Note: This document assembly contains the following documents which collectively form a complete application by Winnipeg's taxicab industry, its analysis and final decision by the Manitoba Taxicab Board:

Notice of Public Hearing for 14 May 1997
Procedures for Public Hearing on Application to Vary Fare Tariffs
Application for Taxicab Meter Rate Increase signed by four companies within Winnipeg's Taxicab Industry
Supplementary Application by Unicity Taxi for Fare Surcharge
Letter of Support by People in Equal Participation, Inc.
Economic Analysis by government Transportation Economist
Decision by Manitoba Taxicab Board

It should be noted that of the four companies signing the application, Unicity Taxi and Duffy's Taxi are dispatch companies owned by their independent shareholder owner-operators, while Blueline Premium Taxi and Spring Taxi are more traditional taxicab companies owned and operated by a President who owns the taxicabs, holds the licences in his company name and employs the drivers.


Application for Taxicab Meter Fare Increase


MANITOBA
THE TAXICAB BOARD
ROOM 204 - 301 WESTON STREET, WINNIPEG, MANITOBA
WEDNESDAY, MAY 14, 1997 AT 9:00 A.M.
AGENDA

Docket 44/97
Blueline Premium Taxi/Blueline Taxi
Duffy's Taxi
Spring Taxi
Unicity Taxi
Winnipeg. Manitoba

PUBLIC HEARING RESPECTING
TARIFF RATE INCREASE

An application on behalf of Blueline Premium Taxi/Blueline Taxi, Duffy's Taxi, Spring Taxi and Unicity Taxi for a fifteen per cent (15%) meter rate increase for both Standard/Accessible and Premium taxicab rates. An additional fee of $1 to customers being picked up at the Winnipeg International Airport, as well as an extra $0.50 per piece of luggage over two pieces.


MANITOBA HIGHWAYS AND TRANSPORTATION
THE TAXICAB BOARD

PROCEDURAL DIRECTIONS FOR PUBLIC HEARINGS
ON APPLICATIONS TO VARY FARE TARIFFS

  1. In these procedural directions:

  2. An application may be made to the Board by any interested person in writing.

  3. All information and documentation upon which the applicant relies in support of the application shall be filed together with the application.

  4. Any information filed on a confidential basis shall be clearly indicated as such and the harm that would result &om disclosure of the information shall be stated.

  5. Industry financial information filed in support of an application:

  6. The Secretary shall cause a notice of the hearing of the application to be published in one issue of the Winnipeg Free Press and one issue of the Winnipeg Sun and shall give written notice of the hearing of the application to any person he considers may reasonably be affected by the decision on the application, not less than 21 days prior to the date set for the hearing.

  7. A notice under Section 6 shall indicate:

  8. At the hearing of an application, the burden of persuasion that the tariff should be varied is upon the applicant.

  9. The Board may:

  10. The following order of proceedings will be followed at the hearing of an application unless otherwise directed by the Chair:

  11. Unless the Board otherwise orders, a witness at a hearing shall be examined orally under oath or affirmation.

  12. The Board is not bound by the strict rules of legal evidence but may admit and act upon evidence only if it is of the kind on which reasonable persons are accustomed to rely in the conduct of serious affairs.

  13. The Board may take notice of:

  14. Where the Board is satisfied:


APPLICATION FOR

TAXICAB METER RATE INCREASE

SUBMITTED BY

BLUELINE PREMIUM TAXI
DUFFY'S TAXI
SPRING TAXI
UNICITY TAXI


TABLE OF CONTENTS

Background Information
Economic Analysis
Net Operator Income: 1991
Net Operator Income: 1996
Proposed Rate Increase

TABLES & CHARTS Table 1: Gross Earnings: Driver & Operator
Table 2: Direct K Indirect Costs of Sales: 1991
Table 3: Gross Earnings, Costs of Sales, Net Earnings; 1991
Table 4: CPI: 1991 - 1996
Table 5: Effect of CPI on Gross Earnings.
Table 6: Effect of CPI on Operator's Gross Earnings
Table 7: Effect of CPI on Driver's Gross Earnings
Table 8: Direct K Indirect Costs of Sales: 1996
Table 9: Gross Earnings, Costs of Sales, Net Earnings: 1991 vs 1996
Table 10: Cost/Earnings Comparison: 1991 vs 1996
Table 11: Rate Comparison: Selected Cities - Canada
Table 12: Current k Proposed Standard Taxicab Rates
Table 13: Current & Proposed Premium Taxicab Rates
Chart 1: Effect of CPI on Gross Earnings: 1991 - 1996
Chart 2: Gross Earnings, Costs and Net Earnings: 1991 vs 1996
Chart 3: Comparative Taxicab Rates; Canada

BACKGROUND INFORMATION

The taxicab industry has not sought a meter rate increase since 1991. Since the last rate increase in 1991, the industry has absorbed increased operating costs as well as seen a decline in real revenue due to inflation.1 As a result, the real earnings of owners and drivers have declined substantially over the past six years.

Furthermore, a vast majority of operators have improved the quality of vehicles placed into service as taxicabs which has imposed a greater capital cost. The industry has experienced increased costs in every facet of its operations including fuel costs, insurance, licensing and management fees.

Given the period of fiscal restraint across both the public and private sectors, the industry has been somewhat hesitant to seek more frequent rate increases. The industry has recognized that the user public has experienced a similar period of minimal wage increases and in some cases, wage roll-backs. Under these circumstances, the industry has attempted to control costs and avoid increasing the rates paid by the users. However, due to increased costs and declining real revenue, the industry is no longer in a position to operate at current meter rates. At current levels, Winnipeg has one of the lowest taxicab meter rates in Canada.2

ECONOMIC ANALYSIS The following economic analysis compares the net income of an operator in 1991 against net income in 1996. It is based upon a taxicab owner/operator (operator) with a gross (after GST) revenue of $ 100,0002 in 199l. It is assumed that the operator drives one daily shift and hires a driver for the other daily shift. For simplification, the shift earnings are assumed to be equal for both the driver and the operator. As such, the operator's and driver's gross earnings are as follows:

                   SHIFT 1         SHIFT 2          SHIFT 3

DRIVER               0             $25,000          $25,000
OPERATOR           $50,000         $25,000          $75,000
As per industry standards, the operator is responsible for all operating expenditures, including fuel costs for the driver's shift and statutory contributions for the driver. The operator also pays a weekly fee to the dispatch company which covers all administrative costs management services.

