IRU - Workshop II - Brian HUNT

Brian Hunt travels from the US where he was elected President of the Taxicab Livery and Paratransit Association, the TLPA, in 2006. This association was formed in 1917 and represents over 1,000 member companies operating over 100,000 vehicles and carrying more than 900 million passengers annually, in a market of 2 billion trips.

Brian has owned a transportation company of about 200 vehicles in suburban areas of Los Angeles California USA and a participating member of the TLPA since 1994. Brian’s 15 years of transport company ownership, a business and legal education, his participation in every level of the TLPA’s organization supports his qualifications to participate in our workshop today.

My company is in the Taxicab and Contracted Paratransit business. My comments will first be about the Contracted Paratransit Business and then a comment about our Taxicab service.

The American Disabilities Act was a law passed in 1990 which essentially created Paratransit service. This Act and several interpretive law decisions which followed, required Transit Districts to provide comparable transit service to disabled persons. This caused Transit Districts to create small wheelchair-bus equipped systems whereby any disabled person could ride essentially the same route as a Transit Bus. The Transit Districts chose to contract this service out to save the cost of using their own and higher paid Union Employees. Therefore, our primary Contracted Paratransit clients are Contract Managers of the Public Agencies who provide ADA service.

These Contract Managers generally have a social service bent and care about the disabled clients ride. The number two requirement of the Contract Manager is preservation of his own employment. Therefore, the best Client Relations are going to come by providing a “silent service”, that is, one without complaints.

The largest complaint by far is failure of on-time service. It is extremely difficult to operate a Paratransit route on time because of the traffic and continued highway construction accommodating the ever increasing use of the private auto. Here are a couple of ways we do that.

We time our routes to the minute so that we are more likely to meet our on-time window set by the agency. For example, in the case where we have a 10 minute window, and our computerized dispatch system has scheduled the arrival time at 1:00 pm, and yet the bus consistently arrives at 12:07, we change the scheduled pick up to 12:07, allowing us an extra 7minutes to pick the person up. This seems obvious because large route buses are timed to the minute however in the scenario of Paratransit service where the routes are created the night before by computer, timing routes to the minute is difficult to do.

We incentivize our drivers to report their exact time so that routes can be adjusted. And then the big work of having clean late model buses, high standards in maintenance and professional drivers backs up this on-time effort, producing silent service.

Agencies use competitive bids to award contracts to companies to provide Paratransit Service. The elements needed to successfully gain a contract are a clear identification of specific issues the service may have, a reputation for providing silent service, and then a proposal which solves the needs and is priced appropriately.

Generally each city has one Contractor to provide service alongside the agencies’ fixed-route buses. Therefore for our customer base truly fits the saying “it’s a small world”. Reputation for silent service is the number one concern of our Clients.

Taxicab service in the US is primarily a telephone order service. Except for Airports, San Francisco, Las Vegas and New York, most people get a taxi by ordering over the phone. Our number one competition is the private auto so our service is one of convenience rather than necessity for our riders.

As in the Paratransit service, on-time service in a safe clean automobile with a professional driver is number one. This is a challenge given the characteristics of the service area. Our suburban Los Angeles service area is large and results in approximately 40% unpaid taxicab miles.

Add to this challenge the low density of rides, competitor business practices, and private auto competition, many companies changed from employee drivers to independent contractors in the 70’s as a way to reduce costs. If the index of cost-of-living were applied to taxi fares over the last twenty years, our rates would be close to $4.00 a mile yet we operate on $2.50 per mile. This downward pressure on price causes us to look for many ways to cut costs, yet we still provide a clean safe cab driven by a professional and background checked driver with thousands or millions of dollars invested in cars, computers, managers and facility , and we proved this 24 hours per day - all to your door for $2.50 cents!

