Ride-hailing company Careem is shedding 31 per cent of its workforce to offset the impact of coronavirus-related restrictions on its business across the Middle East, North Africa and Pakistan, with the company's chief executive not expecting a recovery until late next year.
The pandemic, which has tipped the global economy towards a recession expected to be the deepest since the Great Depression, pushed Careem's core ride-hailing business down by as much as 90 per cent and its delivery business by 60 per cent in some of the markets it operates in, Mudassir Sheikha told The National.
The company has also paused further investment plans in its mass transport 'Careem BUS' venture as it tries to conserve cash to ride out the storm.
"Our [overall] business is down 80 per cent and with that sort of reduction in the business, our losses are multiplying rapidly as well," Mr Sheikha, who is also one of the Dubai company's co-founders, said.
“Unfortunately, we had to look at our people cost, which is of course the most disruptive change you could make in an organisation … that still wants to go after the future opportunities … but still has to survive in the short-term.”
Covid-19 has infected more than 3.5 million people and killed more than 247,000 worldwide, according to Johns Hopkins University.
The pandemic has forced governments to close borders, shut all non-essential businesses and confine billions across continents to their homes in a bid to stem the spread of the virus.
Careem reacted quickly to the outbreak and with its cost saving exercise, has “better appreciation of the recovery timeline”, Mr Sheikha said.
“The current expectation is that the recovery will not happen fully until sometime late next year” to the same level as before the crisis.
The job cuts will see Careem reduce its headcount across the board, according to Mr Sheikha’s blog post to Careem employees.
"There is no easy way to say this, so I will get straight to the point: starting tomorrow and for the next three days, 536 of our colleagues who make up 31 per cent of Careem will leave us. We delayed this decision as long as possible so that we could exhaust all other means to secure Careem," Mr Sheikha wrote.
Over the last seven weeks the company has looked critically at its cost base and stopped all non-essential spending, which also includes indefinitely halting the new benefits announced earlier in the year.
"While we have achieved significant savings from these efforts, they have sadly not been enough," he wrote.
"While the details vary slightly from market to market, we have arranged at least three months of severance pay, one month of equity vesting, and where relevant, extended visa and medical insurance for you and your families until the end of the year", he wrote.
The aim of the reorganisation is to make Careem a self-sustaining company by the end of this year, he said without specifying how much Careem would save in costs.
“We think that this is a conservative assumption [about business recovery] and we are happy to be wrong about it,” Mr Sheikha said. “Hopefully the recovery is a bit earlier than expected but … if it takes longer and this crisis deepens, then we will have to go back to the drawing board and look at things [again]”, he said when asked if he expects another round of layoffs during the crisis.
Careem, which is part of global ride-hailing giant Uber, has support from the parent firm for its plans, but they have not been directed by Uber, which provides its funding.
“We have shared this plan with Uber, but Uber is not the one telling us to do these things. These are independent decisions we are making as the custodians of this business,” he said.
Uber, which acquired Careem in a $3.1 billion (Dh11.4bn) deal last year, is also said to have plans to lay off as many as 5,400 employees in stages over the next few weeks, The Information, a US digital media company, reported last week.
Careem is facing strong headwinds in the second quarter, especially in its core ride-hailing business, which generates the bulk of its revenue. Its delivery business has performed relatively better, but that too has slumped during the slowdown.
“In the core ride-hailing, things are very, very challenging across the board," Mr Sheikha said. "The market is either down more than 90 per cent [in some markets] or more than 80 per cent [in others]. Where we are seeing some strength, is on delivery side,” Mr Sheikha said, adding that its core food delivery segment is down about 60 per cent, “holding up a little bit [better] than the rest”.
There are some positive signs however amid a partial reopening of markets such as in Iraq and Pakistan, he said.
"In the third quarter, we are going to see some growth from the new baseline that will start taking us back to our old self, [but] we do not expect to see that happening until late next year.”
The company plans to more efficiently operate in some territories with smaller teams, but in the core ride-hailing business, it does not plan to exit any markets, Mr Sheikha said.
Careem's bus business segment is the only line the company decided to suspend, as scaling up requires significant investment, he said. With limited financing at hand, the company chose to redirect funds to its delivery business, which has gained traction.
Careem began this year with the objective of being profitable in its core business and turning the company into a super app platform. The pandemic has now injected fresh urgency into its efforts to further diversify its business.
“One thing this crisis is doing is that it is accelerating the digital future. We entered this crisis as a ride-hailing company, but we will emerge as the region’s everyday super app,” Mr Sheikha said.
Careem is investing $50 million this year to achieve its digital ambitions and remains bullish on its super app strategy.
“One of the principles in this exercise was to protect our strategic bets," Mr Sheikha said. "Super app is a strategic bet and we are protecting all investments related [to it] including team that is working on the super app."
On Monday, Uber said it would shut its food delivery app in the UAE and roll it into Careem’s, partly to help "accelerate" this strategy.