Economics of Uber's Ride Pass

Two months ago, I took the big step of selling my car and diving in with ridesharing services full-time. Since then I've encountered a number of scenarios that seemed interesting to document and reflect on. This first post in the series covers the economics and ethics of Uber's Ride Pass, with later posts covering Lyft and my ridesharing experiences in general.

Congestion pricing (referred to as "surge pricing" by Uber) for my morning commute is fairly predictable, and I generally aim to leave during a period of low demand. When I'm running late (which is often) and miss the window, I'm faced with either paying the higher price or waiting 5-15 minutes for prices to return to normal. I'll usually wait and catch up on my reading since I don't have a set time I need to be to work. And because this is predictable and the result of my own sluggish pace in the morning, I'm generally not too bothered by having to wait.

But sometimes congestion pricing occurs during unusual times or the congestion lasts longer than usual. Those cases are especially frustrating when my not-a-morning-person self manages to be ready on time. Effectively I hurried for no reason, which I consider a cost however small it might be. So imagine my excitement when I received an e-mail from Uber advertising their new Ride Pass program.

I heard about this program when it launched in Los Angeles a few months ago but the details online were pretty sparse. My interpretation was: for $24.99 per month I could more easily avoid congestion pricing when commuting. Notice the words "same price" and UberPool included in this. Although this felt too good to be true, I was reassured by again seeing "pay the same price" and "even in rush hour".

I thought a lot about how such a scheme could be implemented in a way to ultimately be profitable for Uber. Maybe Uber took a sliding window (say 10-15 minutes), computed the historical average price for the route, and offered that instead? Maybe the up-front cost was intended to make Ride Pass revenue-neutral based on likely cost due to unexpected congestion? Maybe it was a loss-leader to encourage loyalty? Or maybe Uber would increase the prices during congestion but keep the driver portion of the fare the same, which would mean non-commuters effectively subsidize commuters?

Both the e-mail advertisement and in-app sign-up screen were, in my opinion, deceptively vague. Even the terms and conditions offered no insight into how the program actually worked. I decided to try it despite the lack of information and the clear disclaimer of being non-refundable.

It costs me on average $11.28 to commute to work, and $6.35 to commute home using UberPool. With Ride Pass, my commute to work became $10.99 and $5.99 respectively. Do you see the problem? My average round-trip cost is $17.63, or $370.23 over 21 work days in a month. With Ride Pass, I pay $16.98 round-trip and $356.58 for the month. But I also paid $24.99/mo for the subscription, so the monthly costs is really $381.57. That's $11.34 more than the regular cost without Ride Pass.

Taking a closer look, the cost ranges of my commute are $11.18 - $11.42 and $6.19 - $6.96. That means if we consider the best and worst cases, a typical round-trip cost is $17.37 - $18.38. Extended out to the month, this range would be $364.77 - $385.98. It's worth pointing out that I'm looking at the ride to work and the ride home in isolation, and not what the average round-trip actually is. So the real range is probably a little tighter than these numbers suggest. But that aside, at best Ride Pass would save me $4.41/mo and at worst it's costing me $16.80/mo.

You might be forgiven for thinking that in exchange for this extra cost, I would be insulated from congestion pricing on my commute. And that was my thinking too until the second morning when I requested a ride and was asked to pay $15.49 due to congestion pricing in effect. After waiting about 10 minutes, the price returned to the Ride Pass normal of $10.99.

I contacted Uber's abysmal customer support to inquire, and after several back-and-forth chats I learned how Ride Pass really works. Just as the advertisement says, you will pay the same price for the same frequent routes you take and when there's congestion you will receive up to a 15% discount. (The customer support representative said 35% discount but I'm going with what the ad says.) Still, they reassured me I was saving money.

Put another way: Ride Pass is a form of insurance. You pay $25 up-front hoping that it will save you at least that much when you ride during periods of high demand. But if you're the type of person to simply wait for demand to reduce, then you'll pay more without any real benefit. I suspect Uber is attempting to exploit the sunk cost emotion by encouraging people to pay congestion pricing when they ordinarily wouldn't.

In my case, assuming averages of $11.28 and $6.35 for my daily commute, rides under $13.27 and $7.47 would be "free" due to the 15% discount. And it truly would be a savings (of up to $40.32/mo) in this scenario. But in my experience, congestion pricing to work is usually in the $15 - $20 range and I rarely encounter congestion pricing going home. The lower end of that range would break even with the discount, and the upper end is a $100 cost. I don't understand how this makes financial sense for a commuter who regularly avoids (or wants to avoid) congestion pricing. Ride Pass does offer price-insensitive commuters a small discount, but would they even care to sign up?

I cancelled my Ride Pass and gave up with Uber's frustrating "priority" support. The only positive outcome was receiving a refund after I pushed them. Although the words in the advertisement are technically true, I believe Uber's marketing is at very least in the spirit of false advertising. I expect my loyalties will shift after Uber's IPO, but I'll save that topic for a future post.

Updated April 27, 2019: Shortly after I cancelled my Ride Pass, the fares on my regular commute increased to ~$12.42 and ~$6.80 respectively. A friend suggested Uber was punishing me for cancelling but, although I wouldn't completely rule it out, there are a number of legitimate possibilities for why the fare increased. Maybe that week just happened to be busier than normal. Or maybe this is a case of induced demand where other commuter habits have changed with the introduction of Ride Pass. Also I imagine Uber intends to reduce rider subsidies after IPO and might gradually increase fares.

Using $12.42 and $6.80 as new estimates, I decided the discount offered by Ride Pass was now worthwhile. I was expecting a savings of about $22.05/mo (~5%) after taking into account the $24.99 subscription. I signed up for Ride Pass again and discovered the new discounted fares were $11.99 and $6.49 which is a whopping ~9% higher than the fares I had under Ride Pass #1.

It seems the cost of the discount rose approximately the same amount as the undiscounted fares. If I hadn't cancelled the first time, would I have locked in the $10.99/$5.99 fares? If so, would it only be for that month with an increase the following month, or did the increased fares only apply to new subscriptions? I have no idea because the Ride Pass pricing scheme is frustratingly opaque and it's impossible to know what I would be paying ahead of subscribing.

The Ride Pass screen in the mobile app claims I've saved $4.77 in fares with 19 days left to the subscription. Presumably that savings comes from times I was offered the discounted fare when there was an increase in fares due to light congestion. But I have no way to confirm since I can't see undiscounted fares while subscribed to Ride Pass. I spoke with another rider this week who noticed much lower fares for his commute with Ride Pass. So it's possible the cost-benefit considerations of Ride Pass will vary by route.

I don't expect lifetime-guaranteed fares but I do hope for a pricing structure that allows me to make informed decisions. Uber knows what the average fare is for the my regular routes, it knows the discount it can offer with Ride Pass, and it knows what the undiscounted fare is when requesting a ride. I struggle to find any reason for Uber to hide this information apart from being intentionally deceptive.

Updated June 22, 2019: I ended up cancelling Ride Pass #2 on the day before the renewal. Uber claims I saved just under $13 by using Ride Pass, which resulted in a net loss of ~$12 for the month. Since then Uber's prices for my commute have increased and I've shifted most of my business to Lyft. I'll do a write-up soon on Lyft's pass options and how they compare to Uber.

Related to: My Review of Uber Rewards