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As more people get vaccinated against COVID-19 and pandemic restrictions ease, the ride-hailing industry is gearing up for a comeback, but is facing potential roadblocks.

Uber Technologies Inc. UBER, +0.76% and Lyft Inc. LYFT, +1.09% saw an abrupt drop in demand for rides when travel and overall mobility shut down because of COVID-19 last year, but analysts expect their business to come roaring back. So far, Uber and Lyft have regained 52% of the business they lost during the steep drop-off in March 2020, according to Edison Trends.

“If you look at ride-sharing holistically, it’s poised for a pretty sharp rebound,” said Steven Weinstein, an analyst with research firm M Science. Data shows that whenever there’s been a lifting of restrictions, there has been a steep bounce-back in ride-hailing activity, he added.

The two ride-hailing giants expressed optimism about a rides recovery when they reported fourth-quarter earnings in February. Uber Chief Executive Dara Khosrowshahi said on its earnings call that the company was seeing “some pretty attractive signs.” Lyft CEO Logan Green predicted that contrary to predictions of their demise, cities will fare well post-pandemic.

And Lyft revised its first-quarter estimates in early March, saying it expected to post a smaller decline in ride volume for the quarter that ends March 31, along with a narrower loss. Since then, Lyft has said it “expects to experience positive weekly rideshare growth on a year-over-year basis and every subsequent week through the end of 2021, barring a significant worsening of COVID-19 conditions.”

See: Uber rides recover and deliveries rise, but revenue misses expectations

Also: Lyft posts narrower full-year loss, signals optimism over rides

Despite the rosy outlook, there are some large unknowns, including possible resurgences of COVID-19 cases and regulatory issues surrounding the working conditions of the companies’ drivers. Also, business travel is not expected to reach pre-pandemic levels until 2023 or 2024, according to a recent American Hotel & Lodging Association survey, which would affect demand for airport rides, transportation to conferences and more.

“You’re going to see a lot of enthusiasm [about ride-hailing], but it’s probably not all warranted just yet,” said James McQuivey, an analyst with Forrester.

A tale of two recoveries?

In terms of sheer demand for their services, Uber and Lyft could have divergent recovery stories. M Science data showed that in February, amid continued weakness in rides, 79.5% of total spending on Uber was on its delivery service. As mobility increases, Weinstein expects a reversal: The company’s delivery business could drop steeply while ride-hailing rebounds.

For more: The pandemic has more than doubled food-delivery apps’ business. Now what?

“The pushes and pulls will probably mute [Uber’s] overall recovery,” he said. On the other hand, because Lyft is so dependent on ride-hailing, it’s more likely to see a “pretty explosive” recovery, he added.

Both companies continue to face regulatory risks that could drastically affect their businesses, the biggest among them being the classification of their drivers. In the past few months, there have been a handful of developments on this front:

  • Also in March, Spain announced a new law that will give gig workers employee status.
  • And the European Commission recently said it is looking into improving labor protections for gig workers.

As they deal with these driver-related issues, Uber and Lyft are concerned about whether there will be enough drivers to support a ride-hailing rebound. Khosrowshahi said during Uber’s earnings call that he was worried about driver supply, especially during the second half of this year. Brian Roberts, chief financial officer of Lyft, said on that company’s earnings call that it intended to invest in driver supply this quarter to prepare for the rest of the year.

In response to increasing demand for rides, Uber announced earlier this month that it would spend $250 million on bonuses as it tries to lure drivers back to its platform.

Chris Benner, a professor at the University of California, Santa Cruz and director of the Institute for Social Transformation who studies gig work, was skeptical about the driver-supply concerns.

“There is certainly not a shortage of people who need work,” Benner said, referring to the nation’s unemployment crisis. “If Uber and Lyft experience a driver shortage, it is due to their own practices — not providing adequate compensation (which we know is true, based on our data and others — often below legal minimum wage levels) and not providing adequate resources to make driving safe.”

Gig Workers Rising, a group of drivers and other app-based workers, echoed that sentiment, saying in a statement: “It is interesting that Uber and Lyft are publicly expressing that they need a surplus of drivers in order to increase competition and drive down costs. We know that people are desperate right now for work and financial opportunity.”

Uber and Lyft shares are both up nearly 90% in the past year. But Lyft’s stock has risen more than its bigger rival’s so far this year. It’s up about 26%, while Uber’s stock has climbed about 12%. The S&P 500 index SPX, -0.39% has risen about 12% year to date, and about 46% in the past 52 weeks.

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