To truly be an independent contractor, the company must not control the driver in anyway leading to – some uncontrolled drivers. As company owners we work with our regulatory agencies to require our drivers to maintain a level of service, standards we cannot require ourselves. Requiring uniforms, hygiene, cars without body damage or mechanical issues, and criminal background checks are some of the standards we aid our regulators to codify. Even with this help, my travel experience is that the European taxi services with great drivers operating a Mercedes is a much better experience than most US service suburban service in older cars and less paid drivers.

Question – Regulate or Deregulate in the Taxi Sector

The decision to regulate or deregulate Taxi service is on a City-by-City basis and over the years the cities have spent $100,000 of dollars with consultants to answer that question, some of it with me.

Fifteen years ago in 1993 when I first entered this business, I bought my company where I operated as the only taxicab company with about 50 taxicabs covering 9 suburban Los Angeles area cities. Each city had ordinances which essentially created a highly regulated environment and kept out any direct competition. I have to say that service was not as good as I later made it and that had some to do with the fact I had no competition. As well meaning as I was, and as urgent as it was to serve well or lose exclusivity, I did not give good on-time performance. I later learned it was not a monopolistic attitude by my company – I was very diligent sharing with my employees we had a lot to risk by treating the public with a “take it or leave it” attitude - but an economic model I did not fully appreciate. My mistake was I charged a lease to the drivers that were so high that only a limited number of drivers could survive in the market place. I was charging about $1000 per week per car.

Seven years later a large competitor worked the political process to break my monopoly, introducing a fleet into my area. They offered a lower lease to the driver, as low as $550 per week, so I quickly began losing drivers to them. I painfully lowered my leases to keep my drivers. I was a scary and crucial several months because not only did I lose drivers, I had lower revenue from the drivers that were left. I lost a lot of money for a few months.

Fortunately the drivers who left came back after a short while because in our “phone call” market they could not make a living with the other company. The new company had a low lease but no business.

After about six months I had added more vehicles at the lower lease and now not only was my financial looking better, our on-time was increasing and call volume was going up. I had a latent demand I just did not figure out as a new-by in the business.

There are at least 13 other studies I know about that directly address the subject. By and large the consensus among cities is to regulate in some form. Here are some truths I have learned both from my own experience, talking to other operators, and by reading the history of regulation in these cities:

The regulate/deregulate cycle is about every 15 years. During this cycle a politician leads the charge to allow other taxi companies into the market and realize the “American Dream.”
About 5 years into the experiment of deregulation, the larger companies go out of business – almost my experience – and multiple single cab companies spring up. The larger companies are cannibalized by the single cab operators.
Complaints go up as some of these rouge drivers take advantage of the public, or avoid regulatory requirements like insurance, cars get older, or the rider can’t find the closest cab because of no central dispatch.
Ridership generally goes down because of the problems.
Eventually Politicians figure out they have made a mistake and try to put the Genie back in the bottle. They order an expensive study.
The study indicates they should put some regulation back into place but now they are faced with many sympathetic small businesses (independent cab drivers) who oppose any regulations that threaten their livelihood such a central dispatch or having to join a larger company.
No one with any money wants to invest in creating a large well managed company again; they would rather buy real estate. It is a slow process to bring back a full service taxi company.
During the next ten years there are steps forward and steps back toward reregulation. Different schemes are tried – Franchises, regulation of all components of the business, finally the best solution – the convenience and necessity regulation model combined with high standards of operation which start to weed out the substandard operators.
Eventually the market is reregulated and times are peaceful.
After 15 years, the new politicians lead a charge to allow other companies into the market place to realize the “American Dream”.
There are no experiences or studies to the contrary. My conclusion is that regulation of service is not perfect, i.e. my service initially not so good, but is the best solution available.

In the Contracted Paratransit Service, our number one expense is driver employee wages. I would guess drivers across the US make about $9 an hour and generally have some health benefits and one or two weeks of vacation.

To make a profit in a contract, we know that driver labor cost must be near 30% of the contract price. If driver labor is 30%, most other costs fall into place which leaves in industry standard of about 4% profit.