NET OPERATOR INCOME: 1991

In order to measure the net, pre-tax income of an operator in 1991, the following direct and indirect costs of sales will be deducted from the operator's gross annual income:

                        TABLE 2
    Direct Costs of Sales                                Indirect Costs of Sales

Licensing                      $    200        Accounting & Legal                  $   500
Vehicle Fuel & Oil4            $ 17,000        Employer's Statutory Contributions5 $ 2,800
Repair & Maintenance           $  5,000        Dispatch & Management Fees6         $ 4,160
Autopac & Extension Insurance7 $  4.200        Other (Miscellaneous/Contingencies) $ 1,000

         TOTAL                 $ 26,400                  TOTAL                     $ 8,460

The operator's total costs of sales in 1991 were $34,860. After deducting this figure from gross earnings of $75,000, the resulting net, pre-tax income was $41,140.

                        TABLE 3
Gross Earnings       Costs of Sales        Net Earnings (Pre-Tax)
   $75,000              $34,860                  $38,974

In this cost analysis, only the primary costs of sales have been considered and the list is not exhaustive. Furthermore, for simplification of the analysis, it has been assumed that there are only two persons driving each taxicab and there are no part-time employees. Actual industry standards would indicate one full-time employee and at least one part-time employee. The net pre-tax earnings are also the wages of an operating owner.

The analysis also does not consider the case of non-operating owners. In these cases, the wage costs would be higher and income of the owners would be lower. Having established the 1991 earnings and costs of sales, the following section will study the impact of changes in costs faced by operators and the resulting changes in net earnings.

NET OPERATOR INCOME: 1996

Chart 1 below tracks the effects of inflation on the total gross earnings of the operator from 1991-1996. The chart measures the value of 1996 dollars against 1991 dollars through tracking the Consumer Price Index8 for each of the following years:

                          TABLE 4
             1991     1992     1993     1994     1995     1996

   CPI      125.09    126.9    130.3    132.2    135.7    139.610
% Change      -        1.5      2.7      1.5      2.7      2.9
Based upon these figures, the real revenue of the operator as measured against 1991 dollars declined as follows:
                          TABLE 5

             1991     1992     1993     1994     1995     1996

Revenue   $ 100,000  $98,480  $95,840  $94,441  $91,938  $89,300

In effect, operators and drivers have experienced an eleven (11%) percent decline in net income as a result of changes in the CPI. With real incomes frozen at 1991 levels, the purchasing power of industry members is substantially lower in 1996.

As was the case with total gross earnings, the earnings of the operator have also declined substantially from $75,000 in 1991.

                          TABLE 6

             1991     1992     1993     1994     1995     1996
Gross Y    $75,000  $73,875  $71,880  $70,802  $68,890  $66,892
Similarly, the wages of a driver earning $25,000 in 1991 have declined due to the cumulative effects of changes in the CPI over the six year period.
                          TABLE 7

             1991     1992     1993     1994     1995     1996
Wages      $25,000  $24,625  $23,960  $23,600  $22,963   $22,297
Since the real income of operators and drivers has not kept pace with changes in the CPI, all further analysis shall assume gross earnings in 1996 to be $89,300. That is, $ 100,000 in 1996 purchases $89,300 worth of goods and services in 1996, after accounting for inflation or alternatively, $ 100,000 in 1991 is the equivalent of $89,300 in 1996. The corresponding earnings of the operator would be $66,892.

An operator with gross earnings of $66,892 in 1996 is also facing substantially higher direct and indirect costs of sales. As was the case in computing net income for 1991, some of the primary costs of sales for 1996 are considered below:

                          TABLE 8
       Direct Costs of Sales                   Indirect Costs of Sales

Licensing                      $   400        Accounting & Legal11                 $  1,000
Vehicle Fuel & Oil12            $ 17,000       Employer's Statutory Contributions13 $ 3,500
Repair & Maintenance           $  5,500        Dispatch & Management Fees14         $ 4,160
Autopac & Extension Insurance  $  4,800        Other (Miscellaneous/Contingencies) $ 1,500

         TOTAL                 $ 29,700                  TOTAL                     $ 11,096
In 1996, the total direct and indirect costs faced by an operator are $40,796. After deducting this amount from gross earnings of $66,892, the operator's pre-tax earnings in 1996 have declined to $ 26,096. The cumulative impact of inflation and increased costs of sales is illustrated in Table 9 below:
                          TABLE 9

        Gross Earnings    Costs of Sales    Net earnings (Pre-Tax)
1991       $75,000           $34,860              $40,140
1996       $66,892           $40,796              $26,096

The combined effect of inflation and increased costs has reduced the real net earnings of operators by more than one-third (1/3). While driver earnings have declined by about eleven (11%) percent, operators have experienced a much greater erosion of net earnings as they have absorbed the full impact of inflation as well as specific increases in costs of sales. The total decline in net earnings for operators is thirty-seven (36%) percent over the six year period since 1991.

                                  1991        1996    % Change
Vehicle Fuel & Oil             $ 17,000    $ 19,000      12%
Statutory Contributions        $  2,800    $  3,500      25%
Repair & Maintenance           $  5,000    $  5,500      10%
Autopac & Extension Insurance  $  4,200    $  4,800      14%
Licensing                      $    200    $    400     100%
Management Fees                $  4,160    $  5,096      22%
Gross Earnings                 $ 75,000    $ 66,892     (12%)
Costs of Sales                 $ 34,860    $ 40,796      17%
Net Earnings                   $ 40,140    $ 26,096     (36%)

The impact has been even more pronounced for those owners and firms, such as Blueline Taxi and Spring Taxi, that strictly rely upon drivers. These firms and operators have not been able to vary costs in any meaningful manner while net earnings have been declining. It is important to note that many costs faced by the taxicab industry are fixed and the variable costs are a very definite function of revenue such that cost cutting measures are not a real alternative.

