Key Takeaways
- COVID-19 reduced driver supply; increased demand hasn’t matched driver availability.
- Location impacts costs; airports and high-demand cities see higher prices.
- Supply and demand dynamics cause surge pricing during peak times.
- Driver pay and incentives increase to attract more drivers, raising fares.
Why Is Uber So Expensive Right Now?
Uber’s current high prices stem from a mismatch between supply and demand. The COVID-19 pandemic led to a sharp decrease in Uber ridership, causing many drivers to leave the platform.
As the world began to recover and demand for rides increased, the number of available drivers did not keep pace due to concerns about health risks and better job opportunities elsewhere.
This labor shortage, compounded by a reluctance to share rides due to COVID, has significantly driven up prices.
The situation is made even worse by a general increase in demand for service-based jobs and gig workers, making it challenging for Uber to recruit enough drivers to meet the resurging demand.
Other Reasons Uber Prices Are Increasing Over Time
Uber’s increasing expenses can also be attributed to several key factors impacting its pricing model.
Firstly, location plays a significant role.
Cities like The Hamptons, New York City, Pittsburgh, and Colorado Springs have higher Uber rates due to their high demand and operational costs. Airports also levy additional fees on Uber pickups and drop-offs, directly affecting ride costs.
Supply and demand dynamics are critical, with surge pricing during peak times, adverse weather, or major events like the Superbowl significantly raising fares. The principle is straightforward: as demand outstrips supply, prices rise.
Driver compensation is another crucial factor.
To retain and attract drivers, especially during a labor shortage, Uber increases pay, offers incentives, and provides bonuses, which in turn inflates ride costs.
Marketing efforts further contribute to Uber’s expenses.
In 2018, Uber allocated 28% of its revenue, or $3.2 billion, to marketing across its diversified services, including ride-sharing, Uber Freight, and Uber Eats, making it one of the company’s largest expenditures.
Insurance costs, essential for ride-sharing operations, also weigh heavily on Uber.
The company provides a basic level of insurance for all drivers, which increases operational costs as the number of drivers grows.
These financial commitments are essential for Uber’s business model but result in higher charges for users to ensure the company remains profitable.
Related: How much do Uber drivers make?
Brett’s Take: Thoughts From an Expert
Personally, I’ve noticed that Uber has gotten drastically more expensive since I first started using it.
After thinking about it long and hard, the term “market share” kept popping into my head.
Uber initially offered low fares to gain market share and condition users to prefer ride-sharing over traditional taxis. They competed heavily with Lyft when the concept of ridesharing was initially new to the world.
As the company shifted towards profitability, particularly when they were considering going public, they seemed to adjust fares to reflect the actual cost of providing the service and to improve its financial performance.
Since that time, the company has been hit at all angles by many different factors, like competition and legislation.
In some regions like California, regulatory changes and new legislation heavily impacted Uber’s operational costs.
For example, laws requiring ride-sharing companies to pay drivers a minimum wage or benefits can lead to increased fares.
I believe that the market has once again reached an equilibrium. Uber has done a good job of recruiting drivers with lucrative bonuses and incentives, so they have enough drivers now as far as I can tell.
When I look to the future, the huge investments in autonomous tech will also pay off, with the company able to offer riders discounted rides because drivers will no longer be in the picture.
Does Uber Get Cheaper the More You Use It?
No, using Uber more frequently does not make it cheaper per ride. Contrarily, there’s evidence to suggest that frequent users may end up paying more per mile.
Uber has experimented with varying fare rates based on undisclosed factors, potentially leading to higher charges for users who demonstrate a willingness or ability to pay more.
This approach is part of Uber’s upfront pricing strategy, which sets prices based on demand and customer behavior rather than directly benefiting the drivers with increased fares.
However, Uber offers a monthly subscription called Uber One, costing $24.99, which provides savings on rides and Uber Eats orders, including protection against surge pricing.
This option is beneficial for those who use Uber frequently, especially during peak times or in areas with regular surge pricing, but it’s not available everywhere, including California.
Additional Reading: How does Uber work for riders?
Frequently Asked Questions
What time of day is Uber the cheapest?
Uber tends to be cheapest in the middle of the day or early morning, before rush hour, as prices surge during high demand periods such as morning and evening rush hours 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.
Wrapping Up
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.
Lyft was the first rideshare app!