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Company Review: Oldest Taxi Operator Transform Its Business Model

JAKARTA (TheInsiderStories) – One of taxi operator in Indonesia PT Express Transindo Utama Tbk (IDX: TAXI) has announced to transform its business model prior to intensive competition coming from online transportation such us GO-JEK and Grab. Its competitor Blue Bird Group has cooperating with GO-JEK to adopt the new transportation regime in the country.

According to Benny Setiawan, President Director of the company, the new Express Group’s strategy is to open up the opportunity to work with capital owners who entrust Express as a driver and fleet manager.

He assured, Express will still retain its core strength through a proven partnership that provides benefits. Setiawan hope, the transformation of this new business model is expected to provide mutual benefits for all stakeholders.

As an early stage of transformation, he added, the company bring 150 new multi purpose vehicle fleet from China automaker PT Saic General Motor Wuling for Jakarta and surrounding areas. The company also remain open to other investor as well as individual car owner to collaborate in the future.

As one of oldest taxi operator in Indonesia for 25 years, Express now manage more than  9,000 unit fleet and own about 15 percent market share. But since GO-JEK arrive in the late 2015, taxi market has been threatened mainly because of its convenient and simplicity and snap services.

The company later acknowledge that partnership pattern in this industry has proven gave more benefit for drivers, company as well as investors. The taxi operator previously has attempt to collaborate with U.S’s Uber Technologies, but it did not happens cause Uber sold their asset in Asia region to its Singapore-based competitor Grab early 2018.

One of the biggest impact on online transportation to the company is Express share become un-liquid in the market. In fact on June 25, the company share got freezing from the bourse authority as fail to pay its bond interest launched in 2014.

At the same time, credit rating agency PT Pemeringkat Efek Indonesia (PEFINDO) downgraded TAXI rating bonds issued in 2014 to D from BB-. TAXI has issued bonds worth Rp1 trillion (US$71.43 million) with a coupon of 12.25 per cent per annum that are due to June 24, 2019.

PEFINDO also downgraded the company’s corporate rating to selective default from BB-. It means the company failed to pay one or more of their financial obligation but will continue to make payment on other obligations.

The growth of the internet and other technology has stimulated the evolution of a sharing business model, most apparently in transportation and tourism sectors. Such a global phenomenon is now taking hold in Indonesia.

As reported by Price Waterhouse Coopers (PWC), people are eager to use these services because they are affordable and efficient. The presence of GO-JEK, Uber and Grab has altered the transport business landscape in Indonesia forever.

Traditional taxi operators must scramble to adapt to a new business model; they will otherwise soon go out of business. In the eyes of customers, such ride-hailing services provide a more affordable and convenient transportation alternative.

These ride-hailing services have also created millions of new small-scale entrepreneurs. Today, as many as 250,000 drivers roam the capital city, Jakarta, in a single day – and that’s only GO-JEK.

With more than 15 million downloads since it started in 2013, we can observe how Indonesians are already ‘addicted’ to this online ‘motorcycle taxi’ and other services, such as GO-CAR.

Such a business model can obviously be replicated in other business sectors, with appropriate modifications for laws and customs. This presents challenges as well as opportunities to business players.

Regulators are frantically attempting to figure just how to tax and exert control over this new phenomenon. It’s time to take this business model more seriously, in 2018.

Over 20 years in operation. TAXI began operation in 1989 as a subsidiary of Rajawali Corpora. Based on Mandiri Sekuritas research, TAXI expansion is highly dependent on its ability to secure new drivers, as well as to retain them.

Driver’s willingness to work is fundamental to TAXI’s revenue generation. In addition, quality of drivers is also very important aspect to ensure high customer service level. The company must also be able to keep their employees happy to avoid risks such as employee strikes and resignations.

TAXI’ operations also are highly dependent on government regulations, as well as its ability to expand. The company would need to get government approval to obtain new fleet licenses, adjust daily tariffs, as well as penetrate new cities.

Furthermore, TAXI finances assets purchase using combination of bank loans and cash. The bank loans that it obtained currently bears a 10.25 – 11.50 percent interest rates per annum, with a typical 5-year installment period.

Any increase in cost of fund would be negative to its profitability margins as interest expenses account for a bulk of its direct costs. The first three years of its interest rates are normally fixed, with the remaining fourth and fifth year charged based on a floating rate.

Competition from both the existing and new players will have a significant impact to TAXI operations. The issues could arise from fleet’s expansion potential as well as changes in business strategy, such as the scheme in operating the taxi to attract more drivers.

Any change in drivers’ partnership scheme would significantly alter TAXI revenue potential and margin profile. The ability to hire, manage and retain drivers are keys in this business.

Writing by Staff Writer, Email: theinsiderstories@gmail.com