Minibus startups like Chariot aren’t succeeding. But transit shouldn’t be judged on whether it turns a profit.
In 1914, during a streetcar strike in Los Angeles, a motorist in a newfangled private car began giving rides for a jitney—slang for nickel. The flexible service and novel automotive technology easily seduced passengers, and soon jitneys swept the nation, challenging run-down and crowded streetcar systems.
But they also clogged city streets, caused numerous crashes, and cannibalized transit ridership. Following a public outcry, many cities, including Los Angeles, decided by referendum to regulate them. By the mid-1920’s, jitneys had gone virtually extinct, replaced by tightly regulated taxi companies.
Today, a similar story is unfolding for microtransit. Microtransit is a for-profit bus service that caters to commuters willing to pay more for a ride that’s more direct and comfortable than those offered by existing public transportation. Since 2014, microtransit companies have been using sophisticated algorithms to plan fixed routes, based on demand, in San Francisco, Boston, and New York. The model has been hailed—and particularly by CityLab—as having the potential to change urban mobility.
In my Ph.D. research and as an entrepreneur, I’ve developed algorithms to improve transit operations using real-time information. I believe that software can transform the place of transit in metro regions, and I support anything that helps the public move more efficiently. But microtransit is not living up to its promise these days. In just three years, three of the leading companies have gone out of business. In October, the California Public Utilities Commission forced Chariot, a microtransit company recently purchased by Ford for $65 million, to cease operations for several days, after they found that drivers did not have the proper license to operate.
Unlike the jitney regulations, which were created in reaction to entrepreneurial activity, microtransit regulations already existed when these start-ups began operating. Class B licenses, which Chariot drivers lacked on three consecutive inspections, apply to tractors, trucks, and mini-buses. These regulations are not the product of overreaching government curbing innovation; they are in place to ensure the basic safety of drivers and passengers. If a private transportation company cannot make a profit while providing a safe service, then it should not be in business.
After raising $2.5 million, Leap Transit went out of business in July 2015 following a cease-and-desist order for failing to meet safety and insurance requirements in California, where it had been operating in San Francisco. Another Bay Area mini-bus venture, Loup, failed despite receiving $1.5 million from Twitter co-founder Evan Williams’ Obvious Ventures. Earlier this year, Bridj shut down after a pilot in Kansas City fell short of expectations, and a large injection of capital, reportedly from Toyota, fell through. In every case, microtransit companies race for private investments to subsidize increasing operating costs as local governments enforce regulations—with the hope, of course, of eventually returning that investment. “Not to sound dramatic [but] no one in the history of the world has created a profitable mass transit service,” Chariot CEO Ali Vahabzadeh told The Verge earlier this year. “That’s our mission.”
But public transit is not supposed to be judged on whether it turns a profit. Like private cars, air travel, and freight, public transit needs to be subsidized to offer benefits that extend to society at large. Transit generates economic growth, promotes healthier lifestyles, and enables access to opportunities while minimizing the negative externalities of transportation, like air pollution and traffic congestion. The high occupancy of public transit can make the most effective use of limited space and energy resources. Transit provides mobility for those who would otherwise have no way of participating in society.
To maximize ridership, microtransit companies focus exclusively on the most traveled corridors, which are often the most popular bus routes. Leap, Loup, and Chariot got their start on San Francisco’s Route 30. But with 14-person capacity, microtransit’s mini-buses do not compare to 40-foot transit buses that can carry up to 80 people. It is hard to say whether microtransit increases or reduces traffic overall, which depends on the transportation modes customers switched from. But in any case, microtransit takes away riders and revenue from transit agencies’ most popular routes. This makes it more difficult for transit agencies to provide service to isolated neighborhoods and mobility for those who cannot afford the higher fares charged by private companies.
Chariot aims to be more than a niche business for the advantaged portion of the country. But microtransit is squeezed between the high cost of complying with regulations, and providing a service that people can afford. Other than subsidies, there is no proven, scalable solution to this problem. As Chariot and its competitors expand, the fixed cost of developing software is diluted. But the bulk of their operating costs, such as providing safe vehicles and qualified drivers, will remain high. And the social impact may become a net negative, for as microtransit grows, it threatens to push public transportation further into decline.
Traditionally, transit agencies have considered software as peripheral to service. Using crowd-sourced route planning and running smaller vehicles along less traveled routes could help agencies better address some customers’ evolving needs. Perhaps microtransit companies could provide these services, and help agencies expand their impact and operate more effectively. But public leaders should take the reins to envision the kind of service they want to deliver and the tools they need for that. To be accessible to all and benefit society as a whole, innovation should come from within.