The prolonged crude oil crisis due to the US-Iran war is raising bigger questions for Uber, Rapido, Ola Cabs and India’s ride-hailing industry
Experts believe that the mobility industry may eventually settle into a new equilibrium where total ride counts decline modestly while revenue per ride increases
Are these platforms ready to mitigate the fallout of the rising fuel costs, and will this inflation reshape urban mobility in the country?
The prolonged crude oil crisis due to the US-Iran war is raising bigger questions for Uber, Rapido, Ola Cabs and India’s ride-hailing industry. Are these platforms ready to mitigate the fallout of the rising fuel costs, and will this inflation reshape urban mobility in the country?
The first signs of strain are already visible. Commercial vehicle drivers’ unions in Delhi-NCR recently called for a strike to demand an immediate fare hike amid rising operating costs.
“There is a threshold of tolerance beyond which consumption itself starts falling,” said Sriram Kannan, founder and chief executive officer of Routematic, an enterprise mobility company.
This threshold matters because India’s app-based mobility market has long depended on affordable convenience. But unlike disruptions such as the pandemic, the ongoing oil shock is hitting the core operating cost of the mobility business itself.
Fuel accounts for as much as 40% of a driver’s operating expenses depending on vehicle category and utilisation levels, according to Ram Soni, practice leader for mobility, energy and transportation at Praxis Global Alliance. A sustained rise in crude prices compresses margins across the chain, first for drivers and then for platforms. Eventually, end users bear the brun.
The broader consequence may not be a collapse in mobility demand, but rather a gradual shift in behaviour as commuters rethink discretionary trips and seek cheaper modes.
“The salary of a common man is not going to increase all of a sudden. From a spending perspective, many people will start giving (single passenger rides) a second thought,” said Dhiraj Tripathi, founder and chief executive officer of AutoBridge.
As a result, the shift towards shared mobility may emerge as the most significant long-term consequence. More importantly, as fuel prices remain elevated, India’s mobility ecosystem could be headed for a deeper behavioural shift.
India’s ride-hailing market remains highly price-sensitive despite the growing dependence on app-based mobility in urban centres. Consumers may tolerate moderate fare increases temporarily, but demand takes a hit once price escalation crosses a certain level.
Kannan believes the inflexion point could emerge if transport costs rise materially over a prolonged period. “Beyond 25-30% of the hike, it’s going to bite big time,” he said.
The pressure is likely to first affect discretionary and short-distance travel. Daily office commuters, short intra-city rides and price-sensitive users in smaller tier II and tier III cities may begin cutting back on app-based rides if fares continue rising.
As fuel inflation also creates broader caution around discretionary spending, some commuters may shift toward metro systems or buses, while others could increasingly depend on bike taxis or shared rides.
Another big concern is that fuel hikes could hit the affordability factor of local mobility apps as ride-hailing demand in India has always been deeply linked to affordability. This psychological impact matters because consumers may begin perceiving ride-hailing services as pricey and thereby less essential. Over time, this could gradually weaken trip frequency and reshape commuting patterns across cities.
The current ride-hailing model in India places much of the operational burden directly on drivers. Unlike traditional fleet operators, most mobility platforms operate marketplace structures in which drivers bear the cost of fuel, maintenance and insurance themselves.
For many drivers, especially those servicing vehicle loans, even a moderate increase in fuel prices can materially affect earnings. Tripathi believes that prolonged fuel-price increases could significantly extend vehicle payback cycles for drivers and small fleet operators.
“If someone thinks they can recover the cost of a new vehicle in two years, that period can become two-and-a-half or even three years. The money going into their pocket gets squeezed,” he said.
However, executives expect operators to rely increasingly on dynamic pricing mechanisms over time to preserve margins and maintain driver supply. Surge pricing, already a frequent source of consumer frustration, may become even more pronounced if fuel volatility continues.
Going forward, the challenge for mobility companies will be to balance affordability with sustainability. Excessive fare increases risk weakening demand, but insufficient pricing adjustments could trigger driver dissatisfaction and supply shortages.
Kannan believes the industry may eventually settle into a new equilibrium where total ride counts decline modestly while revenue per ride increases. This could help platforms partially stabilise top-line performance even if commuting patterns soften.
But executives caution that the balance becomes difficult to maintain if demand destruction accelerates faster than price gains. “If fuel prices rise 20%, but ride demand falls 40%, then there is a significant impact on revenues,” adds Kannan.
While much of the industry focus remains on consumer ride-hailing platforms, executives believe the longer-term outcome of sustained fuel inflation may be the expansion of shared mobility models.
This shift is already becoming visible within the enterprise mobility segment. Large GCCs, IT services companies and enterprise campuses are beginning to evaluate how to reduce mobility costs if fuel inflation persists.
Kannan said many companies are already evaluating route optimisation, pooled employee transportation and shift consolidation to manage costs more efficiently.
Routematic recently introduced a shared employee transport model called Coco Rides aimed at enabling multiple companies within the same IT park or business district to share transportation infrastructure.
The economics behind such models become increasingly attractive during periods of elevated fuel prices. If transportation costs rise sharply, companies may be willing to sacrifice some flexibility and exclusivity in exchange for lower operating expenses.
At the same time, the consumer ride-hailing market may also begin moving toward greater pooling and ride-sharing. Kannan believes policymakers may eventually need to revisit restrictions around carpooling and shared transport models in several cities if affordability pressures intensify.
The broader implication is that fuel inflation may not reduce mobility demand altogether, but it could fundamentally alter how mobility is organised and consumed.
Another clear beneficiary of the prolonged fuel volatility appears to be electric mobility. As per industry insiders, oil price shocks are expected to strengthen the economic case for EV adoption.
Industry experts expect the impact to be most visible initially in commercial and two-wheeler mobility categories where operating economics are already favourable for electrification. Delivery fleets serving quick-commerce and food-delivery companies have already begun moving aggressively toward EV adoption.
The behavioural spillover may extend beyond commercial fleets into consumer transportation patterns as well. Executives are already observing increased interest in low-cost electric scooters among households seeking to reduce petrol expenses for short-distance commuting.
“A lot of people would rather buy a low-cost EV scooter for short commutes and grocery purchases,” said Tripathi of AutoBridge.
Yet the transition is unlikely to be a smooth one. Kannan cautioned that a sudden acceleration in EV demand could expose infrastructure and supply bottlenecks across the ecosystem.
Charging infrastructure, access to financing, and fleet availability remain uneven across cities. Northern markets such as Delhi-NCR have significantly higher CNG penetration, while southern cities, including Bengaluru and Chennai, remain more dependent on petrol and diesel fleets.
Still, executives say the industry is substantially better prepared for fuel volatility today than it was during the immediate post-pandemic recovery period. Platforms now have more sophisticated pricing systems, stronger demand forecasting capabilities and greater operational experience managing supply disruptions.
But preparedness does not eliminate vulnerability. If elevated crude prices persist for several quarters, the ride-hailing industry could find itself in a soup.
Source: Inc42 - Startups
