Part D â Understanding and improving industry performance (PDF ...

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In its 1999 report, KPMG argued that assignments were likely to have had a beneficial effect on service performance: The effect of the widespread introduction of assignment in 1987 has been to act as a ‘productivity shock’ – taxi-cabs are being worked harder (driving more paid and unpaid kilometres) and more professionally (more fleet operators) than has occurred in the past (when there were more single owner-drivers). This in turn has increased pressure on owner-drivers to work their own cars harder (through leasing to other drivers) to make profits. This is likely to have had the result of reducing costs – as such it has been an efficiency-enhancing measure – as was recognised in the Foletta Report which recommended the opening up of assignments. 60 Subsequently, the McQuillen review presented a different view, arguing that changes to assignment and licence transfer policies had given rise to a ‘field day’ for investors. McQuillen noted that assignment had “introduced a third party in the revenue chain [which]… has had a negative effect on the overall viability of the industry”. 61 McQuillen recommended that licence ownership and assignments be restricted to those with industry ‘involvement’. If assignments were to continue, the recommendation was to regulate assignment fees to produce a ‘low risk’ yield on the licence value. The Chairperson of the ESC, Dr Ron Ben-David, argued in a paper given to the inquiry’s expert Independent Roundtable that assignments allowed an obligative instrument to become a purely financial asset and that “the creation of assignments was an outright failure in public policy; and unfortunately it has now been perpetuated for decades”. 62 Three arguments are commonly made against the assignment and transfer of licences: • Assignments decrease the accountability of the licence owner for the service and lead to declines in service quality relative to an ‘owner-driver’ model of service. • Assignments and licence transfers raise licence values and prices for taxi services. • There are excessive transactions costs deriving from the assignment and transfer of licences. 10.3.3. Accountability for performance The assignment of licences has allowed licence ownership to become divorced from actual service provision. Reforms to the licensing regime in 2007 were intended to increase the accountability of licence owners for service performance. Accreditation requires licence owners to ensure that the operator is accredited and complying with the standards relating to safety and customer service standards, and to act to rectify any breach by an operator of the standards relating to safety and customer service. The inquiry has heard that, in practice, licence owners have little motivation or ability to ensure that taxi operators provide high quality services to consumers. This, in part, appears to reflect difficulties with defining business and service standards, which are largely aspirational and subjective. 63 The VTD suggests that: There are few, if any, positive service outcomes that arise from allowing licence holders to be removed from the operation of the taxi under the licence. 64 – and – It is generally believed that the industry accreditation scheme has done little to promote a greater involvement of licence holders in the monitoring of operators’ service delivery. 65 In its submission, the DOT makes the following observation in respect of industry structure: …the link between financial return and the provision of quality taxi services has been effectively severed. Over time, the structure of the industry has become one in which many of the participants: – avoid responsibility for the actions of other participants; – avoid responsibility for the quality of service a taxi user receives; and – are able to extract profit in the absence of any real financial incentive to improve the quality of service a taxi user receives. 66 60 KPMG (1999), Op. Cit., p.63 61 McQuillen, Rob PSM (2001), Op. Cit., 62 Ben-David, Ron (September 2011), Op. Cit., p.12 63 VTD, Op. Cit., p.25 64 Ibid., p.28 65 Ibid., p.29 66 DOT, Op. Cit., p.14 Understanding industry performance CUSTOMERS FIRST 201
Many licence owners do not deny their lack of accountability for service, seeing their role primarily as being an investor: I am a license holder that purchased my license as an investment. I have no issues in saying this, just like people buy houses, commercial properties etc for investments. The financial markets dictate property prices and rentals/assignment prices. How can the government set a limit on assignment prices, does it set limits on what residential or commercial properties are allowed to be leased for. 67 I view my role as that of an investor, with no specific involvement in service provision. 68 However, some licence owners do acknowledge the existence of a connection between the licence holder and the taxi service: Taxi licence owners should be and already are responsible for on the ground services…a large number of licence owners have spent and continue to spend time in the industry…There would not be one licence owner who did not have the best interests of the passenger at heart. 