Business Economics

Covid-19 infections have paralyzed many business operations throughout the world. For instance, businesses have had to operate with enforcements and recommendations regarding social distancing and movement. Thus far, it is easy to point out the implications of Covid-19 regarding the movement of people, goods, and consumption of products and services, which reveal that some businesses are adversely affected, and others have made a fortune. This report probes the assertion that the transport businesses in Singapore, such as Uber, have experienced critical changes and compares to other transport businesses such as SBS transit, shifting both the demand and supply curves through seldom anticipated directions.

Question One

Since the outbreak of Covid-19, the demand for taxis and private hire drivers plummeted. This has affected the American ride giant – Uber adversely, challenging its operations in Singapore. In 2019, Uber noted the potential in the Asian Pacific region, due to increased demand, and assured stakeholders that the company would continue regional operations, with its headquarters in Singapore (Abdullah, 2019). However, since the outbreak of the Covid-19 infections, Uber has succumbed to low demand for transport services, leading to the closure of the Singaporean Asian Pacific headquarters.

The drop in demand is a consequence of the stringent measures to combat Covid-19 infections such as the circuit-breaker on 7th Apr, which led to the closure of all non-essential institutions. This nationwide enforcement was in line with the recommendations of the World Health Organization (WHO) to lock down the non-essential businesses, as they would escalate the infection rate for the Covid-19. Through that, people were advised to stay at home and avoid movement unless for such unavoidable instances.

Figure 1(Chong, 2020)

In an economic sense, the determinants of demand that led to the drop in demand are changes in consumer preference and the number of customers. Since most people could not commute often, and due to stringent measures against Covid-19, most Uber customers found themselves preferring not to commute.

Figure 2 (Tan, 2020)

Also, considering that Uber operates in the domain of public transport, some customers felt that the cabs escalated the chances for infections since they might have carried an infected person. The number of customers reduced due to the movement of people into hubs and mandatory quarantine by the government. From a Washington Post, more than 50,000 men, mostly from Bangladesh, India, and China, were quarantined in nine dormitories, which were declared isolation centers. Besides, dormitories for immigrant workers were put on total lockdown, affecting more than 300,000 people.  Hence, the number of customers reduced across the republic, affecting the demand for uber rides.

Figure 3 (Han, 2020)

 This, in turn, reduced the number of requests for Uber rides, and the demand curve shifted to the left. In such a scenario – where the demand decreases, the supply remains the same (since Uber did not exit the market immediately), the equilibrium quantity drops and, consequently, the equilibrium price. Also, the quantity of services offered reduces.

Question Two

Besides Uber, other transport businesses that compete in the Singaporean transport industry have been affected. For instance, independent taxi drivers have experienced a drop in the number of customers, causing tough economic times for them. According to Evergreen Assets Asia, taxi drivers in Singapore have sought new job alternatives due to reduced demand for their services due to lockdowns, thus causing insufficient earnings.

Figure 4 Phua (2020)

Similarly, public transport systems have suffered a drop in demand for commuting services due to the reduced number of people moving between towns. According to Abdullah (2020), the transport cost has also increased, shunning most commuters from using them, as per the determinant of demand – taste, and preference. That is, some customers preferred to forego their travel plans due to the horrific chances of contacting Covid-19, and the increased transportation cost to match the demand. The increase in transport costs for public operators, as explained by Khawn Boom Wan, was due to additional measures such as social distancing, screening, and sanitizing, which increased the cost of transport. In the end, the Singaporean public transport system has ended up in a difficult situation, where the cost of transport is high, and the demand is low, causing critical financial stress.

Figure 5 (Abdullah, 2020)

In addition, Abdullah reports that the SMRT trains which operate primarily on the MRT incurred losses amounting to 155 million US dollars in the last financial years, mostly due to low demand in the last quarter. In another statement by the Kwan Boon Wan, the drop in demand was due to social distancing measures. Social distancing essentially reduced the fare revenues, which the cost of transportation could not even.

Additionally, the fairly significant alternative of Uber – Grab, has had the same demand crisis. The co-founder at Grab, Anthony Tan, declared the Covid-19 outbreak as the worst crisis of the company ever. He adds that they demand Grab rides plummeted, causing severe financial strain to the business and making the livelihood of its stakeholders difficult.

Figure 6 (Bloomberg, 2020)

Question Three

According to the theories in microeconomics, the prices in the market are determined through an economic model of demand and supply. That is, the price of a commodity is affected by demand as much as it can be by supply. Often, demand and supply move in opposite directions lest the economic model has attained equilibrium. However, some economic situations are complex, and both curves interact in a sophisticated manner. From that perspective, amid Covid-19, Uber supplies experienced a change due to the decreased demand for rides identified above.

Firstly, the supply of Uber rides increased. That is, many drivers were willing to accept ride requires that the customers willing to pay for the rides. Note that after the outbreak of Covid-19, transport systems were declared as one of the excellent means of spreading infections.

Figure 7 Transformative Urban Mobility Initiative

Therefore, among the precautional measures that people took, they avoided public transports, which includes private drivers and taxis such as Uber. This, as associated with the determinants of demands, only a few ride consumers were willing to use Uber compared to those that preferred not to. Thus, the supply of rides supposed the demand.

Also, the increased supply also rose due to the decreased number of consumers. According to Han (2020), the outbreak of Covid-19 led to the caseation on movement, lockdown of many facilities, and quarantine of many residents. The overall impact was reduced consumption of transport services. Besides, some customer base such as airports and hotels were closed, shifting the market to other areas.

