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Big bucks to be made in taxis

Licences fetching huge dollars as board OK's 20-cent hike in fares' initial charge

By: Martin Cash

Posted: 12/3/2009 1:00 AM | Comments: 0 (including replies)

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(JOHN WOODS / CANADIAN PRESS ARCHIVES)

Investors would have done well putting their money in the stock market this year.

But they would have done even better buying Winnipeg taxi licences.

Since the beginning of the year, the going price for a taxi "medallion" has increased by 61 per cent, with a couple of recent transactions closing at a whopping $412,000.

The poor punters investing in the TSX had to be satisfied with 47 per cent gains this year.

Prices for taxi licences have skyrocketed since a consultant's report issued in February found the city was adequately served by 410 standard taxis, the same number that have been working the streets of Winnipeg for about 10 years.

Industry officials say some of the new investment in licences comes from India, where investors recognize the tidy returns to be had in a business that employs many non-resident Indians in Winnipeg.

On Wednesday, the Manitoba Taxicab Board agreed to a 20 cent increase in the initial charge or "drop fee" of a taxi fare.

That makes it about the 10th fare increase this decade. At the beginning of the decade, it cost $2.70 to get into a cab.

Starting April 1, 2010, it will cost $3.50.

That may not sound like much, but considering the recent overheated debate about the relative need for more taxis in the city and the subsequent spike in the price of Winnipeg taxi licences, it raises interesting questions about the manner in which the taxi business is regulated in the city.

The new increase, applied for by the two large taxi co-operatives, Unicity and Duffy's -- which control 93 per cent of the standard taxi licences -- is ostensibly meant to defray the costs of installing new models of security cameras the Taxicab Board decided must replace the older models that have become unreliable.

(The actual application was for a 30-cent increase.)

While the Taxicab Board approved a 20-cent increase, it limited it to an 11-month time frame from April 1, 2010, to Feb. 28, 2011.

Let's see if prices actually do come down.

The last time a temporary fare increase was approved, it became a permanent one.

Barry Prentice and Charles Mossman, a couple of member of the U of M's Asper School of Business faculty, took the occasion of the rate increase application to weigh in to the debate on how this regulated monopoly works.

Prentice, a prominent transportation economist, was at the vanguard of the deregulation of the trucking industry in the late '80s.

He has expressed his support of market forces countless times over the years.

He does not mince words.

"Where is the social policy of all this?" he said in an interview. "Why do we create a regulated cartel to charge high prices and control and reduce supply. Whose interest is that in? Does it serve the 410 taxi owners or the 650,000 people living in Winnipeg?"

Their submission presents a formula on the capitalized value of the licences. It suggests the medallion values "are an estimate of how much beyond the normal modest profits are being earned in the industry, because that is the amount new entrants are willing to pay for the opportunity to earn those returns."

For instance, a $350,000 licence multiplied by the going interest rate of, say, five per cent means there is $17,500 in excess profits over and above the modest profits and costs of operating a taxi. They argue that if the excess revenue were not there, the new entrants would not be able to afford the investment required to buy the licence.

"Licence values should never have been allowed to come up this high in price," Prentice said. "It tells us the benefits of the cartel is excessive."

With so few players in the business, it is not surprising the board would appeal to the big co-ops on operational issues.

It now also has the former general manager of Unicity on its payroll as its chief inspector.

martin.cash@freepress.mb.ca

Republished from the Winnipeg Free Press print edition December 3, 2009 B6

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