In addition to the costs detailed above, there are many new expenditures faced by operators that simply did not exist in 1991. One such cost is the new fleet inspection program conducted by the Department of Highways and Transportation. Each taxicab is inspected twice annually at a fee of $52.00 per inspection. In virtually every case, repairs are ordered and the vehicles are reinspected at least once at a cost of $24.00. This represents a minimum annual cost of $ 152.00 per vehicle. Furthermore, the new EI regulations introduced by the government are going to impose substantial new record keeping costs for operators.

Presently, taxicab operators and drivers find themselves in the position of having to work longer and harder to maintain a declining rate of earnings. Due to substantial changes in cost structures, their efforts will have no impact in the absence of higher meter rates that will have a positive impact on the revenue stream and consequently allow them to recapture some of the ground they have lost since the last meter rate increase in 1991.

PROPOSED RATE INCREASE

At current levels, Winnipeg has one of the lower taxicab rates in Canada.15 In addition to very competitive meter rates, there are no surcharges applied in Winnipeg. For comparison of rates across selected cities in Canada, a sample trip of ten kilometres is utilized.

                      TABLE 11

City            Meter Rate       Surcharges
Calgary          $ 11.60        $4.25 per accessible van.
Edmonton         $ 11.50        Additional per person charges.
Halifax          $ 11.70        $ .50 per additional person.
London           $ 13.90        Additional parcel and person charges.
Saskatoon        $ 11.90        $10.00 minimum per accessible trip.
Toronto          $ 13.10        $5.00 parcel charge.
Victoria         $ 15.15        None
Vancouver        $ 12.10        None
Winnipeg         $ 11.55        None

Although the industry would require a rate increase of thirty-seven (36%) to achieve the net earning of 1991, it is clear that a single increase of this magnitude would be neither practical nor feasible. It is also clear that the industry should have applied for more frequent rate increases during the past six years. However, the industry has perhaps been excessively sensitive to the economic conditions experienced by the user public and has in the process acted to its own detriment.

Under the circumstances, the industry is seeking a fifteen (15%) percent increase in both the drop rate as well as distance and waiting charges. At a fifteen percent increase, the standard taxicab rates would be as follows:

                                     TABLE 12
                                Standard Taxicab Rates
                           Current                                New
Drop Rate                                    $2.25                              $2.60
Distance Charge   $0.10 per 106 meters or fraction    $0.10 per 93 meters or fraction
Waiting Time           $0.10 per seventeen seconds               $0.10 per 15 seconds
Per Km Charge                               $0. 94                             $ 1.07
Per Hour Charge                             $21.18                             $24.00
At the new meter rates, the rate for a ten kilometre taxicab trip in Winnipeg would increase to $13.30 from the current rate of $11.55, which represents a fifteen percent increase over the old rates. By maintaining the current rate differential between between standard and premium taxicabs, a ten kilometre trip in a premium taxicab would cost $ 14.65, up from $12.90 under the old rates.

                                     TABLE 13
                              Premium Taxicab Rates
                           Current                               New
Drop Rate                                    $3.60                              $3.95
Distance Charge   $0.10 per 106 meters or fraction    $0.10 per 93 meters or fraction
Waiting Time           $0.10 per seventeen seconds              $ 0.10 per 15 seconds
Per Km Charge                                $0.94                              $1.07
Per Hour Charge                             $21.18                             $24.00
The industry is of the opinion that a fifteen percent increase allows it recapture less than one-half of earnings lost since the last meter increase. As indicated, full recovery of lost earnings would necessitate a rate shock to the user public that would have a further adverse impact on industry revenue. As such, the industry has no choice but to absorb increased costs and seek more frequent incremental increases in the future to offset increased costs.


END NOTES

1. See Tables 4 & 5
2. See Table 11 & Chart 3
3. This analysis assumes a revenue of $ 100,000 which is intended for illustrative purposes only and not intended as a reflection of actual or average industry revenues.
4 Based on an average cost of $ 15.00 per $100.00 of gross earnings and $2,000 for oils.
5 Statutory contributions include CPP, EI and Worker's Compensation premiums paid by operators.
6 The industry average in 1991 was $80.00 per week.
7 Source: MPIC
8 Source: Statistics Canada: Publication Number: 65-001
9 1981 = 100
10 CPI for 1996 is at November 30, 1996
11 Accounting costs are expected to rise again due to recent changes in the EI program
12 Based on average cost of $ 16.50 per $100.00 of gross earnings and $2,500 for oils.
13 Source: Revenue Canada & Workers Compensation Board for Manitoba
14 The industry average in 1996 is $98.00 per week.



                              


25 March 1997

Manitoba Taxicab Board
206-301 Weston Street
Winnipeg, Manitoba
R3E 3H4

Dear Sirs,

Re: Winnipeg Airport Ground Transportation System

With the implementation of the new ground transportation system by the Winnipeg International Airport, every vehicle that provides a ride and collects a fare from the Airport will be required to pay a fee of $1.00. This fee is payable each and every time a passenger is picked up at the airport.

As the Taxicab and Limousine industry has no choice but to pay the fee, we are requesting that a charge of $1.00 be recovered from the customer through the use of the "Extra" button on the taxi meter.

We are also requesting that we be allowed to charge an extra $0.50 per piece of luggage carried over a set minimum. This can also be accomplished through the use of the Taxi Meter's "Etra" button.

Please include this subject on the Agenda of the next Taxicab Board meeting that is scheduled for April 16, 1997.

Yours truly,

(signed)

Brian Falco
Public Relations and Marketing Manager

340 HARGRAVE PLACE * WINNIPEG, MANITOBA * R3C 0X5 * Administration (204) 925-3110


                              

HONORARY MEMBER:
The Honouranle W. Yvon Dumont



DELEGATION
Place: 303 Weston Street, Winnipeg, Monitoba
Time: 9:30 AM to 11.00 AM
Submittcd by: Theresa Ducharme, President/Foundress, People in Equal Participation, Inc.

