There's good disruption and bad, and plenty of corporate travel buyers will argue whether the disruption in ground transportation by transportation network companies (TNCs) like Uber and Lyft has been good or bad for their travel programs.
One thing's for sure: Business travelers overwhelmingly think it's good. They like the ease of the ride-hailing app experience and are seduced by TNCs' low prices.
Corporate travel buyers like those low prices, too, and have welcomed the savings, often without applying policy restrictions to TNC use. TNC use for a lot of companies, especially those with younger employee bases, has replaced not only taxis but also some limos, some car rentals and even public transportation and walking.
But here's the rub: It can't last forever. Plus, those low prices come with a cost that many buyers don't completely understand and some don't want to know.
I'm going to tell you about it anyway. And, I'm going to show why the same things that should matter to corporate travel buyers could impact an Uber or Lyft IPO, which both companies have in their sights for 2019.
Compromised safety: the high cost of low prices
TNCs do not abide by the same laws as taxis and limo companies. In most parts of the United States and the rest of world, TNCs do not fingerprint their drivers. They don't perform drug and alcohol testing in any markets or conduct driver training. Vehicles can be up to 12 years old.
As a result, TNCs are not as safe as the strictly regulated taxi and limo industries they have decimated. I repeat: They are not as safe - regardless of marketing spin or public statements.
TNCs are not as safe as the strictly regulated taxi and limo industries they have decimated.
Dave Kilduff
In 2016, Uber paid $28.5 million to settle a class-action lawsuit that took issue with company claims that its driver background checks were "industry leading." Since then, both Uber and Lyft have improved background checks, but neither use providers that include fingerprinting, which makes those checks less effective.
As a result, bad actors are more likely to get through the driver screening process. A January CNN Business article exposed Uber's massive numbers of safety investigations and its unwillingness, to this point, to commit the right resources.
The article, referencing an internal Uber memo, stated, "The internal investigators tasked with keeping Uber safe were overworked, underpaid and at times emotionally traumatized as they struggled under the burden of nearly 1,200 cases every week."
The World Health Organization cites 1.3 million motor vehicle-related deaths annually; plus, 20 million to 50 million people are injured every year in car accidents. Most of us would not get on a commercial flight without regulated safety protocols. Yet, corporate travelers do this with TNCs every day.
Until every TNC ride has complete duty of care, including fingerprint background checks and drug and alcohol testing, TNCs are not as safe as regulated ground transportation providers.
Used without policy constraints, TNCs expose corporations to duty of care issues that could cost them dearly. Plenty of experts share this opinion. Even when companies sign up for business accounts with the TNC, they can increase their liability coverage but not the legal exposure until TNC safety testing is on par with the limo industry standards.
"Companies that manage business travel for their employees have an obligation to protect them, and if a company has a process to vet and contract with black cars or limos and also allows employees to use and be reimbursed for TNC trips outside of that process, it can be alleged that the disparity in vetting or oversight could be a breach of the duty of care," said Matthew Daus, former NYC Taxi & Limousine commissioner and current transportation practice chair at law firm Windels Marx.
"In a case where a TNC driver, driving expense-reimbursed employees, negligently causes a crash resulting in property damage, injury or death, the reduced duty of care could subject the company to a lawsuit for negligent hiring of an independent contractor."
Subsidized pricing and other IPO challenges
Corporate travelers like TNC ride-hailing apps' functionality and the volume of drivers available to deliver instant service or at least instantly trackable progress, thanks to GPS technology.
This is not some double-secret app that can't be duplicated. Many companies already have developed similar platforms, so let's set the app-appeal aside.
Both travelers and travel managers like TNCs' unbeatable low prices. News flash: These prices not only are underpinned by lax driver safety requirements but also are massively subsidized by TNCs' deep private investor pockets.
After nearly 10 years, Uber is still losing billions of dollars annually - $4.5 billion in 2017. Tech newsletter The Information has estimated Uber will track $1.7 billion in losses for 2018. Lyft's IPO papers, filed on March 1, revealed $1 billion in operating losses last year. From that perspective, they are in the same boat, though other business lines and strategies differ.
Uber, for one, originally had a vision to turn a profit by removing paid drivers from the equation. Thus, the race to perfect self-driving vehicle technology, which has been slower than anticipated by all companies producing autonomous cars and which has been impeded by a death in Uber's Tempe, Arizona, test market.
Competition is also fierce. Google (Waymo), Apple, almost all OEMs and numerous tech companies are in the race to win dominance. Lyft has partnered with several of these companies on self-driving technology but has not gone as deep as Uber. Even so, it's a financial drain on both TNCs in a race neither may win.
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Uber could reduce its marketing spend to preserve a bottom line. If it does, it would likely cut growth. As the global market leader, Uber is the biggest target for competitors. Uber needs to market itself.
Uber Eats, which is growing fast, is in a similar situation, fighting with marketing dollars and low prices to push out competition like Grubhub and DoorDash. It's losing more money as it gains market share, however, because the per-unit cost doesn't turn a profit.
Uber claims in some markets it is profitable with Uber Eats, but all agree that this market could be bigger than the ride-hailing market. As more companies like Amazon go after this space, it will drive down profitability for all players.
More challenges for TNCs in path to profitability
Many cities have been looking at congestion issues exacerbated by TNCs and have considered limiting activity and access for these companies. Other issues like minimum wage concerns have already affected rates in certain markets like New York City's, where a driver minimum wage law has increased prices for TNCs operating there.
An Uber spokesperson told CNN Business that fare increases would vary per trip based on time and distance. In an email to drivers on February 1, Lyft also said passengers would see fares increase as a result of the law.
Uber has not performed well with data security transparency, which is an issue that travel managers should care about immensely. The company paid $148 million last year to settle claims on its failure to report a data security breach. Data security will be a legal and financial obligation going forward.
The upshot for corporate programs
Uber CEO Dara Khosrowshahi addressed several of these issues in an interview with CNBC at the World Economic Forum in Davos, Switzerland.
While I believe new management at Uber has made improvements, an IPO for Lyft or Uber means everyone who wants to make money on those IPOs will push out positive spin.
My concern is about all the issues that could affect rising prices for the corporate traveler, as well as the safety issues and legal liabilities that relate to the traveler, the company and the employees who administer the program.
The bottom line for corporate travel programs that use TNCs is surprisingly simple: As Uber and Lyft make moves to go public, they're going to have to raise rates to be profitable.
After an IPO, the companies will have to answer to the investment community daily and to analysts quarterly. Neither of these camps are fond of financial missteps, and they won't tolerate losses for long.
If TNCs have to raise prices, travel managers are likely to see ground spend increase and, as always with TNC usage, the exposure does not go away.
If TNCs make concerted investments in safety, they may have to raise rates even more. Companies will need to review their policies and develop methods to determine the risk and mitigate the rising costs. With prices rising, companies need to reexamine other forms of transportation, especially those that are safer and still cost effective.
* This story originally appeared on BTN.