A Revolution is Coming To The Public Transport Industry in Kenya
Is the public transport industry in Kenya undergoing a mini revolution?
The Matatu Sector (as the industry is fondly named) is undergoing a mini revolution that will change the sector for good. The sector has grown to be associated with chaos, pollution and lawlessness, to the extent of being know synonymous with corruption on our roads.
All that is about to change for good, because the Matatu industry is now faced with FOUR existential forces that will change the sector as we know it. Although these forces are manifesting in Kenya, one sees the same trends across East Africa and I want to argue that its a matter of time before the public transport sector industry in the sub region changes as investors and players follow the money, literally.
First up, is the rise of the machine (sic) or as we’ve come to know it the sharing economy. This revolution started with Uber but before we knew it there was a slew of other companies, local and foreign that tossed into this growing segment. As the competition has grown and lacking real differentiation or barriers to entry, the players have now resorted to price wars and innovative approaches to lower entry prices. The latest bout is the launch of Uber Chap Chap in early 2018 and Taxify Go in April, both of which aim to leverage low consumption and fuel efficient vehicles (<1,300cc) to lower operating costs and therefore fares. Speaking with an Uber driver recently who runs two cabs, one a 1,500cc Petrol engine and the other a 1,300cc Hybrid engine, turns our that he was making double the profit on the Hybrid engine vs. the Petrol engine, signaling that even with lower prices and the right equipment one will be in the money. One can anticipate that as these trends continue, the demand for ride sharing services will follow a perfect demand curve where lower prices spur frequent usage
This rise of the sharing economy has not been limited to the top end of the market, but has infiltrated the lower end as well. The liberalization of transport over the past few years has seen the rise in registrations of motorcycles (Boda Boda in colloquial) which have chipped away from Matatu’s share of Point to Point Journeys. Every little village and hermit in Kenya is today infested with these tiny machines whizzing into places that Matatu’s did not go before, this has curtailed the expansion of Matatu routes as they are now seen as unprofitable. Compunding this the fact that Boda Boda provide a faster means of conveyance in traffic chocked cities, making them a preferred mode of transport there as well. Lately we are seeing a trend of formalization of these means of transport with services like Taxify Boda, Uber Boda and a few other apps based services targeted at goods couriers like Sendy, JuuBoda and Safe Boda.
The overall effect of these changes is that the Matatu industry is now faced with pricing pressures since more convenient means of transport are becoming affordable leaving commuters with ‘hard choices’ between chaotic and lawless Matatu where one literally breaks a neck to hop on and off or more dignified albeit slightly premium ride sharing services.
The continued squeeze on sector margins comes from the second force; the entry of governments into the public transport sectors, not only through infrastructure development which is the third force that we will look at in a moment, but directly as a player. Uber is credited with Surge Pricing, however as far as I can remember the Matatu industry in Kenya has been practicing Surge pricing for close more than 20 years now. If you live in Nairobi and use Matatu, the slightest sign of rains is an assurance that you will encounter surge pricing on your to or fro journeys. You see as soon as it rains, Nairobi’s traffic situation multiplies five folds, and with it in a bid to make up shore up revenues as the number of trips per day in peak time is greatly reduced, the Matatu raise their fares two-three fold. Now, for long the government has viewed these practices as exploitative but has been unable to take concrete measures to address it. However in the last two months we have witnessed the Kenyan government put on the roads institutional buses from the National Youth Service to serve as public service vehicles at fares below those charged by Matatu. Further the government as designated bus lanes on some roads signaling its serious intent to tackle not only this usurious behavior but also the traffic nightmare. If the government continues with this investments, it is a matter of time before we see the death of Matatu as we know them.
Thirdly is the continued investments in infrastructure is making alternative means of transport more attractive. Over the last few years we have seen multi-pronged efforts to improve transport infrastructure in the country as part of efforts to decongest the cities and save the economy billions of shillings. The unintended (at least overtly so far) implications of all these investments is to make alternative modes of transport more attractive compared to Matatu; the impeding launch of upgraded train services to the various city limits will take away more people from the roads, the expansion of road infrastructure is already taking away people from Matatu into more convenient and now affordable means like cabs and boda boda, while bigger roads invariable bring more investments in private means of transport which also chips from Matatu’s share of journeys. There is also now an undercurrent in public discourse on the need for bicycles lanes on Nairobi roads, a relatively small and flat city with fair weather all year round that is conducive for biking.