I, Theresa Ducharme, on behalf of People in Equal Participation, Incorporated, wish to support the Manitotaa Taxi Fare Structure price increase. It has been reported to us and others that a raise in fare prices has not taken place since 1991. Am l correct? If I am incorrect, when was the last fare increase and at what amount?

Autopc insurance, gasoline, and administration costs have all increased lately due to cost of living. When costs of providing taxi servive increase, the costs must be passed on to the customer.

Taxicob drivers work at the highest risks of all others even people fighting war. Cab drivers are at all risks of life and death on a daily basis. Theft and fear for one's life is one of the qreatest reasonrs that a fare increase is justified.

Our main reason for supporting the Menitoba Taxicabs' request for a fare increase is their indispensible service being provided in serving all our public wbile placing themselves at the highest risk.

A fare increase would also provide better service for the customer as it would provide funds for better orientation and training for new drivers which is desperately needed.

We would like the Taxicab Board to review the HandiCab vans and include the HandiVans as equal service providers to all customers including the disabled.

We look forward to working with you now and in the future.

Yours truly,

(signed)

Theresa Ducharme
President/Foundress
c/o P.E.P., Inc.
215 Victoria Avc. West
Winnipeg, Manitoba R2C 1S7
(204) 222-1162
(204) 224-5916 (fax)


committee for the integration of disable persons into cultural and religious communities


MANITOBA HIGHWAYS AND TRANSPORTATION
CORPORATE SERVICES BRANCH

COMMENTS ON
1997 TAXICAB RATE APPLICATION

APRIL 24, 1997

Background

  1. The applicants are requesting increases in both standard and premium taxicab rates. For standard taxicabs, the applicants are requesting a 15 per cent increase in rates. They are proposing that this be implemented by applying a 15 percent increase to each of the three component rates in the fare schedule for standard taxicabs (drop charge, distance charge, waiting time charge).

    For premium taxicabs, the Board's current fare schedule provides a higher fare for this service by having a drop charge for premium taxis that is $1.35 higher than for standard taxis. The distance charge and waiting time charge for premium taxis are the same as those for standard taxis. The applicants are proposing a 15 per cent increase to the distance and waiting time charges for premium taxis so that they would continue to be the same as for standard taxicabs. For the premium taxi drop charge, they are requesting that it be $1.35 higher than their proposed standard taxi drop charge, so as to maintain the current fare differential between standard and premium taxis.

  2. The last fare increase granted by the Taxicab Board came into effect on January 1, 1991. The increase was approximately 7 per cent and was granted to incorporate the Goods and Services Tax (GST) into taxicab rates. This increase was not granted to compensate the industry for increases in costs. The last fare increase granted specifically to cover higher costs was the increase just prior to the rate adjustment made for the GST. This prior increase came into effect on November 26, 1990. The increase was approximately 11 per cent and was granted to cover increases in costs incurred over the previous 2 years.

  3. In assessing any application to adjust taxicab rates, the financial position of the taxicab industry is a primary consideration for the Board. In addition to any information submitted by applicants, the Board in principle also has access to two other sources of data to assess the financial position of the industry: (a) information provided to the Board by taxicab licence holders under Section 55 of the Taxicab Regulation, and (b) information provided to the Board in applications for licence transfers.

  4. Section 55 of the Taxicab Regulation requires taxicab licence holders to submit an annual return of financial and operating information to the Board. All information provided in the return is required to be based on actual financial and operating records, and the financial information is required to be prepared and certified by an accountant. Sections 52 and 53 require drivers and licence holders to complete and maintain trip sheets that can verify some of the information provided in the annual return. To my knowledge these requirements have been neither complied with nor enforced. The Board therefore lacks data from this source on the financial and operating position of taxicab operators.

  5. In taxicab licence transfer applications, the buyer is asked to provide a statement of projected revenue and expenses for the operation being purchased, and also to specify how the statement was determined. The buyer frequently indicates that the statement is based on the actual operation of a taxicab. However, the apparent purpose of this statement is not to allow the Board to assess the financial position of the industry. Rather, it seems to be to encourage the licence purchaser to consider the financial implications of becoming a taxi operator, and more particularly to consider whether the price of the business has a reasonable relation to its projected "bottom line". In reviewing these statements I have frequently discovered that a number of them are simply copies of the same statement, or copies with minor changes. Nevertheless, even though some of these statements are identical or nearly so, when considered as a whole they still display a wide range of variation in the amounts specified for annual meter revenue and for various expense items, even for costs that should be much the same for any taxicab operation. These observations raise doubts about the reliability and usefulness of this information. On balance, it seems reasonable to accept that these statements do not provide a useful window on the financial position of the industry because they are not designed with that purpose in mind, and that licence buyers file the statements simply to meet the Board's administrative requirements, without spending too much time on determining the numbers to put into the statement.

  6. The Board's lack of information on the financial position of the industry is a very long standing problem that probably goes back to the very beginning of economic regulation, and the problem apparently is shared with many other jurisdictions that regulate taxicabs. Over the past 10 years, the Board has utilized financial models of a taxicab operation for the purpose of resolving rate applications or other issues in which the financial position of the industry is relevant. These financial models are not arbitrary constructions. While to a certain extent they require making assumptions and estimations in the absence of data from actual operations, many of the cost figures used in these models are reliable or reasonable to use because: (a) they are based on widely known industry practices (e.g. the 50/50 split of revenue between driver and operator [after accounting for GST]), or (b) they are based on specified statutory requirements (e.g. insurance, payroll taxes); or (c) they are obtained directly from taxicab operators using survey questionnaires and personal interviews, or (d) they can be verified from various other sources (e.g. the average selling price of a going taxicab operation can be calculated from the documentation used in licence transfer applications).

