Long Beach officials are pursuing a new strategy to resolve the growing rift between taxi drivers and ride-hailing services such as Uber and Lyft, becoming the nation's first large city to relax restrictions on cabs, rather than increase regulation of their new competitors.
Removing requirements that taxi drivers say have put them at a competitive disadvantage, the City Council voted Tuesday to allow its exclusive cab franchise to rebrand itself, update the appearance of its fleet and offer variable, discounted fares, free rides and other price promotions to lure customers.
In addition to a new name (Yellow Long Beach) and a new Uber-like app (Ride Yellow), Long Beach Yellow Cab will repaint its traditional mustard-colored taxis a more vivid lemon.
"We had a system that was very antiquated," Long Beach Mayor Robert Garcia said. "We're trying to create a service that's somewhere in between a traditional cab service and a traditional ride-sharing service."
Officials said Long Beach is an ideal place to experiment with a non-traditional taxi model. The city's fleet is relatively small — a tenth the size of Los Angeles' — and operated by a single company.
At the same time, as the third-largest city in Southern California and a convention hub, Long Beach has enough continuing business from tourism, the elderly and the disabled to support the taxi industry through a period of transition.
Yellow Cab officials said drivers now will be able to compete with app-based transportation start-ups that adjust prices based on supply and demand, often resulting in lower fares. But the new services also hike rates sharply during periods of peak demand, such as 2 a.m. on a Saturday night in entertainment magnets such as downtown Long Beach and Hollywood.
That "prime time," or "surge pricing," helps coax more Uber and Lyft drivers onto the road, which reduces customer wait times and boosts income for drivers and the companies. The ride-hailing firms also make heavy use of discount offers to attract new customers.
But, like in most cities, Long Beach taxis have had set rates fixed by city regulators: A base fare of $2.85, plus $2.70 per mile with an adjustment for travel time delays.
"Taxicabs have had no opportunity to experiment and fail, or experiment and succeed," said William Rouse, the general manager of the city's franchisee, Long Beach Yellow Cab Cooperative Inc.
Taxi companies have become "reluctant participants in one of the great public policy debates" over taxi regulation and the sharing economy, Rouse said.
Long Beach's cabs have seen business decline "less than 15%" in the last year, largely due to competition from companies like Uber and Lyft, he said.
With the freedom to offer lower prices and coupons for free rides, taxis should see a rebound in business, he said.
"Most people know it's illegal for [taxi] drivers to charge more than the meter, but it's just as illegal to charge less than the meter," Rouse said. "For a long, long time, we've known there's been a need to address this imbalance." Passengers will be able to pay with a credit card through the new app.
Representatives for Uber and Lyft declined to comment.
The changes approved Tuesday leave in place the price ceiling for Long Beach taxis. That could become a competitive advantage, some predict, because cabs could prove cheaper than Uber and other such services during periods of peak demand. It also protects some traditional cab users from price spikes.
"Not allowing surge pricing, particularly when people expect taxis to provide a reliable service, is important," Garcia said. "A lot of seniors and visitors are used to a certain way that taxis operate. We need to keep some elements of that."
Other U.S. cities, including Chicago and Seattle, have opted to regulate the new companies, imposing requirements for driver training, insurance policies and vehicle inspections. Portland banned Uber for several months.
In California, Uber and Lyft are governed by a state agency and, so far, local governments have shied away from creating additional rules, even as their taxi franchises have lost customers to the new competitors.
L.A.'s nine licensed cab companies reported a 21% drop in trips in the first half of 2014 compared with the same period the previous year, the steepest decline on record.
All 2,361 licensed taxicabs in L.A. will soon be required to use a mobile app that works much like those developed by Uber and Lyft. But L.A. hasn't proposed lowering taxi rates.
But the city is working on new rules that would permit, for the first time, passengers leaving Los Angeles International Airport to summon app-based ride services in the central terminal area. Those fares have been among the most coveted and lucrative for taxi drivers. Details of the proposal are expected to be released this summer.
The bright yellow car colors and bold, new logo planned for the Long Beach cabs, coupled with the new app, will help make the legacy service appear more modern, said George Belch, the chairman of the marketing department at San Diego State University.
"The new branding doesn't completely depart from their old identity, but it's clear that they've said, 'If you can't beat 'em, you have to join them,' " Belch said. "They're fighting the battle the way Uber and Lyft are fighting it."
But it remains to be seen whether lower prices and a new name will be enough to overcome the perception among millennials that taxis are old school, he added.
"You can do the ad campaign, change your name, but a big part of branding is the product itself," Belch said. "Taxi companies need to recognize that if the experience is not good when someone gets inside a cab, then a lot of the work goes out the window."