Since wages are low and bids are competitive, it is imperative that the workplace be somewhere people like to be and managers have good personal relations with the drivers. Without these attributes, companies have an impossible time finding qualified drivers leaving service standards unmet. Because of the low wages and inconvenient driver schedules, the best practice of a happy work place gives you an edge on the competition.

We find that paying for a highly qualified manager with low paid support employees is the best financial operating model. A good manager can usually teach these employees to provide service up to contract and rider standards.

Other best practices are maintaining the proper ratio of mechanics to vehicles, about one to 15 in a normal situation. One of the reasons to watch this ratio is that no matter how many mechanics you have, each one will put $3,500 per month of parts on a vehicle, extending your maintenance cost far beyond simply more mechanic wages. Another good practice is to find parts vendors who will not only provide low priced quality parts but also stock our shelves with their inventory, only charging us for parts used.

Fuel costs have doubled in the US over the last two years, and even though not as high as European fuel, have increased our cost and thus lowered quality of service. It is a best practice to have a fuel clause in a contract to pass the increase along to the agency. We have also found that driving a vehicle away from a route costs three cents per mile against the cost of fuel. Therefore we use this measure to decide which fuel station is more efficient to use.

Except in the towns which provide a high density of rides like New York, San Francisco and Las Vegas, a taxicab company must purchase and operate used vehicles for cabs. The most common purchase is the used Ford Crown Victoria, salvaged from police agencies. A car like this has 100,000 miles on it and is about $6000 where a new car is about $25,000. The depreciation difference can be defined as about $150 a month for the used vehicle versus $600 per month for the new vehicle. Operating with new vehicles is a formula for going out of business.

Some small operators do not understand this and their business fails after about three year. This is because they have bought a new car which they financed over seven years and which they can’t afford to replace when worn out after about three years. Not only is it a best practice, it is an absolute requirement to operate used cars in our environment if we want to stay in business long term.

Independent drivers must be used instead of employees. The switch to independent employees in the 1970’s happened because of financial pressures. Generally an employee driven cab costs about $4,500 a month to operate while an independent driver cab cost about $2500 to $3000 month to operate. This difference means the independent driver cab has a lot better chance of covering this cost than an employee driver, allowing lower meter rates. We cannot compete if we do not use independent contractor drivers.

Question – Does TLPA offer special services to members to help them with cost control, rate setting, and invoicing?

Our association much like the IRU brings together operators from around the world to share in their experiences. Like this conference, members learn things from panels, experts presenting on topics related to our industry, and talking with each other in the hallway. These three conferences we have a year are the most valuable aspect of membership in our organization.

The second most valuable benefit from membership in our organization is that we are THE forum for vendors to get into our market. Our trade shows always consist of proven products such as software, vehicle manufacturers, camera systems, insurance offerings, etc. And there are always the new companies who have an idea and want to sell that idea to our membership. That is always a fun component and there are often side-bets by us members on which company will actually stay in business with their new idea. Some do and some don’t. During the dot.com era ten years ago, a lot of internet dispatching companies popped up. There gone but the big stable vendors took on some of that technology.

Our association also publishes a trade journal and quarterly news letter. These periodicals share regulation/deregulation stories, legal issues, and legislative issues. All the large and successful taxi cab companies are members and I like to think they got there in part due to the benefits of membership in the TLPA.

The number of taxis added to the US transportation mix has not kept up with the population and in most areas. That is, the number of taxi rides in most areas is flat and have not grown over the last many years. This is because of the shared shuttle vans entering the market, i.e. Super Shuttle, and because Public ADA service now provides service for $1 which costs us $30 per person to provide. The ADA service is paid for by the tax payer.

In fact a lot of taxi operators got into Contract Paratransit after a taxi operator won a law suit against a transit agency because the agencies newly formed ADA service usurped a large portion of the taxi riders. The solution for settlement was for the Transit Agency to contract with that Taxicab Company to provide the same service and be paid by the Agency instead of the rider. This is how most taxicab companies have grown. Instead of increasing the number of taxis, they have added small wheelchair accessible paratransit buses.

