If you took an evening Uber or Lyft ride from Reagan National Airport near Washington, D.C., recently, chances are you paid more than you were supposed to. That's because rideshare drivers at that airport have figured out a way to manipulate their employers' apps and artificially create "surge" pricing, according to a report by local ABC affiliate WJLA. And it seems highly likely that if those drivers learned how to artificially create surge prices, Uber and Lyft drivers at airports in other cities are doing the same.
Surge pricing is a premium (calculated in different ways) that Uber and Lyft charge in situations where demand for rides is likely to outstrip supply--for example, at rush hour or when a stadium event lets out. It's intended to ensure that there are plenty of drivers available when they're needed, and, in my experience, it does that pretty well. It also compensates drivers for the likelihood that they'll be stuck in traffic at these times. Although it's difficult for riders to determine just how much of what they're paying goes to the driver, drivers do earn substantially more during surge times than non-surge times. So it's certainly in their interest to make surges happen if they can.
And, it turns out, they can. While a reporter looked on, a group of about 50 drivers for both Lyft and Uber sat at their waiting area at Reagan National waiting while two drivers watched online to see when planes were about to land. After a plane lands, a lot of passengers request rideshare rides, which pushes demand up to begin with. But the drivers further tipped the imbalance between demand and supply by simultaneously turning off their apps five minutes before landing. Then two drivers stood at opposite ends of the waiting area, looking at the Uber and Lyft pricing for fares from the airport. They kept checking fares and watching the surge price increase until the fares were $13 higher than normal. At that point, they told the other drivers to turn their apps back on so they could begin accepting rides. The whole operation took less than two minutes, but now arriving passengers would pay around $13 more to reach their destinations.
It's a nightly thing.
The drivers say they band together every night to do this, otherwise driving a rideshare passenger from the airport wouldn't be worth it--even though longer rides, such as those from an airport, are usually among the most lucrative. Uber and Lyft, of course, say such practices violate their rules. An Uber spokesperson sent this comment: "This behavior is neither widespread or permissible on the Uber platform, and we have technical safeguards in place to help prevent it from happening." The Uber representative also provided a link to this Washington Post story that disputes a widespread claim that a single driver can artificially create surge pricing by accepting and then canceling rides over and over. It indeed seems likely that method wouldn't work, or not for long. But it's a very different matter from when a large group of drivers get together to affect pricing, as they reportedly have been doing at Reagan National.
Lyft, for its part, sent this statement to WJLA: "Lyft takes any allegations of fraudulent behavior very seriously as it violates our community guidelines and can lead to deactivation from the Lyft platform." The company went on to imply that drivers have no reason to take this action since, it claimed, their earnings have risen by 7 percent in the past two years, and on average they earn $20 per hour. Uber said that over its lifetime, drivers have earned $78.2 billion driving for the company, and another $1.2 billion in tips. But those numbers just tell us that Uber is a large company; they say nothing about how much individual drivers might earn from it, or whether their pay is going up or down.
Individual drivers for both companies, as well as Rideshare Drive United, an organization that informally represents them, say that driver compensation has been cut several times over the years. Both companies' compensation schemes are complex enough that changes are difficult to parse. But in March, Uber announced it was cutting mileage payment in Los Angeles by 25 percent while increasing payment for time (e.g. sitting in traffic) by 16 percent. The company claimed that the new payment scheme would merely return drivers to compensation levels before a previous rate change six months earlier, and that its purpose was "making sure you have flexible ways to make money," according to a message to drivers that was shared online. But drivers said the change amounted to a pay decrease, and Rideshare Drive United called a 25-hour strike in response.
Drive United also claims that lower pay means some drivers have had to abandon health insurance, or have been forced into homelessness, and the drivers at Reagan National told WJLA they'd seen repeated pay cuts over three years. Rideshare industry observers confirm that fares have gone down repeatedly over the last few years, which obviously means that drivers are being paid less. According to one analysis, drivers must now drive about twice the distance they once did to earn the same amount.
Neither Uber nor Lyft responded to Inc.'s questions about driver reports that compensation has been cut. What's certain is that both companies are operating at a loss, and each has had a recent IPO, meaning that both have doubtless faced pressure from analysts and investors to lower costs. Pay cuts to contractors is a classic way to do that. Meanwhile, the retail price of gas is near its highest level in five years. It's easy to see that drivers--who weren't making big money to begin with--are being badly squeezed.
On a recent trip from our home north of Seattle to Seattle-Tacoma International Airport just over 45 miles away, a Lyft ride cost $82.20 before tip. A traditional taxi or airport car service would have cost between 25 percent and 75 percent more. The trip took a little over an hour, plus at least half an hour for the driver to reach our house in morning traffic, a few minutes of waiting for us, and then time waiting at the terminal for his next ride. An analysis of Lyft and Uber pay practices put the average real commission taken at about 39 percent. (Both companies say they take 25 percent commissions, but there are additional fees.) If that's correct, then the driver wound up with roughly $50 of the fare we paid, from which he had to pay for about $10 of gas. Given additional time spent at both ends of the trip, he likely earned no more than the $20 an hour Lyft says is average compensation--before you consider things like wear and tear on the car and the bottled water and protein bars he provided in the back. And that's for a long, presumably more lucrative, airport trip, in one of the more expensive cities in the nation.
Add it all up, and it's easy to see why drivers might be complaining, striking, or working together to game the system to try and earn a little more. How will Uber and Lyft, as well as their investors, respond to these concerns? We'll have to see.