Higher fares and reduced subsidies loom as Grab nabs Uber's operations

Analysts believe that being in a monopolistic position, Grab can change fare structures in order to improve profitability.

After Grab's acquisition of Uber's Southeast Asian operations, CEO Dara Khosrowshahi wrote to employees that consolidation will no longer be a strategy for the company after it also bowed out of the markets in China and Russia, and most recently in Southeast Asia.

“One of the potential dangers of our global strategy is that we take on too many battles across too many fronts and with too many competitors,” Khosrowshahi said. “This transaction now puts us in a position to compete with real focus and weight in the core markets where we operate, whilst giving us valuable and growing equity stakes in a number of big and important markets where we don’t.”

Analysts are now firm that Grab is poised to dominate the ride-hailing space in Singapore, but the deal is still up for approval. In an interview with Singapore Business Review, CIMB analyst Cezzane See said she believes that post-acquisition, “there will be a more dominant ride-sharing app player.”

In a report, OCBC analyst Eugene Chua concurred with See and said Grab will become the only third party ride-hailing service provider in Singapore and added, “Being in a monopolistic position also allows Grab to have control in raising car rental rates, reducing subsidies, and changing fare structures in order to improve profitability.”

Chua said the situation could either tilt to positive or negative for other transport players like ComfortDelGro (CDG). He said the deal can either erode CDG’s competitive advantage of having scale in the ride-booking industry or have Grab’s changed fare structures become beneficial for CDG.

When asked what the deal means for operating a transport business in Singapore, See said, “The deal illustrates that disruptions are a real threat to any businesses in the world.”

Meanwhile, DBS Equity Research Andy Sim said, “Our base case scenario is that with the exit of Uber, and competition cedes, we could see market normalcy returning with the absence of heavy discounting and promotion.”

A Land Transport Authority spokesperson has responded that they will study the impact of this move on the point-to-point sector. “We will ensure that no one single market player dominates the sector to the detriment of commuters and drivers. We note that the Competition Commission of Singapore has the power to review any merger or acquisition that might affect competition in any market in Singapore,” they said.

“Separately, we are reviewing the regulatory framework, to license the private hire car (PHC) booking service operators. The strategic intent is to keep the PHC and taxi industries open and contestable,” the spokesperson added.

Meanwhile, as previously reported by Singapore Business Review, Grab said that it is not changing its pricing system. A Grab representative clarified that for services that are on dynamic fares, such as GrabCar and JustGrab, fares will continue to be calculated based on a base distance, with a dynamic surcharge that will be applied based on factors including demand and supply in that particular point in time, traffic conditions and estimated time taken for the journey.

“This is a fair calculation for drivers as they navigate varying road conditions throughout the day. This means fares are lower in low demand periods – and vice versa – which helps match drivers to passengers efficiently throughout the day,” they said.