How to ensure on-demand transport trials are financially sustainable

$290.3 Billion. That’s how much the on-demand transport (ODT) market is set to be worth by 2025 according to Grand View Research, Inc.

Given the issues with current transport systems from late arrivals and cancellations to overcrowding and absence of first/last mile services, European citizens are open to using new transport methods.

Smartphone ownership continues to rise coupled with the growth of ODT – or demand-responsive transport (DRT) as it’s sometimes called – with a younger generation that is at ease with the sharing economy.

Dismissing car ownership and opting for vehicle sharing and e-hailing is increasingly popular with companies like Uber making it simple to book, update or cancel on a mobile app. Even local European public sectors are getting in on the act with ViaVan and Berliner Verkehrsbetriebe launching an on-demand shuttle service called ‘BerlKönig’ in Berlin, according to Intelligent Transport.

Likewise, innovations in the US and Australia such as the intelligent public transport service BRIDJ are using real-time big data to predict citizen travel patterns.The result? Innovative pop-up bus services and more efficient, personalised first/last mile connections to trunk transport including trains and ferries

There’s clearly an opportunity. But there have been so many failures in this space that it would be wise to do some market research before you commit significant funds to your ODT venture.  Here at Skedgo we’ve used our experience in multi-modal routing to build a simulator to answer the question “Will a particular trial, with this retail pricing model and this service area, become financially self-sustaining?

Below are some insights we’ve gained from our simulations:

European audience open to ODT and vehicle sharingHard to compete where good public transport
First/last mile is a pain point for service usersLarger vehicles are harder to fill*
Growth in mobile usage by citizensRequire at least 30 vehicles to avoid unused capacity
Service users familiar with booking and paying onlineHigh failure rate without critical mass
Millennials moving away from vehicle ownershipPoor connectivity makes booking transport difficult
Paratransit opportunities due to user flexibilityHigh cost of infrastructure development

*Australian on-demand provider Keoride started with small rented cars and bought larger vehicles as adoption increased.

The key is: do your research before investing millions of dollars, euros or pounds into a project.

Know your market and the geographic region you’re entering. Think carefully about the retail pricing model you’ll use and if there’s critical mass in both the number of vehicles and service users to turn a profit. You’d do well to focus on specific corridors such as to or from major hubs or employers. This will help with the critical mass problem. It’s this mix of factors that will have a huge impact on whether a trial – and a business model – will be financially viable or not.

In fact, every provider looking to trial should answer a few simple questions: will users choose DRT over public transport or ride-sourcing? Will they choose to combine DRT with public transport? Will you fill your vehicles? And critically, will you make a profit?

Then, you need to make sure you have the technology in place including a multi-modal routing algorithm to simulate user behaviour, with real-time bookings, cancellations and modifications built in. And if you can combine a broad range of ODT including ride-sourcing, car-pooling, paratransit all into one system, so much the better as these services sit well together.  

There’s a lot that goes into building a successful ODT service but get it right, and you’ll be reaping the benefits as well as providing a valuable service for years to come.

If you’d like to learn more about making on-demand transport trials financially viable come and see us at the ITS World Congress in Copenhagen, September 17 – 21 2018. Check out our talk about Mobility on Demand on Thursday, September 20 in Hall B/Room Berlin or visit us on stand E-008.