Photo by Mike Coppola/Getty Images for Lyft

Lyft Cuts Fares 1 Percent, Plans to Add 100 Cities

Lyft Inc., the No. 2 U.S. ride-hailing company, plans to boost the number of cities it covers to 300 from 200 by the end of 2017 while cutting prices to attract more customers.

Neither Lyft or top rival Uber Technologies Inc. are making money in the U.S. as they compete for driver-and-rider loyalty. Uber covers more than 75 percent of the U.S. Lyft says that its network reaches 55 percent of the population, and that will rise to about 72 percent after the expansion, which begins this week with the addition of 40 cities.

Additionally—in what has become an annual bloodletting for ride-hailing companies—Lyft cut fares by about 1 percent nationally, a spokesman said Wednesday. At the same time, Uber has no plans to do widespread cuts. (Fare cuts usually indicate savings for riders at the cost of driver pay and profit margins.)

Lyft has traditionally blamed Uber for pushing down prices and squeezing drivers with lower and lower fares. "Most of our drivers understand that if we're not competitive on price we won't have any passengers for them," Jaime Raczka, head of early stage markets at Lyft, said in an interview.

While Lyft is lowering fares, it's not across the board. In Los Angeles—one the most lucrative ride-hailing markets—a 32-minute, 16.3-mile trip from the Staples Center to Los Angeles International Airport now costs more via Lyft than Uber. In San Francisco, Lyft dropped fares and wrote a note to its drivers: "With the competition offering lower prices, we need to take action with a small price adjustment of less than 2 percent to protect ridership and your long-term earnings."

Lyft continues to offer the ability to tip drivers within its application, giving them a way to earn extra income, a feature Uber has refused to provide. They have earned more than $150 million in tips, according to Lyft. But Uber has generally been able to offer more consistent trips, which helps retention. Many full-time drivers, some of whom sleep in their cars, drive for Uber.

Lyft drivers are bristling at the price cuts. "Wow, usually lyft follows uber. Did I miss an Uber rate cut?" one driver posted on an online forum. Another wrote: "Lyft should raise rates and try to differentiate themselves from Uber. Instead they're UberLite in pink. Tips are nice but aren't that major."

While the ride-hailing companies typically take a commission of 20 to 30 percent, that's not an exact proxy for how much a driver gets paid. Uber and Lyft have turned to promotions, such as weekly incentives to achieve a certain number of trips, to bolster driver pay. 

Uber said that while its prices fluctuate, it won't be reducing them on a bigger scale. The company recently reduced fares in Maine, for example, to attract more riders.

"As we have always said, price cuts need to work for riders and drivers. Lower fares, especially during slow months of the year, mean more riders, which in turn means more reliable earning opportunities for drivers," Matt Kallman, a spokesman for Uber, wrote in an e-mail. "But it's always a balance: If prices drop too low, you get fewer drivers and higher surge, which then deters riders."

(A previous version corrected the year in the first paragraph.)

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