69 One submission argues that the various roles of licence owners and operators are important to service delivery: To the extent that it is said that there are too many people involved in the delivery of the service which results in a greater cost to the consumer, I say that this is a simplistic and naive view. The proposition will be valid only if the middle men did not add value to the process. This is not the case in the taxi industry because: – Owners supply capital and accordingly have a vested interest in ensuring that the industry provides a good and efficient service (so as to ensure that the value of the licence is maintained and increases). – Operators supply infrastructure, management, coordination and systems that enable the business to run efficiently. – Operators select drivers and ensure compliance and provide support to drivers from time to time. – Operators ensure that owners receive a reasonable return on their investment. It is clear there is a divergence of views, even among licence owners, about the role of the licence owner in service performance. The inquiry notes that at least some licence owners believe they have no responsibility for service performance. This might be thought to lower service quality. However, this effect may be moderated by those licence owners who do believe they have a ‘vested interest’ in operators who lease their licences providing high service quality. A further factor exists that is commonly overlooked and that contributes to poor service quality: the nature of competition in the market for taxis more generally. Ineffective competition means that signals about quality are muted and this does not seem related to licences at all. This may be explained by an analogy with the value of land. A licence has some similar characteristics to well-sited land (such as in Melbourne’s CBD): land is scarce and business owners will compete to acquire land on which to conduct their business. Like a taxi licence owner, the land owner (landlord) has no responsibility for service provision, but it is usually the case that the operator of the business on the land will provide a good quality service. Competition between businesses will ensure that ‘bad’ operators cannot prosper. Translating this to taxi services, the problem in the current market for taxi services is that even if an operator offers poor-quality service, the effect of this on the overall market demand for taxi services will be small. 71 It is therefore unlikely to reduce the future financial returns on the licence. This not only means that ‘absentee’ licence holders can seek to maximise their returns without having to be concerned about the quality of service that is provided, but it also implies that owner-drivers have similar incentives. Some of these incentives might be circumvented by operators offering better service quality; for example, through offering direct bookings or via a secondary network. But again, these service quality incentives seem to apply equally to both assignee operators and owner-drivers. There is no reason to expect that assignee operators will deliver a worse service quality than owner-drivers. If operators were cut out of the system who would satisfy these needs? Who would provide back up if a driver became ill or a vehicle broke down? 70 67 Anonymous licence holder, response to licence holder survey 68 Anonymous licence holder, response to licence holder survey 69 Anonymous licence holder, response to licence holder survey 70 Anonymous licence holder, response to licence holder survey 71 Another way of saying this is that the demand for rank and hail taxis is a function of the average quality of taxis. Because reducing the quality of a single taxi does little to the quality of taxis on average (and therefore demand for taxis), operators have strong incentives to reduce quality if this can reduce costs 202
Page 2 and 3: Part D Understanding industry perfo
Page 4 and 5: The number of licences is restricte
Page 6 and 7: 9.2.2. Quality and safety controls
Page 8 and 9: Case study New Zealand’s experien
Page 10 and 11: Case study Singapore’s unique reg
Page 12 and 13: Case study London’s quality contr
Page 14 and 15: A report commissioned by the inquir
Page 16 and 17: Another possible explanation for hi
Page 18 and 19: From these comparisons, we can obse
Page 20 and 21: New Zealand is an example of a taxi
Page 22 and 23: Chapter 10. 10. Taxis, hire cars an
Page 24 and 25: 10.1.2. Substitution with public tr
Page 26 and 27: Nonetheless, there are market mecha
Page 28 and 29: 10.2.2. Detriments from restriction
Page 30 and 31: On the other hand, some submissions
Page 32 and 33: 4. The regulatory burden of decidin
Page 34 and 35: Country licence releases and the pu
Page 36 and 37: 10.2.3. Are there offsetting benefi
Page 38 and 39: The inquiry conducted research into
Page 40 and 41: 10.2.4. Valuing the effect of licen
Page 42 and 43: It would also be possible to implem
Page 44 and 45: Inquiry findings è The detriments
Page 48 and 49: 10.3.4. Effect on taxi operators an
Page 50 and 51: The practices raised with the inqui
Page 52 and 53: Historically, the zones generally r
Page 54 and 55: Merging the taxicab markets of two
Page 56 and 57: A further summary of these data is
Page 58 and 59: 10.5. Regulation of taxi-cab fares
Page 60 and 61: • It exposes taxi operators to a
Page 62 and 63: KPMG argued that these restrictions
Page 64 and 65: 10.7. Vehicle regulations Taxis and
Page 66 and 67: Advertisements The policy to remove
Page 68 and 69: In recent years, NSPs have increase
Page 70 and 71: Some respondents argue that the mar
Page 72 and 73: Driver obligations to the NSP NSPs
Page 74 and 75: There are nine accredited secondary
Page 76 and 77: From 1953, the use of two-way radio
Page 78 and 79: 11.4.2. Mandatory network affiliati
Page 80 and 81: The inquiry considers that there is
Page 82 and 83: Walters FM also said: Until such ti
Page 84 and 85: The ACCC has been called on a numbe
Page 86 and 87: The ACCC also noted that West Subur
Page 88 and 89: This also means that other NSPs and
Page 90 and 91: Metropolitan NSPs charge affiliatio
Page 92 and 93: Figure 12.1 Average fare costs, met
Page 94 and 95: 11.8.3. Affiliation with more than
Page 96 and 97:
However, unlike most other goods an
Page 98 and 99:
12.3. Characteristics of the paymen
Page 100 and 101:
A further key feature of two-sided
Page 102 and 103:
Case study Cabcharge penalised for
Page 104 and 105:
To compete with Cabcharge, the newe
Page 106 and 107:
12.5.1. Removing regulatory barrier
Page 108:
In addition, given the well establi
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