  7. A review of the applicants' submission seems to indicate that it is also based on a financial model approach. The industry submission presents an economic analysis of a taxicab owner/operator with an assumed gross revenue (after GST) of $100,000 in 1991. The submission specifically indicates this revenue level "is intended for illustrative purposes only and not intended as a reflection of actual or average industry revenues", i.e. it does not represent the financial position of an actual taxicab or sample of taxicabs. With regard to the cost information used in the economic analysis, there is no evidence to indicate that these are data based on records derived from a statistically valid sample of operators or even from the records of any actual operation. The cost figures in the industry's economic analysis are presumably estimated using the same range of sources as the Board's own financial models (statutory requirements, interviews with operators, etc.).

  8. The applicants' use of a financial model approach may not be unreasonable. I note that the application was jointly submitted by the two dispatch companies (Unicity and Duffy's) as well as by Blueline and Spring. Most standard taxi operations in Winnipeg are affiliated with Unicity or Duffy's. These firms are not taxicab operators per se, but contract with operators to provide dispatch and other services. To my knowledge the dispatch companies do not formally have access to the financial and operating records of individual taxi operations, and do not need to do so since their dispatch services are charged according to fixed weekly fees, and are not based on parameters such as revenue or number of trips for which precise record keeping would have to be maintained. If the dispatch companies are not able or not authorized to collect financial data from the taxicab operations that affiliate with them, it would in fact be necessary for the applicants to adopt a financial model approach in their submission.

  9. Without having financial and operating data on actual taxicab operations that have been compiled from trip sheets and other records, the Board must rely on the financial model approach that it has used in the past and that the industry uses in its current application. In this report I will first briefly summarize the economic analysis provided in the industry's submission. I will then develop a financial model, based on previous Board models, to quantify changes in the financial position of a taxicab operation between 1990 and 1997. My purpose in updating the Board's own financial model is not to dispute or refute the financial model used in the industry submission, but rather to determine whether the industry's request for a 15 per cent increase can be independently verified using the methodology previously used by the Board to assess the financial position of the industry.

    The various financial models analyzed in this briefing are summarized in the 3 tables at the end of the report. Please note that the figures in these tables may not add or subtract exactly due to rounding.

Summary of industry economic analysis / financial model

  1. The financial model presented in the applicants' submission is summarized in Table 1 (see page 12). Column 1 displays the financial position of a taxicab operator in 1991. The taxicab was operated for 2 daily shifts and earned a tota1 of $100,000 in revenue after deducting GST. One shift was driven by the taxicab owner and the other by an employed driver. Both shifts earned the same amount of revenue and the employed driver's share of revenue was one-half of the revenue brought in during the driver's shift. The gross earnings of the driver was $25,000 and the gross earnings of the operator was $75,000. The operator incurred direct costs of sales totalling $26,400 (licensing, vehicle fuel and oil, repair and maintenance, and Autopac and extension insurance), and incurred indirect costs of sales totalling $8,460 (accounting and legal, employer's statutory contributions, dispatch and management fees, miscellaneous). The total costs of sales were $34,860, which when deducted from gross earnings resulted in net earnings for the operator equal to $40,140.

  2. Column 2 of Table 1 shows the financial position of a taxicab operator in 1996. The model assumes that in nominal or money terms, revenue and gross earnings for both the driver and operator are the same in 1996 as in 1991. Due to inflation, however, the purchasing power or real value of revenue and gross earnings have decreased. Between 1991 and 1996, the Consumer Price Index increased by 11.7 per cent, and this figure has been used to restate the 1996 levels of revenue and gross earnings in 1991 dollars.

    In the case of operators, real income was also reduced not just from inflation but also from increases in both the direct and indirect costs of sales. Direct costs increased by $3,300 (12.5 per cent), and indirect costs increased by $2,636 (31.2 per cent).

    As can be seen from Column 3, which measures the percentage change between Columns 1 and 2, the combined effect of inflation and cost increases reduced the net income of a taxicab operator by 35 per cent between 1991 and 1996 (the industry submission variously uses a figure of 36 or 37 per cent for the decline in operator net earnings). It is on the basis of this finding that the industry submission argues that taxicab rates would have to be increased by 36 per cent in order to restore the net income of taxicab operators to their 1991 level. However, recognizing that a single increase of this magnitude would be impractical and infeasible, the applicants seek an increase of only 15 per cent.

Comments on industry economic analysis / financial model

  1. The applicants' submission indicates that because net operator earnings declined by 35 per cent from 1991 to 1996, these earnings would have to be increased by 35 per cent to be restored to their 1991 level. It should be noted that the required increase would in fact be considerably greater than this. The difference in earnings between 1991 and 1996 (in 1991 dollars) is $14,044. This represents 35 per cent of the 1991 level of earnings, but it represents 54 per cent of the 1996 level of earnings. In order for net operator earnings to increase back to their 1991 level, they would in fact have to be increased by 54 per cent over their current level. Furthermore, if you accept the submission's premise that a given percentage increase in net operator earnings requires the equivalent percentage increase in rates, then in fact taxicab rates will have to be increased by 54 per cent to bring net operator earnings back to their 1991 level.

  2. The industry's financial model overstates the decline in real net operator earnings. My own calculations, based on a revised version of the industry financial model (shown in Table 2 on page 13), indicates that between 1991 and 1996, net operator earnings fell by 15 per cent in nominal terms. When the inflation rate of 11.7 percent between 1991 and 1996 is taken into account, net operator earnings decreased by 24 per cent in real terms. For net operator earnings to be restored to their 1991 level of purchasing power, they would have to be increased by 31 per cent over their current level.

    In calculating the decline in real net operator earnings, the industry submission converted the figures for revenue and gross earnings to 1991 dollars but continued to state costs in 1996 dollars. Since 1996 dollars are worth less than 1991 dollars, they represent a different unit of measurement, and consequently the industry submission reaches incorrect findings by performing calculations on quantities that are measured in different units.

    Another way of looking at this is to understand that inflation has not only reduced real earnings for taxicab operators but has also helped to offset increases in their real costs. Even though costs may have increased by 17 per cent in dollar terms between 1991 and 1996, the real increase is less because operators are now paying their suppliers in dollars that are worth less. By not converting costs to 1991 dollars in its calculations, the submission overstates both the increase in costs and the decline in real net operator earnings.

