Ola partners BMW to bring more luxury cabs on the road

Ola signs partnership with BMW. Photo credit: jessmine.

Ride-hailing app  Ola has entered a partnership with German carmaker BMW India to boost its luxury car segment, as the Indian startup looks to expand services that offer higher margins.

Under the deal, BMW will make its cars available to Ola’s fleet operators under easy financing offers, offer after-sales service, and a guaranteed buyback, Ola said in a statement.

“The luxury segment is extremely important to us now. Although the segment is not a large chunk and bookings are not very high, margins are,” Ola Spokesperson said. Monday’s agreement follows Ola’s partnership with India’s top SUV maker, Mahindra & Mahindra, announced last month. In June this year, Uber also announced a tie-up with Tata Motors.

Uber started with high-end sedans and later moved to add hatchbacks to become more “mass”

The company will extend the luxury offering to the remaining metros by December. Currently, luxury cab hailing makes up only 2 percent of Ola’s revenues, but the company is planning to double that this year, Ola COO Pranay Jivrajka said.

Ola’s move shows the company’s intentions to go after money-making services that can build a sustainable business model. Under pressure from rival Uber, Ola has managed to keep its lead by expanding services like Ola Mini and Ola Micro, which allow for cheap car rides.  While those help the company clock more rides and build a bigger fleet, they don’t really help bring in profits.

A 10km ride in an Ola Micro will cost somewhere between US$1.42 and US$1.57, while the same ride in UberGo, the cheapest ride Uber offers, will be in the range of US$1.27-1.87, with an additional per minute charge of US$0.01 for each operator.

The company lost US$119 million in the year ending March 2015, a 20-fold increase over the previous year.

BMW India acting president Frank Schloeder (left), with Ola COO Pranay Jivrajka at the event to announce the partnership.

See: Why Ola can’t pull a Didi, buy Uber India, and be done with it

Interestingly, Uber started with high-end sedans like Mercedes E and S class, and BMW 3 and 5 Series in 2013, and later moved to smaller hatchbacks and sedans to become more “mass”. Ola’s initial offerings were always for the budget traveller. It launched its luxury cars offering only this year in June.

Ola will roll out the BMWs in Delhi, Mumbai and Bengaluru with a minimum fare of US$3.74, and a running charge of US$0.30-0.33 per kilometer.

The cars will also be available on Ola’s rental feature. BMW will employ instructors to train the drivers, the company said.

“The way people move is changing and this is also true for the premium clientele. Individuals want quick access to mobility without compromising on quality and comfort. We are confident that this association will be a game changer in the premium on-demand mobility segment in India,” Frank Schloeder, acting president, BMW Group India said in a statement.

The partnership with Ola will allow BMW to build the luxury car market in the country, which at present  accounts for just 1 percent of the entire automobile market, selling a little over 35,300 units in 2015. The rise of on demand cabs and luxury cars has forced several auto majors across the world to re-think strategies, as they witness decline in auto sales.

BMW has joined the ranks of other global automakers such as Volkswagen, Toyota Motor Corp and General Motors, which have all tied up with ride-sharing companies to guard against a shift in consumer choice away from vehicle ownership.

Ola will benefit from huge aspirational demand for luxury cars and higher margins. The alliance will also allow it to get more luxury cars on the road and thus increase ridership for the segment.

Ola launched luxury cars in June this year and has over 1,000 vehicles in its fleet for the segment.  

Converted from Indian rupees. Rate: US$1 = INR 66.90.

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