The last force that I see as the last nail on the coffin of Matatu as we know it is regulatory in nature, although the government has taken a ‘boiling the frog approach’ on this matter, the pace of regulation is fast gathering steam as the government tackles the growing concerns around safety, environment and cost of living. About 5 years ago Matatu, which in most cases are owned by individual investors, were required to form into pseudo corporate organizations known as Saccos, the idea was to start formalizing the sector into self regulating units that could invest at the right level to develop assigned routes, hold members accountable for safety and formalize the sector as a creator of sustainable employment. The jury is out however these changes did not achieve all the envisioned ends. The sector still remains a leading source of accidents and deaths on our roads, runs some of the most poorly maintained vehicles on these roads which are a great source of environmental and noise pollution and quite frankly remains clueless as to self regulation. As such there are two pressing forces that will drive regulation in the industry, the first is the governments needs to attract serious investors into the sector to help build a more efficient transport sector and second it the growing chatter around environmental regulations to stem pollution, a test that all the Matatu vehicles on the road today will fail ab initio.
So now where does this leave the Matatu sector investors and players? Is the death gong sounding on them? Matter of fact the Matatu sector must adapt or die. That death will not be a bing bang dinosaur like death where one day we wake up and boom no more Matatu (many a times we have wished for this), but rather a slow winding death that will come about as investors seek more profitable investments vehicles (sic) within the sector. To survive, Matatu sector players and investors must adapt their business models and literally change their ways to make the sector profitable in the face of rising operational costs and squeezed pricing power. We will examine briefly some the ideas for their consideration.
First, the sector has to reinvent and rebrand itself, if they hope continue attracting customers. We have seen sporadic efforts in this regard from some of the players, especially the long distance operators. For instance only last month did Coast Bus launch a new premium bus service in retaliation to the 1st class service offered on the SGR trains to Mombasa. The buses feature airplane like cabins with hostesses and inclining ‘lie flat seats’ to boot. In the same month Prestige Shuttles of Nakuru relaunched their premium services including well dressed hostesses (contract to the rugged looking touts) employed to make the customer experience more enjoyable. It will take a sector wide approach to such efforts to rebrand Matatu as convenient and enjoyable means of conveyance.
The matatu sector has to embrace technology and relentlessly pursue innovation. Mobile technology has long become ubiquitous in this part of the world but the rate of adoption in this sector is far wanting. Matatu investors should adopt mobile technologies to capture in real time and use the information to optimize route and crew performance. Data driven capacity deployment and pricing will be the lynchpin to Matatu profitability in a fast shifting landscape.
Furthermore Matatu must adopt a corporate mentality, one where performance management and incentive systems are harmonized to ensure the assigned routes and crews drive profitable business. Borrowing a leaf from the revenue management practices of the airline industry together with its operation metrics (Revenue Passenger Kilometer, Load Factors, Turnaround times, Cost Per Available Seat Kilometer, etc). Most investors relying on wings and prayers to turn a profit in this sector, from poor record keeping of costs, poor revenue recognition practices, pilferage and outright financial illiteracy, most investors and sector players do not turn a profit. The future of the sector lies in transformation to a culture that is pedantic about metrics as it tries to wring out the sustainable profitability.
On the pricing front, Matatu will have to raise their game in with dynamic pricing approaches. Sure enough we have seen them practice surge pricing, as detailed above, as well as lower their prices in lean times during the day like 100hr-1400hr time slice. However these efforts are disjointed and not informed by concrete strategies. A coordinated strategy that balances, pricing, operating costs and capacity deployments and informed by data driven algorithms will be key to staying in business. Pricing decision have to move away from half intelligent crews (sic) to ones driven by algorithms that can factor in multiple variables like time of the of day, seasonality, route dynamics, competitor behaviour (e.g. Uber Surge Pricing, Train Schedules), Weather, road conditions, available capacity etc.
That the ground below the Matatu sector is shifting and that the sector needs to adapt to survive are incontrovertible. The most most critical catalyst to harness these two forces in order to save the Matatu industry remains the willingness by sector investors and players to embrace and manage the changes that are happening. Short of which we will in the not too distant future miss a bit some of the chaos that we have come to be fond of.
