Lyft (NASDAQ:LYFT) announced on Tuesday that it will be implementing a guarantee for weekly earnings for drivers, marking a significant move in the U.S. ride-hailing industry, which is predominantly dominated by its larger competitor, Uber Technologies (NYSE:UBER). This initiative aims to entice more drivers to join Lyft’s platform.
In the United States, the ride-hailing market has primarily been a duopoly between Lyft and Uber, with Lyft holding approximately 30% market share and engaging in intense competition with its rivals for both riders and drivers.
Last year, around 15% of Lyft drivers across the U.S. earned less than 70% of what riders paid, after accounting for external fees. Lyft has committed to bridging this gap by paying the difference if drivers fall below the 70% threshold at the end of a week.
CEO David Risher expressed optimism about the impact of this initiative, stating, “We think hopefully it will get more drivers driving for Lyft, but also just make the whole sector stronger.”
In late 2023, both Uber and Lyft agreed to a $328 million settlement to resolve allegations of wage withholding from drivers and failure to provide paid sick leave in New York state.
Despite investors’ confidence in robust demand for ride-hailing services, driver supply may fluctuate due to various factors such as economic conditions and wage considerations.
Risher noted, “We have more drivers now than we’ve had, I think, since the middle of 2019. It’s strong and I tell you what, it’s getting even stronger.”
While the implementation of the weekly earnings guarantee may increase costs, Risher emphasized that this action aligns with Lyft’s plans for the year. He mentioned that cost savings from restructuring efforts last year were intended, in part, to ensure that the company could afford to guarantee fair earnings for drivers.
In addition to the earnings guarantee, Lyft announced other measures aimed at improving transparency for drivers, such as providing visibility into the split between drivers, the company, and external fees within the app.
Furthermore, Lyft introduced incentives for drivers, including the opportunity to earn more on scheduled rides and offering an extra $100 to drivers who complete 50 rides in an electric vehicle per week between February 12 and July 1.
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