Why Is Uber So Expensive Right Now?
Uber has revolutionized the taxi industry since its inception in 2009.
This innovative app quickly changed the game for modern transportation services and rapidly became one of the highest-valued startups in the world.
Despite its once explosive growth, Uber has become increasingly expensive in this post-pandemic world.
Keep reading to learn more about why Uber is so expensive and why this matters.
Uber was the first rideshare app and is a global leader in this space.
The app is available in 10,000 cities in over 70 countries.
Its 93 million monthly active platform consumers have decreased by almost 10% over the last year, thanks to the COVID-19 pandemic.
Even before the coronavirus pandemic, Uber prices had begun a trend of getting more expensive over time because of multiple factors.
So why is Uber so expensive?
Why Is Uber So Expensive Right Now?
In 2020, the COVID-19 pandemic took the world by storm.
Most industries had their workers start working from home full-time.
This remote work meant that people were not commuting, nor were they traveling anywhere.
The need for Uber drivers quickly decreased—almost overnight.
This limit in supply meant that fewer drivers were needed, and so many ride-hailing drivers packed their bags and stopped Ubering.
At the beginning of 2021, as COVID-19 vaccines became more available, the world started to open back up.
People began going back into the office and started traveling again.
But even though the riders and demand for Ubers increased, the number of drivers has not.
Some drivers are afraid of getting sick, others have found better work elsewhere.
Uber is one of many companies suffering from the labor shortage striking the US right now.
Most businesses in the US, especially service-based companies or companies dependent on gig workers, are struggling to hire right now, and Uber is no exception.
When there are not enough drivers on the road for the demand, Uber pays each driver more.
In addition, most people do not want to share rides with multiple people or strangers due to COVID, so the previous, cheaper UberPool option is temporarily unavailable.
This means that right now, there is a massive increase in price for Ubers, compared to pre-pandemic days, as well as much longer wait times.
In fact, the New York Times reported that Uber ride prices are about 40% higher than they were a year ago.
Some people have even reported that their Uber trips to the airport have cost more than their flights.
Supply and demand are the main explanation as to why Uber is so expensive right now.
However, even before the pandemic, Uber was getting expensive.
Why Is Uber Getting Expensive
A general economic trend is that most goods and services tend to become more expensive over time.
Inflation, decreased supply, and increased demand all contribute to this trend.
For Uber, there are a variety of factors that may mean an increase in Uber pricing over time:
Some of the most expensive cities for Ubers in the United States include:
- The Hamptons, NY
- New York City/Manhattan
- Colorado Springs
Uber rides in these cities tend to charge much more than other places in the US.
In addition, some places like airports charge Uber a fee to pick up or drop off passengers.
This fee will also increase the cost of your ride.
Supply and Demand
As mentioned above, even in pre-pandemic times, the supply and demand of rides greatly influenced the cost of Ubers.
Surge pricing during rush hour, bad weather, or special events, like the Superbowl, causes a significant increase in price for riders.
As demand for rides increases, the driver supply decreases, and the price of rides increases—as demand goes up, the cost of an Uber gets more expensive.
Rate of Pay for Drivers
If Uber wants to keep the drivers it has, it makes sense to pay them more.
This need for drivers means that the price of each ride will increase.
When there are not enough drivers to meet the demand for Uber rides, Uber pays their drivers more.
Uber also pays driver incentives for hitting certain milestones and offers driver promotions and sign-up bonuses.
They may also use these incentives to attract more drivers during this labor shortage.
These incentives, promotions, and bonuses paid to drivers are all part of their cost of revenue, which is their highest cost.
Uber spends billions of dollars on marketing its services each year.
In 2018 alone, Uber spent 28% of its revenue on sales and marketing, a whopping $3.2 billion.
Because Uber offers more services than just ride-sharing (it also has its Uber Freight shipping service and UberEats food delivery service), it has marketing and advertising costs associated with each one.
These costs can really add up.
Sales and marketing is its most significant expense, behind the cost of revenue.
Another part of Uber’s cost of revenue is the insurance costs related to ride-sharing.
By default, all Uber drivers have a certain level of insurance provided to them that Uber covers the cost of.
This default insurance policy is pretty basic and really only covers general driving when picking up and dropping off passengers.
However, since Uber covers the cost of this policy, this means that the more drivers that work for Uber, the more Uber has to spend on insurance.
A good business will work to make their charges cover these revenue costs to make a profit at the end of the day.
Does Uber Get Cheaper the More You Use It?
Unfortunately, no, Uber does not get cheaper the more you use it.
In fact, it appears that the opposite may be true.
“Uber appears to have the opposite of a rewards program. That is, it appears the more you use Uber as a passenger, the more they’re going to charge you per mile. We know Uber said they were going to experiment on charging different customers different rate, based on a variety of unpublished factors. My current belief is the more you use the service in a way that suggests you can afford more, the more they will charge you.”
For ride fares, this means that Uber can basically charge their customers whatever they want. This is the world of upfront pricing. If people are willing to pay these prices, why not?
Unfortunately, with upfront pricing, unlike with surge pricing, this increase in cost does not go back to the driver.
However, Uber has a monthly membership option called Uber Pass.
This allows riders to earn increased savings on rides and UberEats orders for a $24.99/month fee.
Uber Pass members can save 10-15% on each ride and are not subject to surge pricing.
Uber Pass is not available in all places in the US (it is excluded from California).
It is really only worth it for customers who spend a lot on Ubers in an area that sees significant surge pricing or who use Ubers consistently during rush hour or daily for work.
Frequently Asked Questions
There are a few questions that frequently come up around Ubers:
What time of day is Uber the cheapest?
The pricing for an Uber varies a lot based on many different factors, including whether there is a high demand for Ubers at that time.
If so, there will be a surge in prices, and Uber will be more expensive.
Generally speaking, Ubers are cheapest in the middle of the day or super early in the morning, before rush hour.
Morning and evening rush hour times tend to be more expensive for Ubers and when bars close at night.
Why does Uber pricing keep changing?
Uber prices can change, for the same route, at a moment’s notice because of their dynamic price boost system.
This pricing system allows Uber to change the price of rides, even the same route, according to the demand and supply at the moment.
Is Uber cheaper than taking a traditional taxi or cab?
This depends on the time of day, surge pricing because of higher demand for rides, and location.
But more often than not, Ubers are cheaper than traditional taxis.
There are many reasons why Uber is so expensive right now, mainly due to the effects of the COVID-19 pandemic.
However, Uber had begun increasing their prices and was starting to become more expensive even before that.
As we look forwards and towards a post-pandemic era, the future of Uber, and when prices may return to a “normal” rate, is unknown.
What that means for you, as a consumer, is that Uber may be expensive for the time-being and beyond.
Alternative methods of transportation, such as public transport and carpooling, etc. may be more cost-effective.