Assessment of taxi sector efficiency and profitability based on continuous monitoring and methodology to review fares

Abstract

The taxi sector presents many challenges to adequately serve the demand while maximising efficiency and profitability and minimising externalities. Many authors have dealt with the ‘taxi industry’ by modelling and forecasting its activity, usually using limited, incomplete or no trustable data to validate their model. The present paper tackles a different point of view. The applied methodology is based in the continuous monitoring of a sample of taxis that provide information recorded by the taximeter about their real activity. Taximeter data allows the definition of a wide series of representative and relevant Key Performance Indicators (KPIs) with which characterize the taxi activity. This paper focuses on the analysis of efficiency and profitability using KPIs. Thus, indicators firstly diagnose the system revealing its (in)efficiencies and whether or not is profitable. While studying profitability, the concept of the reasonable profit (RP) is presented to ensure welfare to the taxi driver. Indicators also represent an assessment tool to evaluate improvement measures and they constitute a powerful support for the decision making. In this sense, a methodology for the annual review of fares is developed introducing the concept of the RP. KPIs are applied in Barcelona, where they proof a demand-supply imbalance: since 2008 supply has increased significantly and demand has diminished; consequently, productivity and profitability have decreased considerably. Hence, KPIs reveal the inefficiencies of the Barcelona taxi system and demonstrate that its profitability is at risk.