  3. The industry submission assumes that a desired increase in net operator earnings of a specified percentage amount requires an equivalent percentage increase in rates. However, according to the industry financial model, net earnings for a taxicab operator are not directly proportional to revenue. If revenue is increased by X per cent, then: (a) driver gross earnings will also increase by X per cent; (b) operator gross earnings will increase by 3/4 of X per cent, and (c) the percentage increase in operator net earnings will vary inversely with the ratio of net earnings to gross earnings. For example, if net earnings are 1/2 of gross earnings, then an X per cent increase in rates will increase net earnings by 2X per cent; if net earnings are 1/3 of gross earnings, then net earnings will increase by 3X per cent, and so forth. Generally speaking, given the data used in the industry financial model, it reasonable to expect that the percentage increase in net operator earnings from a rate increase will be about double the percentage increase in rates.

  4. In Table 2 on page 13 I have presented a revised version of the industry financial model. Column 1 shows the financial position of a taxicab operator in 1991, and is exactly the same as described in the industry submission. Column 2 shows the financial position of a taxicab operator in 1996, and is also the same as described in the industry submission except that I have not converted any figures into 1991 dollars, and have kept all figures in current or nominal dollars. In Column 3, I have calculated what the required or desired financial position of the operator must be at the current time in order for the operator to have the same real net earnings as in 1991.

    In 1991 operator net earnings were $40,140. With an inflation rate of 11.7 percent between 1991 and 1996, net earnings would have to be increased by 11.7 percent over their 1991 level, to $44,828, in order for an operator to have the same real net earnings as in 1991.

    This is the figure inserted at the bottom of Column 3. From this figure it is possible to work backwards and calculate the level of gross revenue (after GST) that is required to achieve this. As shown at the top of Column 3, the required level of revenue is $114, 165. This is 14.2 per cent higher than the level of revenue in 1991. In other words, if the purpose of the industry application is to ensure that taxicab operators have the same real net earnings now as they did in 1991, then the required increase in taxicab rates, based on the industry's own financial model, is actually 14.2 per cent. This is approximately the increase the applicants are asking for.

Board financial model

  1. In Table 3 (on page 14)1 use a version of the Board's own financial model to evaluate the financial position of a taxicab operator and calculate any required increase in rates. Column 1 shows the financial position of a taxicab operator in 1990, after the rate increase of November 1990. The November 1990 rate increase was the last one to compensate operators for cost increases, and the Board based its increase on an analysis of the costs experienced by operators in 1990. Column 2 shows the current financial position of an operator, based on the latest data available. Column 3 shows for each financial category in the model the absolute change in dollars between 1990 and 1997, and Column 4 shows the corresponding percentage change.

    It should be noted that I have used the financial position of a taxicab operator after the November 1990 rate increase as the starting point for the Board financial model, even though the Board granted a further rate increase effective January 1, 1991. The January 1991 increase was wanted to incorporate the GST into taxicab rates, but this would not have changed the financial position of taxicab operators, since all GST receipts (net of credits for GST paid on inputs) are required to be remitted to the federal government. Furthermore, since the GST has no net impact on the financial position of a taxi operator, I have defined the figures for revenue in Table 3 to be net of GST receipts in order to simplify the interpretation of the model. Throughout the rest of this section, I will use the term "meter revenue" to refer to revenue figures that include GST receipts, and "net revenue" to refer to the revenue of a taxicab operation after GST receipts have been deducted.

  2. It is important to note that Table 3 is not strictly comparable to the model used in the report to the Board for the 1990 rate application. After the 1990 rate application, subsequent financial models of standard taxicab operations were revised to use different data sources or approaches for estimating some cost items, and in fact the model for the 1990 application itself was different in some aspects from previous models. The model in this report incorporates corrections and adjustments from previous Board models where such changes are necessary or seem warranted, but continues to be a reasonable methodology given the data and resources available

  3. The model in Table 3 is based on a taxicab operated "full-time", i.e. with 2 full daily shifts. An employed driver drives one shift and the operator drives the other. Meter revenue and net revenue are divided equally between the two shifts. The "Net earnings" figure at the bottom of each column is a residual amount, and comprises what is left over for the operator after all the costs specified above the net earnings line have been subtracted from net revenue. In the way this model has been set up, the net earnings amount represents the remuneration received by the operator for the time he or she spends driving the cab. The operator of course does not only contribute labour input to the operation in the form of driving time, but also contributes the capital invested in the business. In this model the "Capital costs" line in each column shows the annual return required to cover the cost of the capital invested in the operation, so that the net earnings line shows only the operator's return for driving.

    According to the way the model has been set up, a taxicab operation is in its desired or required financial position when the operator's net earnings are equal to the wages paid to the employed driver, so that both operator and driver are remunerated the same amount for providing the same labour input to the business.

    The following section briefly describes the calculation of each revenue and cost category in the Board financial model (please note that all figures in Table 3 have been rounded to the nearest $100).

  4. (a) Net revenue (after deducting GST receipts)

    In its March 1990 report, the Board presented a financial model which estimated that a standard taxicab operation had an annual meter revenue of $77,450. An industry source at that time indicated to the Board informally that a reasonable revenue level for a taxicab operated full-time with good drivers was $78,000, a figure very close to what the Board estimated.

    It is reasonable to use the $77,450 figure to estimate the annual meter revenue for a taxicab in early 1990. In November 1990 the Board implemented a rate adjustment which increased taxi rates by 10.8 per cent, so that after this increase annual meter revenue would have increased to approximately $85,800. Since the GST was not yet in effect at that time, the net revenue of the taxicab would also have been $85,800, and this is the figure used at the top of Column l.

    In January 1991 the Board implemented a further rate adjustment to incorporate the GST into taxicab rates. For reasons explained above, this rate increase would have raised the meter revenue of a taxi operation but left its net revenue unchanged. Therefore, assuming that other factors have not changed since then, current annual net revenue for a taxicab should also be approximately $85,800, and this is the level specified at the top of Column 2.