Figure 8 The Business Insider 27th Feb 2020

The overall result was the flooding of Uber drivers in downs and residential areas, where consequently, few people were willing to ride. Therefore, the supply of Uber rides became sophisticated in that while it was reduced in some areas such as airports, it increased in others such as towns. Also, while supply would increase where demand is increasing, the Singaporean situation was in a complex microeconomic model where demand was reduced with an increase in supply. At the same time, the equilibrium price changed with the micro-market. For instance, in airports where the supply of Uber rides decreased, the equilibrium quantity dropped, and equilibrium price rose. In residential areas and towns where the supply of Uber rides increased, the equilibrium price dropped, and the equilibrium quantity rose. 

Overall, the supply and demand for Uber interacted as shown in the graph

Question 4b

Amid the economic chaos caused by the Covid-19, Uber has exited the Asia-Pacific market and relocated out of Singapore. Also, the ingenious app will no longer be useful in the republic since the company has joined with Grab to mitigate adverse market tipping. Uber’s exit is a second attempt after another one in 2018. From the exiting news, Uber claims that its economic performance has deteriorated, and the Asian-Pacific market has not been a plug and play.

Nevertheless, the main reason for Uber to exit the region has been the worsening ride situation caused by the Covid-19. According to Phua (2020), Uber’s exit from Singapore is among the moves by the company to combat the economic implications of the Covid-19 pandemic.

Figure 9 (Phua, 2020)

She further reports that from an email to all employees, the strict measures to contain people at home – lockdowns and quarantine, has affected the company significantly. In other statements, the company seemed not to anticipate an economic upturn in Singapore any time soon. Uber CEO Dara Khosrowshahi stated that since “airport business is down pretty significantly, from an overall standpoint with (Uber) portfolio, it is not material in any way,” (Bursztynsky, 2020).

Figure 10 (Bursztynsky, 2020)

In retrospect, the closure of Uber in Singapore was caused by a drop in demand for rides. That is, the demand for rides surpassed the supply, rendering may drivers jobless withing the company. According to the laws of demand and supply, when the demand for a product or service decreases and its supply increases, the equilibrium price falls. In such scenarios, customers access low valued goods, and businesses are willing to sell at a low value. Note that Uber’s rides have an elastic demand. That is, customers, respond to the prices of rides. Therefore, Uber could not raise the costs of rides, and selling rides was not economically sustainable at the given figures of demand and supply. Hence, the business closed.

Uber has reduced the fixed costs of closure by combining with Grab. This helped the company not to lose to costs of some expenditure, such as a lease on properties. Also, the company did not lose utterly on variable costs such as commissions, licensure, and data. The company ensured through The Competition and Consumer Commission of Singapore that Grab would even the provision of transport services as Uber, and that it would utilize previously Uber drivers, but maintain the Uber ride history (Iwamoto, 2020). The cost dilemma has also affected the private taxi drivers, leading some into other businesses. Luckily, some taxi drivers have been allowed to make home deliveries for food and groceries to mitigate cost implications.

Question Five

Part a: Unlikely, Uber did not close during the circuit breaker. As long as the market was favorable, the business would thrive in the Covid-19 era. Just after the outbreak, drivers were required to strictly wear face masks, carry hand sanitizers, and a specific number of people per vehicle type.

Figure 11 (Hawkins, 2020)

The management ensured that drivers would continue working in collaborating with authorities and health agencies such as WHO to combat the spread of infections through strategies such as rider education, accountability, and enforcement, and adhere to specific safety measures and protocols (Mehmet, 2020). That way, the business continued its operations.

Figure 12 (Mehmet, 2020)

Part c:  While Uber may not come back to Singapore until twelve months, the following strategies may help it in adopting the new norm. First, the business may be read to revise and redesign its business plans to suit the demands for a particular market. Through Covid-19, businesses have seen that demand and supply may change overnight. Thus, Uber should be flexible in venturing in high demand products such as Uber eats. Secondly, the business may diversify revenues. For instance, Uber may decide to do carrier services among home deliveries for foods and glossaries, so that when one area is adversely impacted, revenue streams do not dry up.

References

ABDULLAH, Z. (2019). Uber launches Asia-Pacific hub in Singapore, no plans to restart services in South-east Asia. The Straits Times. Retrieved 20th Aug 2020, from https://www.straitstimes.com/singapore/uber-launches-asia-pacific-hub-in-singapore-no-plans-to-restart-in-south-east-asia.

Abdullah, Z. (2020). Additional costs incurred by public transport operators due to COVID-19 not ‘adequately covered’ by fares: Khaw Boon Wan. CNA. Retrieved 20th Aug 2020, from https://www.channelnewsasia.com/news/singapore/additional-costs-public-transport-operators-covid-19-khaw-12704280.

Bloomberg. (2020). Grab CEO says coronavirus ‘single biggest crisis’ in company’s history. South China Morning Post. Retrieved 20th Aug 2020, from https://www.scmp.com/tech/start-ups/article/3080749/grab-ceo-says-coronavirus-single-biggest-crisis-companys-history.

Bursztynsky, J. (2020). Uber CEO: Coronavirus outbreak ‘not material in any way’ to our overall portfolio of businesses. CNBC. Retrieved 20th Aug 2020, from https://www.cnbc.com/2020/02/07/uber-ceo-dara-khosrowshahi-coronavirus-not-material-overall.html.

Chong, C. (2020). Uber to close Asia-Pacific HQ in Singapore as virus impact worsens. The Business Times. Retrieved 20th Aug 2020, from https://www.businesstimes.com.sg/garage/uber-to-close-asia-pacific-hq-in-singapore-as-virus-impact-worsens. Han, K. (2020). Singapore’s new covid-19 cases reveal the country’s two very different realities. Washington Post. Retrieved 20th Aug 2020, from