Turning a profit on D.C. transportation shouldn’t be so difficult. After all, hundreds of thousands of people commute to the city each day. On top of this, the city offers a variety of transportation options: a Metro, busing, a streetcar, bikes, taxis, and Uber and Lyft. Not all modes of transportation are created equal, however. Surprisingly, most of them fail to make money, or merely to break even. The worst offender is the Washington Metropolitan Area Transportation Authority (WMATA), the public entity that manages buses and the Metro in the D.C. area, which is scrambling to acquire hundreds of millions in additional funding to stay solvent. As WMATA flounders, ridesharing apps have tried to capitalize on the opportunity. But are they faring any better? Which transportation options are more profitable than WMATA?
Public transportation options in the District have long been unprofitable. In fact, they are now flirting dangerously close to insolvency. On Thursday, Washington’s beleaguered commuters, already dealing with system outages and long wait times, were dealt another blow when WMATA announced that it needed $800 million in loans and a long-delayed federal grant by September. If it does not receive the money, it will be insolvent by the fall.
According to officials at the agency, WMATA expects its available cash to drop to $15.8 million in March, a small reserve compared to its $3.8 billion budget. Despite the tens of thousands who ride it each day, WMATA can’t seem to make the trains profitable.
Poor service, including outages and delays, has cost WMATA hundreds of thousands of riders, exacerbating its economic problems. During fiscal year 2016, which ended in June, total rail and bus ridership fell to 321 million trips. Budget documents described this as “a decrease of 20 million or six percent compared to the prior year.” The numbers are even more sobering given that they do not include the start of the SafeTrack maintenance program.
“Ridership was down across all time periods, days of the week, and nearly all individual stations, although losses were especially severe in off-peak periods,” the documents said.
When Washington, D.C. announced long-overdue major repair work on its aging Metro system, it looked like a prime opportunity for Uber and Lyft. The SafeTrack repairs would last for a year and involved closing major commuter stations downtown even during rush hour.
WMATA runs Washington’s buses in addition to the Metro trains. With trains closed down, it began offering commuters shuttles to move them around closed stations.
Although the nation’s fifth-largest bus service, Metrobus has been struggling during the Metro repairs. It quickly discovered that passengers were unlikely to switch from a closed train line to a bus to complete trips. In spite of a nearly 30 percent fare increase in the last seven years, Metrobus will require a $402 million operating subsidy in 2017. This comes in part because WMATA’s F2017 budget predicts a 3.2 percent decline in ridership (about 4.5 million rides) over the 2016 numbers.
If commuters have abandoned buses and trains, how are they getting where they need to go? Public transportation officials in the D.C. area frequently repeat the maxim that D.C. residents use a variety of means of transportation to get around. But are these other forms of transportation any more profitable than WMATA?
It is hard to say.
Other forms of publicly-subsidized transportation options can be quickly discounted. Washington is home to the largest public bikeshare program in the country. Despite the lofty title, bikeshare users only account for about 6.4 million passenger-miles, a number that pales in comparison to the nearly 2 billion passenger-miles served by buses and trains.
Despite covering a smaller area and charging a subscription fee, Capital Bikeshare lost $1.7 million on 2014 operations (the last year for which data is available.) Essentially, District taxpayers pay 65 cents for each ride taken.
With less than 3 miles of track, the Washington streetcar does not have sufficient range to be a realistic transportation option for many. However, for the roughly 2,800 people who ride it each day, the streetcar is free, costing District taxpayers $8 million each year.
If public transportation relies on taxpayers to remain in operation, have private companies managed to earn a profit on D.C. transportation? The opportunity is certainly there. With Metro repairs snarling morning commutes, many predicted that taxis and ride sharing companies, primarily Uber and Lyft, would see a surge of morning riders.
Taxis likely saw little boost from the closure. As in many metro areas, Uber and other ridesharing apps are cutting into Washington’s taxi business. Between 2013 and 2015, taxi dispatches in Arlington, Va., which includes Reagan National Airport, fell by a third.
D.C. has been a tough market for taxis for several years. A 2007 law required all taxis to adopt time and distance meters, which made pricing more transparent for consumers, and short trips less profitable for drivers. Cab drivers complained that the shift cut their earnings by 30 percent.
Difficult market conditions may keep D.C. cab drivers from earning as much as they would like. After expenses, however, they are coming out ahead. Generally drivers earn about $12 an hour.
If cabs are profitable in D.C., one would think that Uber and Lyft are as well. However, a price war between the two companies means that may not be the case.
Uber certainly saw the Metro closure as an opportunity to grow its business. At the beginning of the closures, it promoted its “UberPool” feature, where passengers could share a ride with others heading in the same direction. Promising fares around $3, only slightly higher than the cost of a Metro ticket, it hoped to woo former WMATA customers to the app. And to keep drivers on the road without higher prices, Uber announced that it would subsidize drivers to raise their earnings.
Uber spent at least $10 million on the project, but quietly ended the program towards the end of the summer. The fact that the program required a subsidy indicates that rider fares alone may have been insufficient to keep Uber in the black during the rush hour periods. Instead, the company subsidized rides in the hope of winning over customers.
When comparable in price to a broken train system or a crowded bus, Uber was an easy sell for consumers. Without the subsidy, the picture becomes more complicated.
Washington has already seen a wide range of Uber fares. Minimum ride prices have been raised and lowered several times, most recently in August, as the company tries to balance the happiness of drivers and passengers. The trouble is that in Washington, as in other markets, Uber and Lyft have fallen into a price war that has already caused some drivers to sour on the apps.
Despite their popularity with customers, neither Uber nor Lyft is yet profitable as an overall company. Uber lost more than $3 billion last year, much of this in startup costs incurred introducing the app to new cities. Lyft lost about $600 million. Despite this, Uber says that it is profitable in its most developed markets, generally in the U.S. It has not released financials to show if Washington is one of these cities.
It is more difficult to determine what individual Uber drivers earn in the city. Many of them drive irregular or part time hours, and few keep track of operation costs such as gas and insurance.
At the end of the day, Washington, D.C. has spent billions of dollars on public transportation. Despite delivering millions of rides each year, these systems remain unprofitable. Instead, drivers are the ones able to earn money by moving people. While taxi drivers may grumble at lower fares, they still appear to make a profit. The same can be said of drivers for Uber. In each case, the market allows for flexibility. Drivers who do not feel that they are earning enough for their time have dropped out of the market in recent years.
It’s a trend that observers believe will continue—and which will likely become more profitable over time.
“Worker classification rules have prevented [ridesharing companies] from cultivating a workforce of drivers that is as consistent as they would otherwise like it to be,” says Ian Adams of the free-market R Street Institute. “Yet, both firms are well positioned to address those types of barriers, because they offer work that is both flexible and accessible, and will be able operate more profitably when they do. ”