Storm surge: Uber just doubled car service pricing in NYC

The car-service booking app is implementing Surge Pricing in the city, but some consider this to be price gouging. Fares could skyrocket even higher as more New Yorkers seek rides in the wake of Hurricane Sandy.

Uber's smartphone personal vehicle service. Uber
New Yorkers already are having a tough time getting around in the wake of Hurricane Sandy, but Uber just made it a little harder, at least on the wallet.

The company, which provides an app for locating and booking car service, says today that it has reinstated "Surge Pricing" in the city. Basically what that means is car drivers can charge astronomical fees to shuttle riders around. Yesterday, that would have been about double the normal fare, based on what Uber ended up paying drivers.

In New York, where public transportation has been hobbled by the natural disaster, many people have been relying on taxis and car services to get to work. Charging even higher fees reeks of price gouging, though Uber contends it's the only way to get drivers on the road.

"Without raising the price, there will be less than [half] the number of drivers on the system with several times more demand on far fewer drivers," Uber said in a blog post. "Without Surge Pricing, Uber would become essentially unusable this week."

However, it does admit that "for those needing a ride this week, it's going to be expensive."

Traditionally, Surge Pricing goes into effect when the supply of available cars gets tight, like on New Year's Eve. Uber incrementally raises the price over time based on the number of free vehicles on the road. Then when there's more supply, it lowers the price.

It says in a blog post today that "demand for Uber rides is astronomically high" right now due to the limited public transportation.

To incentivize more drivers to ferry passengers yesterday, Uber started paying drivers double the typical fare on all trips. The riders, meanwhile, only had to pay the lower amount (Uber initially implemented Surge Pricing yesterday but backtracked following complaints).

The higher fares tripled the number of cars on the road and kept them out longer, the company says, but it also cost Uber more than $100,000 in additional payments to drivers. That cost is something Uber said "can't continue indefinitely without breaking the bank."

"So while we were mostly able to avoid higher prices the day after Sandy, the reality is that under this week's extreme conditions, raising the price is the only sustainable way to maximize the number of rides and minimize the number of people stranded -- by providing a meaningful incentive for drivers to come out in undesirable conditions," Uber said.

It says there will be a clear pricing notification at the time a user requests a car. And Uber says it's waiving its own fees, with all of the fare going directly to drivers.

Of course, Uber can't be expected to continue losing money during the hurricane recovery. But its explanation didn't seem to quite cool tempers on the Web. Many people took to Twitter to complain about the move. Uber CEO Travis Kalanick, meanwhile, responded to several of the messages, defending Uber's actions.

Here are a few of those comments:

Screenshot by Shara Tibken/CNET
And here's a response from one of Uber's VC investors, Shervin Pishevar at Menlo Ventures.
Shervin Pishevar, a managing partner at Uber investor Menlo Ventures, defends the company's plans to boost pricing. Screenshot by Shara Tibken/CNET
Here's the full text of the letter:

Hurricane Sandy / Pricing Update

by Edward Casabian on Nov 01, 2012

First and foremost, we hope that you and your family and friends are safe. The Uber NYC office is currently closed and some of our team members are without water and power.

With limited public transportation, demand for Uber rides is astronomically high. That means we're working to get as many drivers out as possible to help New Yorkers get around the city. So, in order to maximize the number of drivers on the system yesterday, we started paying drivers 2x the fare on all trips -- and in the meantime charging riders the standard 1x fare avoiding surge pricing for most of the day after Sandy. Doubling drivers' fares tripled the number of cars on the road and kept them out there far longer. However, footing the bill for higher driver costs came at a significant expense to Uber with over $100,000 in additional payments to drivers in a single day - something we can't continue indefinitely without breaking the bank.

So while we were mostly able to avoid higher prices the day after Sandy, the reality is that under this week's extreme conditions, raising the price is the only sustainable way to maximize the number of rides and minimize the number of people stranded -- by providing a meaningful incentive for drivers to come out in undesirable conditions.

Later this morning we will be reverting back to standard Surge Pricing for riders. It is a hard decision, but one we feel strongly about. Without raising the price, there will be less than [half] the number of drivers on the system with several times more demand on far fewer drivers. Without Surge Pricing, Uber would become essentially unusable this week. For those needing a ride this week, it's going to be expensive; there will be a clear pricing notification in the app at the time of request. During this emergency price increase, Uber will waive all of its own fees with 100% of the fare going directly to the drivers helping New Yorkers move around the city.

You can read more about Surge Pricing on our blog: http://blog.uber.com/2012/03/14/clear-and-straight-forward-surge-pricing/

Our thoughts and prayers are with all New Yorkers in this time of crisis. We're going to do everything we can to continue to provide the most reliable, efficient transportation option for NYC. Be safe, and stay Uber.

The Uber NYC Team

Josh, Andrew, Ed, Kyle and Nicole in Manhattan,

Jeremy in Brooklyn,

Betty in Queens

and Cait in The Bronx

 

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