taxi business has weighed on ComfortDelGro' s share price. A bottoming out of the taxi fleet contraction trend or changes in the ride hailing and taxi industry dynamics could lead to earnings upgrades.

 

Taxi operations accounted for about 25 per cent of ComfortDelGro' s operating profits last financial year, although this number does not just include the Singapore operations.

 

ComfortDelGro has committed to substantial reliefs for cab drivers who rent its vehicles. These reliefs are expected to cost close to S$116 million. The short-term hit from these reliefs would, however, improve loyalty from its taxi hirers over the longer term, analysts commented.

 

At the same time, a new regulatory framework for the point-to-point transport sector that will take effect later this month also bodes well for ComfortDelGro.

 

The rules are expected to level the playing field between taxi operators and private hire operators. Those private operators with a fleet size of at least 800 will have to be licensed and will be subject to greater scrutiny.

 

At the same time, cab operators including ComfortDelGro would be spared from meeting the Taxi Availability standards when the new regulatory framework is implemented. This removes the requirement to have at least 80 per cent of the fleet in operation during peak hours.

 

Mr Ong of CGS-CIMB said that when the framework is in place, which operators would grab a bigger market share will largely depend on the quality of their service offerings.

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