WSJ: Citi Bike's Rates Could Roll Upward

[Oceander]

Citi Bike's Rates Could Roll Upward
Operating Company Also Seeks to Raise Up to $14 Million From Investors

By
Andrew Tangel and
Alison Fox
Updated March 21, 2014 11:30 p.m. ET

The Portland, Ore., company that operates Citi Bike is seeking to raise as much as $14 million from investors to expand New York City's bike share and is asking City Hall officials for permission to potentially increase the program's rates, the firm's president and chief executive said Friday.  Citi Bike's $95 annual membership rates were "too low" to cover its expenses, said Michael Jones of Alta Bicycle Share.  Mr. Jones said he didn't know how much the annual rates might need to be adjusted.

At the same time, he said the company was trying to promote daily usage by tourists and other infrequent users who pay $9.95 for a 24-hour pass, Mr. Jones told The Wall Street Journal in an interview Friday.  "The system won't continue to perform as intended with its current rate structure and it's because of its success—because of the amount of usage," by annual members, Mr. Jones said.  "It's going to struggle, because ironically the more popular that it is, the more money it costs us and the more money it loses."

Mr. Jones said it the company might have to raise as much as $14 million to expand the system from about 7,000 bikes to about 10,000 bikes in New York City.  An initial $41 million from Citigroup Inc. paid for up-front capital expenditures, he said.  An additional $6.5 million from MasterCard has helped fund operational expenses, he said.  The program may seek new private sponsors, he added, but hasn't approached city officials about the possibility of public funding.

*   *   *

Citi Bike has seen a steady trade in annual memberships, which cost $95 and give holders year-round access to the system's bikes and 330 docking stations.  Annual memberships now total some 99,000, which exceeds projections and has led to higher-than-expected costs to keep the program running, said a person familiar with the program.

Those higher-than-expected costs included those associated with what is known as rebalancing:  moving bikes around each night to ensure each station has the right number after people have deposited them around town during the course of the day.

Decisions by tourists to forego spending for Citi Bike daily passes have added to Citi Bike's difficulties since it debuted in May 2013.  Matt Hannan wanted to take a bicycle for spin around Central Park on Friday while visiting from Australia with a friend.  But instead of choosing Citi Bike, Mr. Hannan rented from a company aimed more at tourists than locals.  He didn't want to limit his ride to 30 minutes—as he would with Citi Bike—and he worried about finding one of the bike share's docking stations when it came time to return the bike.  "You can only use it for a half-hour's time," said Mr. Hannan, 28 years old.  "It didn't really seem practical."

[Oceander]

"It's going to struggle, because ironically the more popular that it is, the more money it costs us and the more money it loses."

That's not irony, you liberal twit, that's fundamental economic reality.  When you're charging people $95 a year for on-demand access to something like this, what else would you expect?  A rational person, after all, familiar with the shortages caused by price controls - too much demand and not enough supply - could have easily told you this was going to happen before you even put a single one of those dorky looking bikes on the ground.