    (b) Driver's wages

    It is assumed that half of the meter revenue earned by the taxicab operation is earned during the employed driver's shifts, and that the driver keeps for his or her own remuneration half of this revenue after deducting the GST share of receipts. The employed driver's wages are therefore calculated as 25 per cent of net revenue.

    (c) Canada Pension Plan (CPP)

    In 1990, CPP contributions were 2.2 per cent of earnings above an exemption of $2,800. In 1997, contributions are 2.925 per cent of earnings above an exemption of $3,500.

    (d) Unemployment/employment insurance (UI/EI)

    In 1990, UI employer premiums were 3.15 per cent of earnings. In 1997, they are 4.06 per cent of earnings.

    (e) Workers Compensation Board (WCB) premiums

    In 1990, WCB premiums were 2.67 per cent of earnings. In 1997, the average premium in the taxicab industry is 5.33 per cent of earnings.

    (f) Fuel

    In 1989, the Board conducted a survey of a sample of taxicab operators which used a questionnaire and personal interviews to collect financial and operating data on taxicab operations. The data collected related to 1988. On the basis of the survey, a Board analyst estimated that the annual fuel cost for a propane-fuelled taxi operated full-time in 1988 was $7,830. The average price of propane in 1988 was 24 cents per liter. In its financial models the Board has calculated the annual fuel cost of a standard taxi by comparing the current price of propane to its 1988 price and revising the 1988 annual cost figure in direct proportion. At the time of the last rate increase the price of propane was 36.9 cents per liter, and the most frequently observed price over the last several months has been 39.9 cents per liter (leaving aside sudden "spikes" in the price to higher levels for short periods of time). These prices have been used in Table 3 to estimate annual fuel costs for taxicabs in 1990 and 1997.

    (g) Maintenance and repairs (h) Insurance and registration

    In 1990 the basic insurance premium was $3,333. There was a basic registration fee based on wheelbase which averaged $137, plus a registration fee of $20 payable under the Taricab Act, and an additional registration fee surcharge of $10 if the operator wanted to pick up or drop off passengers outside the City of Winnipeg.

    For 1997, the basic insurance premium is $4,016. There is now a fixed registration fee of $58 for taxicabs which want to pick up or drop off passengers outside the City of Winnipeg.

    (i) Licence and inspection fees

    In 1990 a taxicab business licence cost $100, and a taxicab driver licence cost $15. The City of Winnipeg charged taxicab operators a fee of $25 per vehicle, and the annual renewal fee for a mobile radio licence was $39.

    Currently, the annual fee for a taxicab business licence is $200, and a taxicab driver licence has a fee of $60 (for 2 years). The City of Winnipeg taxicab fee has slightly increased to $27, and the mobile radio licence renewal fee to $41. The 1997 model also includes 2 inspection fees of $52 each, a new cost that was pointed out in the industry submission.

    (j) Dispatch fees

    In 1990 the annual dispatch fees for a taxicab operator were $4,100 (based on a weighted average of the fees for Duffy's and Unicity, with the weights based on the number of taxis in each fleet). Currently, the weighted average of dispatch fees is $5,100.

    (k) Capital costs

    This item is the annual return required to recover the owner's capital investment in the taxicab operation. According to the data supplied to the Board in licence transfer applications, in 1990 the average purchase cost for a taxicab operation (including the vehicle, other equipment and goodwill) was $49,500, the average interest rate for borrowed funds was 16 per cent, and the average capital recovery period (i.e. loan amortization period) was 5 years. Based on 1996 data, the current average purchase cost is $60,000, the average interest rate is 8. 5 per cent, and the average capital recovery period remains at 5 years. A standard capital recovery formula has been used to calculate the required annual return. It should be noted that the current capital cost is only slightly higher than in 1990, the fall in interest rates having been offset by the increase in the selling price of a taxicab business.

    (l) Net earnings As explained previously, net earnings is a residual amount calculated by subtracting from net revenue all of the costs specified in points (b) to (k) above. It represents the remuneration received by the operator for his or her contribution of labour input in driving the taxicab. According to the way the model is constructed, when the operator's net earnings are equal to the driver's wages, the level of net revenue is at its desired or required level, and is sufficient to fully renumerate the operator for his or her contributions of capital and labour and to cover all other costs.

  5. Column 5 shows what the current financial position of a taxi operation must be for the operator's net earnings to equal the driver's wages (i.e. for net revenue to fully remunerate the operator for his or her contributions of capital and labour and to cover all other costs). The required level of net revenue is $98,000, which is approximately 14 per cent higher than the 1990 level of net revenue. Taxicab rates will have to be increased by approximately 14 per cent to provide the required increase in net revenue. This is the same percentage increase in rates implied by the industry financial model (as I have reinterpreted it). It is also approximately the percentage increase in rates proposed by the applicants (which is 15 percent).

  6. If the Board were to grant an increase in rates of 14 per cent, the Board's financial model shows that an increase of this amount would ensure that the net earnings of operators are compensated for inflationary price increases from the time of the last rate adjustment. In other words, a 14 per cent increase in rates would satisfy the applicants' goal of ensuring that real net earnings for taxi operators are not lower at the current time than they were in 1991.

    According to the Board financial model, driver wages in 1990 were $21,500, and operator net earnings were $20,100. With a rate increase of 14 per cent, both driver wages and operator net earnings would increase to $24,500. This would be an increase of 14 per cent in driver wages and a 22 per cent increase in operator net earnings, compared to an inflation rate of 16. 5 per cent between 1990 and 1996.

  7. For further purposes of comparison, it should be noted that the cost to families of operating their own motor vehicle increased by 19 per cent between 1990 and 1996, according to Statistics Canada's consumer price index for private transportation in Manitoba. Over the same period, the cost of public transportation (a weighted average of transportation costs for travel by transit, air, inter-city bus, etc.) increased by approximately 25 per cent. Last year, the Motor Transport Board increased rates for rural taxis by 19.2 percent, an increase intended to compensate operators for cost increases from May 1990 to July 1996, An increase in taxicab rates of 14 per cent is compatible with increases in the costs of other modes of transportation over the same period of time.

