Uber Sydney hostage crisis: It's time for Uber to re-evaluate how it prices during emergencies and disasters.

Uber Surged Prices During the Sydney Hostage Crisis. Here’s How It Can Do Better.

Uber Surged Prices During the Sydney Hostage Crisis. Here’s How It Can Do Better.

Moneybox
A blog about business and economics.
Dec. 15 2014 7:05 PM

Uber Surged Prices During the Sydney Hostage Crisis. It Needs to Do Better.

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Which do you call in a disaster?

Photo by Kai Pfaffenbach/Reuters

Uber, no stranger to outrage, has stirred up more of it for hiking fares in Sydney as a hostage crisis played out on Monday. As people sought to flee Sydney’s business district, Uber reportedly quadrupled its fares until a single ride cost a minimum of $100 Australian, or $80 U.S. While it at first seemed possible the increase was a mistake—Uber’s pricing algorithm responding to a spike in demand—the company soon made clear that the increases were intentional. “We are all concerned with events in CBD,” Uber’s Sydney account tweeted. “Fares have increased to encourage more drivers to come online & pick up passengers in the area.”

Obviously, that reasoning didn’t go over too well. Within an hour, consumers' incredulous and disgusted cries of price-gouging had prompted Uber to backpedal. “Uber Sydney trips from CBD will be free for riders,” the Sydney team declared. “Higher rates are still in place to encourage drivers to get into the CBD.”

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The situation in Sydney is the latest reminder of an issue that has proven singularly difficult for Uber: setting prices during crises, disasters, and emergencies. Uber's car-hailing service, you'll remember, is built on a “surge pricing” system. Also called “dynamic pricing,” surge pricing is designed to increase efficiency by bringing supply in line with demand. When more people need rides, fares rise until a sufficient number of drivers is servicing the area. Generally, customers tend not to be fans of surge pricing (who wants to get hit with 3x fares on a Saturday night?) but find it acceptable enough. When Uber raises prices during emergencies, though—like it did during Hurricane Sandy in 2012—that makes just about everyone furious.

So, the question: Is it wrong to raise prices during an emergency? Here’s what Uber has said in the past, and repeated in Sydney on Monday: Surge pricing in times of need is important—even beneficial—because it encourages drivers who might otherwise stay safely at home to hit the streets. This is a fair point. If there’s any time that people should want drivers to be incentivized to pick up passengers, it’s during a disaster or emergency. Raising fares helps make that happen. Of course, the flip side is that as fares goes up, Uber becomes less and less reliable for anyone who can’t afford to drop $100 on a single cab ride. Surge pricing doesn’t make Uber more accessible to everyone during an emergency—just the people who can pay for it.

In an effort to resolve this dilemma in the U.S., Uber announced over the summer that it had instituted a national policy to cap surge pricing during disasters and states of emergency. For each market, the company said, the “state of emergency price” would be set based on the surges of the previous two months, and 20 percent of the total fare would be donated to the American Red Cross’s disaster relief efforts. Until now, though, Uber doesn’t seem to have had a similar policy in place for the other 52 countries where it operates.

When I contacted Uber on Monday to find out whether any sort of global protocol existed for pricing rides during emergencies, the company said in a statement that it “is committed to ensuring users have a reliable ride when they need it most—including and especially during disasters and relevant states of emergency.” Uber, the statement continued, “is working to standardize a global policy to ensure we’re serving communities in the most efficient, effective and helpful way possible.”

Around this time last year, Matt Yglesias suggested in Slate a solution to Uber’s surge-pricing problem. “What Uber ought to do,” he wrote, “is simply take 20 percent of the base fare and give all the surplus to the driver.” Uber, in fact, did essentially this in 2012 during Sandy, raising prices on the condition that 100 percent of the fare would go to the drivers. It was a good start, but it didn’t resolve the rider’s problem of how to afford an Uber when prices became extravagant. That’s why I’d suggest Uber should do in all emergencies what it eventually did in Sydney on Monday: Give one ride to each customer free of charge while paying drivers the surge rates out of its own pocket to keep more of them on the road.

Is this financially reasonable? Maybe. Probably. Uber has $2.7 billion in financing for a valuation of $40 billion. It's also expected to net $2 billion on $10 billion in gross revenue in 2015, according to at least one report, and emergencies, we can all hope, don’t come along every day. More important than the money in this case, though, are Uber’s ambitions. The company, as its starry-eyed investors are happy to discuss, has the long-term goal of replacing most other means of transportation. Instead of taxis and privately owned cars, Uber wants there to be Uber. In this world, during a disaster or emergency, Uber isn’t one of several possible exit rides—it’s the exit ride. And so a world in which Uber is the dominant form of transportation and uses surge pricing during emergencies is a world in which the wealthy are disproportionately able to get where they need to go during times of extreme need. If Uber cares at all about its public image, that shouldn’t be the world it’s aiming to create.

Alison Griswold is a Slate staff writer covering business and economics.