Ride-Sharing Apps Lead Cab Companies to File for Chapter 11 Bankruptcy

Posted on January 18, 2016 at 12:00pm by
Petition for bankruptcy for coronavirus

Cab companies have struggled to compete with ride-sharing apps like Uber and Lyft, and some taxi businesses are starting to file for Chapter 11 bankruptcy. Yellow Cab was the most recent cab company to file for bankruptcy. Could there be more cases on the horizon? There are several reasons why cab companies are struggling to compete, and why future bankruptcies might become a reality.

Ride-sharing apps are easier to use: The method for finding new business is very easy for ride-sharing companies. Instead of calling or looking for cabs, passengers just install an app and hit a request pickup button.

Competition for workers: Cab companies are losing drivers to ride-sharing apps. Drivers for ride-sharing apps can set their own hours and potentially make more money. Employees for Uber and Lyft can also use their own vehicles.

There are more ride-sharing drivers: Ride-sharing drivers significantly outnumber cabbies in most major cities. For example, in San Francisco, Yellow Cab has 530 medallion holding drivers, meaning cabbies that can pick up passengers. Uber is estimated to have more than 16,000 drivers in San Francisco. Due to such a huge difference in numbers, Uber is much more likely to attract business.

Ride-sharing can be cheaper: Uber and Lyft offer better prices than cabs in some locations. However, Uber and Lyft also have surge-pricing, which can multiply the cost of service to encourage more drivers to pick up passengers.

Can Chapter 11 Bankruptcy Save Cab Companies?

Chapter 11 bankruptcy would allow cab companies to shed some debts, stay open and restructure their businesses. Ride-sharing apps are likely here to stay. Struggling cab companies can use a second chance provided by Chapter 11 bankruptcy to rethink their business models. For example, some cab companies have adopted their own ride-sharing apps to compete with Uber and Lyft.

Yellow Cab, which is based in San Francisco, recently filed for Chapter 11 bankruptcy but has also developed its own ride-sharing app. Following Yellow Cab’s situation would be an excellent way to assess how Chapter 11 bankruptcy can save cab companies.