Taxis and small paratransit buses provide a ride for the disabled who did not have this option before the 1990’s. Before this option, those who could not drive because of a disability had the option of asking a family member or friend to take them out for a meal. Today, that same person can travel independently by using this ADA public transit. This new independence increases a person’s self esteem and has created a new industry providing services to these now mobile clients.

These public contracts and new riders allow investment in technology to operate more efficiently and on-time. When my company added a computerized dispatch system, a meticulous driver reported his revenue had increased 14%. This is because the computer system could dispatch 200 rides and hour where manually we were dispatching about 60 rides per hour. And under the manual dispatch, as things got busier dispatchers relied on their more experienced drivers to the exclusion of the new driver who often needed dispatch help to find their rider. The major investment for a small company like mine was worth it as drivers making more money could pay more to lease a car.

Today dispatch systems with GPS are less expensive to acquire and more systems are available. In suburban use, the GPS system is used primarily to locate lost taxis. Using GPS for the system to dispatch a trip to the closest car is not practical because of the lack of trip density. If dispatched using GPS to locate the closest driver, a driver could sit all day without a trip if not in exactly the right place. In small companies like mine with less than 100 cabs covering a thirty square mile area, the trips must be more evenly distributed using zones, giving every driver an opportunity to make a living.

Directions provided by a GPS navigation system equates to the introduction of the automatic transmission in that we now have a new source of qualified driver. These systems allow us to efficiently use drivers who are otherwise geographically challenged. Sometimes we find a driver who knows the area yet still cannot navigate, and by solving this problem we add to our driver pool those geographically challenged individuals who are otherwise qualified and excellent drivers.

A relatively new technology in the US are the camera systems which record events, both looking forward and backward in a vehicle, and providing a recording 45 seconds in front of and behind the event. These events are then wirelessly downloaded each night as the vehicle comes into the yard. The events are processed by our vendor and ranked for severity and common driver mistakes. This is the most fantastic technology as it allows us to see drivers not wearing seat belts, smoking in the vehicle, speeding, reckless driving or a complete view of an accident. The short films can be quite entertaining but better, can increase your fleet safety by correcting driver behavior. If you have not seen these devices, they are one worth every penny of the investment.

New technology, public moneys into our companies by virtue of Agency Contracts, and the transition from essential service to one of convenience has changed the way we operate today. Our taxi service in the US can be described as a safety net providing rides when Public Transit is not available. This is essentially our role in the market place.

Question – Are there important differences between the states as to regulating the taxi market?

The question on how to regulate is a city-by-city decision and those cities that do not currently regulate did at one time, are not doing it now but will again in the future. There has to be some quality standards in the industry. There are several models used.

When arriving in a US city, you can instantly understand the regulation by simply looking at the first cab you see. The worse the cab is, the more likely the city does not have proper regulation.

The first US taxicabs were introduced in 1907 and were actually some of the first automobiles operated in the US, passing horse and buggies every day on the often muddy streets of New York. These vehicles used French made meters to calculate a distance “tax” and thus came to be known as Taxicabs. John Hertz who founded Hertz rent-a-car operated the first taxis in Chicago as a way to produce more revenue from his used car sales lot. In the thirties he read a study that Yellow was the easiest color to see and so he painted his taxis yellow. He renamed the company Yellow Cab and over the years many other operators “stole” his idea. Yellow Cab is not a franchise in the US however this name represents the oldest and more established companies, battle tested companies that have survived the volatile taxicab market.

My company started in the 1920’s and I was the third owner, purchasing the company in 1994. It is with this proud heritage that I offer the highest quality service I can with the price restraints of our market. I am pleased to be recognized for our transportation service as both a TLPA award recipient and now President of the TLPA.

Note – I am making an effort to bring a DVD of incidents recorded by cameras in vehicles. There is no interpretation required and will play on my own lap top computer is connections to a projector are available.