  8. I would like to add a final comment concerning the calculation of the premium taxicab rates. The applicants' submission implies that the Board can maintain an appropriate differential between premium and standard taxi fares by maintaining a drop charge for premium taxis that is $1.35 higher than for standard taxis, while leaving the distance and waiting time charges for the two types of service the same.

    In fact the $1.35 differential is not significant in itself but was the amount calculated by the Board to make a premium taxi fare 10 per cent higher than a standard taxi fare for an "average" taxi trip. The Board has defined an average taxi trip to be of 10 kilometers distance with 6 minutes of waiting time. Under the current fare schedule, the standard taxi fare would be $13.75 for this average trip. For a 10 per cent fare differential for an average trip, the premium fare would have to be $1.35 higher. In order to accomplish this, the Board added this amount to the premium drop charge and left the other two charges (distance charge and waiting time charge) the same for premium taxis as for standard taxis. Alternatively, the Board could have made each of the three charges 10 per cent higher for premium taxis than for standard taxis. This would have ensured that every trip made by a premium taxi has a 10 per cent higher fare than the same trip made by a standard taxi. By putting all of the fare differential into the drop charge, the Board has ensured that a premium taxi has a 10 per cent "premium" on the fare for an "average" trip, a higher than 10 per cent premium for trips shorter than the average trip, and a lower than 10 per cent premium for trips longer than the average trip.

    If the Board wants to maintain its established policy on premium taxi rates, it should use the method of calculation described in the preceding paragraph to adjust premium taxi rates, and not simply add the existing $1.35 differential to whatever new drop charge it determines for standard taxis. Depending on how and by how much the Board may decide to adjust standard taxi rates, the drop charge differential for premium service will most likely be different from the existing amount of $1.35.

Table 1:  Financial position of taxicab operator according to industry
financial model
                                         (1)        (2)       (3)
                                         1991       1996     Percent
                                                             change

Gross (after GST) revenue             $ 100,000   $ 89,300   -10.7%
Less: driver's gross earnings         $  25,000   $ 22,297   -10.8%
Operator's gross earnings             $  75,000   $ 66,892   -10.8%
Less: direct cost of sales            $  26,400   $ 29,700    12.5%
- licencing
- vehicle fuel and oil
- repair and maintenance
Less: indirect cost of sales          $   8,460   $ 11,096    31.2%
- accounting and legal
- employer's statutory contributions
- dispatch & management fees
- other (miscellaneous/contingencies)
Operator's net earnings (pre-tax)     $  40,140   $ 26,096   -35.0%




Table 2:  Financial position of taxicab operator using revised industry
financial model

                                         (1)        (2)        (3)
                                         1991       1996     Required

Gross (after GST) revenue             $ 100,000   $ 100,000  $ 114,165
Less: driver's gross earnings         $  25,000   $  25,000  $  28,541
Operator's gross earnings             $  75,000   $  75,000  $  85,624
Less: direct cost of sales            $  26,400   $  29,700  $  29,700
- licencing
- vehicle fuel and oil
- repair and maintenance
Less: indirect cost of sales          $   8,460   $  11,096  $  11,096
- accounting and legal
- employer's statutory contributions
- dispatch & management fees
- other (miscellaneous/contingencies)
Operator's net earnings (pre-tax)     $  40,140   $  34,204  $  44,828


Table 3:   Financial position of taxicab operator using Board financial
model
                                (1)       (2)       (3)       (4)       (5)
                                1990      1997    Absolute   Percent    1997
                               actual    actual    change,   change,  required
                                                    1997      1997
                                                   actual    actual
                                                  compared  compared
                                                  to  1990  to  1990
                                                   actual    actual

Net revenue (after deducted   $ 85,800  $ 85,800  $     0     0.0%    $ 98,000
GST receipts)
Less:
Driver's wages                $ 21,500  $ 21,500  $     0     0.0%    $ 24,500
CPP                           $    400  $    500  $   100    25.0%    $    600
EI                            $    700  $    900  $   200    28.6%    $  1,000
Workers' Compensation         $    600  $  1,100  $   500    83.3%    $  1,300
Fuel                          $ 12,000  $ 13,000  $ 1,000     8.3%    $ 13,000
Maintenance & repairs         $  7,600  $  8,300  $   700     9.2%    $  8,300
Insurance & registration      $  3,500  $  4,100  $   600    17.1%    $  4,100
Licence & inspection fees     $    200  $    400  $   200   100.0%    $    400
Dispatch fees                 $  4,100  $  5,100  $ 1,000    24.4%    $  5,100
Capital costs                 $ 15,100  $ 15,200  $   100     0.7%    $ 15,200

Net earnings                  $ 20,100  $ 15,700  $(4,400)  -21.9%    $ 24,500


         


Taxicab Board
Highways and Transportation
206-301 Weston Street
Winnipeg, MB R3E 3H4
Canada
(204) 945-8919

May 16, 1997

NOTICE OF DECISION
DOCKET 44/97
TAXICAB TARIFF RATE INCREASE

On Wednesday, May 14, 1997, The Taxicab Board heard an application on behalf of Blueline Premium Taxi/Blueline Taxi, Duffy's Taxi, Spring Taxi and Unicity Taxi for a fifteen per cent (15%) meter rate increase for both Standard/Accessible and Premium taxicab rates. An additional fee of $1 to customers being picked up at the Winnipeg International Airport, as well as an extra $0.50 per piece of luggage over two pieces.

The decision of the Board was to approve a 14% meter rate inaease.

The application for an additional fee of $1.00 to customers being picked up at the Winnipeg International Airport was denied

The $0.50 per piece of luggage over two pieces was withdrawn by the applicants.

The 14% approved rate increase as noted below will be effective July 2, 1997.

A. Fares for Standard Taxicabs and Accessible Taxicabs

The fare for conveying one to four passengers is determined as follows:

B. Fares for Preminm Taxicabs

The fare for conveying one to four passengers is determined as follows:

Sincerely,

(signed)

Greg Mortimer, A/Secretary
The Taxicab Board


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