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Taxi owners could be ruined

Taxi licence owners could be facing bankruptcy, after the Commonwealth Bank (ASX:CBA) told its staff to value Victorian taxi licences at zero.

Taxi licences have been a restricted asset for some time, with the state governments only releasing limited numbers each year. As such, they have been in high demand and attracted prices as high as $480,000 each.

Following a recent review into the taxi industry, a wave of reforms are expected to be adopted, including new licences issued at a cost of just $22,000 a year in metropolitan areas, with new licences available at any time, subject to a consumer interest test. That is to ensure there are sufficient taxi licences available to meet required service levels.

Victorian Taxi Association chief executive David Samuel has told News Media that the memo was of “tremendous concern”.

“We have said all along we support reform to licences but what has come before must be recognised and people have invested significant amounts of money in the taxi business,” Mr Samuel said. “To see that value removed so suddenly and in such dramatic fashion is unfair to those people, and ultimately won’t ensure a better taxi service for Victoria.”

There are also concerns that some taxi drivers could lose their homes to the banks if the legislation is passed.

The taxi inquiry also recommended reducing the service fee for electronic payments, with the 10% fee now set at 5% of the transaction value as the maximum amount that can be charged. This fee will hit taxi operator and electronic payments provider Cabcharge Australia (ASX: CAB). The Cabcharge system is also set to be designated as a payment system, and Cabcharge must allow other payments processors access to its system on reasonable terms.

Cabcharge shares have slumped by more than 30% in the past twelve months, while the S&P/ASX 200 index (Index:^AXJO) (ASX:XJO) has risen close to 18%.

Foolish takeaway

Professor Allan Fels, who headed the taxi industry inquiry says that licence values will remain high, and licence owners will find plenty of banks ready to use licences as security. While that might be some consolation, it seems the introduction of low-priced taxi licences will see overall values come down.

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Motley Fool writer/analyst Mike King doesn’t own shares in any company mentioned.

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