Cabcharge Australia Limited (ASX: CAB) has seen its shares drop by 7.6% to $3.78 in early morning trading, after the NSW government announced plans to cut the maximum surcharge for taxis from 10% to 5%.
"I've heard the concerns of customers that they've been taken for a ride by this excessive surcharge and that's why we've listened and acted," NSW Premier Barry O'Farrell said. NSW is following the lead set by Victoria in May 2013, following an 18-month inquiry into the state's taxis.
Cabcharge electronic payment systems were in an estimated 97% of Victoria's taxi fleet, as well as limousines and water taxis. Victoria also made changes to taxi licences, making a provisionally unlimited number available for rent for just $22,000 a year. At the time, taxi licences in NSW and Victoria were trading at close to $300,000.
The surcharge fees are added to the total fare for taxi users when they pay by credit or debit cards. BRW magazine estimated that the 'notorious' fee generated $89.6 million for Cabcharge in 2012.
NSW is also expected to allow consumers to use mobile apps like Uber, ingogo and goCatch to book taxis for the first time, another blow to Cabcharge. goCatch is also reported to be reducing its surcharge to 5%.
In a statement to the ASX, Cabcharge says its NSW taxi service fee income would halve from $28 million a year to $14 million, if the changes are enacted. The company says around 25% of the fee is channelled back to taxi networks to assist their costly service operations. Under the new legislation, Cabcharge says the networks will have to find other means to recover this lost income.
But the taxi industry is not the only one to feel the heat. Last March, the RBA introduced new rules to limit credit card surcharging. Qantas Airways Limited (ASX: QAN) and Virgin Australia Holdings (ASX: VAH), through Jetstar and Tiger Air, were cited as two of the worst offenders when it came to charging 'unreasonable' fees for bookings made via credit card.
Foolish takeaway
With Victoria and NSW cutting limits on taxi surcharges, other states could follow. Despite Cabcharge trading on a P/E ratio of 7.4 and paying a dividend yield of close to 7%, further falls in the share price are likely and the dividend yield will be unsustainable if earnings are hit. Cabcharge shares look more like a value trap rather than a value play.
