Fitch: New Indonesian Taxi Regulations Slow to Change Consumer Mindset

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JAKARTA, July 13 (Fitch) – New regulations bringing Indonesia’s application-based transport providers into line with conventional taxi operators may lower the operational risks of conventional providers, but enforcing the rules could be challenging and it will take time for consumers to adapt, says Fitch Ratings.

The agency believes app-based providers are likely to continue disrupting conventional business models in the taxi industry, leaving the credit profiles of conventional operators under pressure in the short to medium term.

The Ministry of Transportation’s new regulations – Permenhub No. 26/2017 – which supersedes Permenhub No. 32/2016, became effective on 1 July 2017.

The new rules introduce minimum and maximum tariffs for app-based services that are almost the same as that of conventional taxis; app-based tariffs range from IDR3,500-6,000 per km in Java, Bali and Sumatera, and IDR3,700-6,500 per km in Kalimantan, Sulawesi, Nusa Tenggara, Maluku and Papua.

The regulations also stipulate fleet quotas for each city and introduce a vehicle road-worthiness test for cars, as is required for conventional taxis, further placing the two services on par. However, Fitch believes enforcing this will be challenging.

In addition, the pricing mechanism slightly favours app-based services, as some set a fixed fare for the whole journey, removing consumer uncertainty as to the total cost of travel.

Conventional taxi operators, like PT Blue Bird Tbk (IDX: BIRD) and PT Express Transindo Utama Tbk (IDX: TAXI), charge flag-fall fees of around IDR6,500 per ride, waiting fees of around IDR40,000 per hour and a minimum charge (if the taxi is ordered by phone) of IDR15,000-20,000 per ride on top of per km fees.

This creates an impression that conventional taxis are more expensive than their app-based peers. App users can also choose higher-rated cars, with each car being rated by the user rating after a ride, increasing the appeal of these services.

Both Blue Bird and Express have teamed up with app-based providers to expand their networks, as this allows them to be included in the app’s car-searching algorithm when a consumer books a car. Blue Bird teamed up with GoCar in 2016, while Express partnered with Grab in 2015 and Uber in 2016.

However, the partnership have seen limited improvement in conventional operators’ financial profiles; Blue Bird’s revenue fell by 32% yoy in the 12 months to March 2017 and its EBITDA fell by 18% yoy. Express’s revenue declined by 48% yoy and its EBITDA declined by 66% yoy during the same period.

Express’s situation is further exacerbated by the large proportion of its drivers under a fixed daily rental scheme; these drivers find it difficult to make payments to Express, as their revenue has declined due to weakening demand.

Express’ leverage, measured by net debt/ EBITDA, increased to 9.5x in 1Q17, from 6.2x in 2016, and receivable days lengthened to 334 days, from 274 days, in the same period.

The new regulations also fail to address app-based providers of two-wheeled transport, such as Grab Bike, Go-Jek and Uber Motor, which operate in a legal grey area. Two-wheeled transport providers are not explicitly banned, but a 2009 Ministry of Transportation statute does not include these vehicles as a means of public transport, citing safety concerns.

Fitch believes app-based two-wheeled transport providers have stolen market share from conventional taxi operators, although to a lesser extent than their four-wheeled counterparts.