Meter running on growth

Australia’s taxi and limousine industry has enjoyed five years of rising demand, but the economic slowdown is likely to hurt the sector as businesses cut back on taxi budgets.

The taxi industry has cruised through a few years of solid growth thanks to the robust state of Australia’s economy.

A strong rise in the demand for taxis occurred during 2004-05, due to stronger growth in airport activity and a hike in Queensland taxi fares, and continued through 2005-06 and 2006-07 as the total number of passenger journeys increased, especially in Victoria.

Despite taxi operators facing increased fuel prices and rising licence fees over the past five years, growing demand for services has resulted in state governments issuing more licenses and raising fares to encourage more participants to enter the industry.

IBISWorld estimates that this industry will experience revenue growth of 3.1% a year over the five years to 2008-09.

The current global economic slowdown is likely to lead to some cutbacks on non-essential expenditure such as business trips, although this should be offset by a slight increase in demand from tourists as the sliding Australian dollar makes Australia an attractive option to both tourists and domestic holiday makers.

IBISWorld forecasts that this industry will grow at an average annual rate of 2.7% during the five years to 2013-14. In the first year of the forecast, business and consumer spending is expected to decline strongly, leading to firms reducing expenditure on events that require taxi and limousine services.

The last four years of the five year period are estimated to experience moderate yet slower growth in real industry revenue as the world economy begins to restabilise, thereby increasing the number of international visitors.

Airline activity is set to continue to grow, albeit slowly, with domestic airlines targeting customers through heavy discounts. Tourism will also see slower growth, especially in 2009-10.

Limousine bookings for weddings are often organised up to 12 months ahead, so a degree of guaranteed revenue can be attributed to this segment. Government plans to initiate carbon reduction schemes could result in related costs being passed on to passengers. The full impact of these plans on transport fuels may not be seen for a while though.

Key success factors for operators in the industry

• Having links with suppliers. Being aligned with depots helps to attract more work.
• Effective cost controls. Cost controls enable better cashflow during lean periods and higher profitability during buoyant ones.
• Highly trained workforce. Driver training is vital to minimise the downtime experienced due to accidents.
• Level of competition existing in the market. The location and level of market competition can really have an impact on the industry.
• Marketing of differentiated products. Having product differentiation gives a competitive edge to what can typically be seen as a standard product.

Products and service segmentation

Geographical spread of establishments

IBISWorld supplies business information databases, including industry reports, company reports and business indicator reports. www.ibisworld.com.au