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Analysis: Indonesian taxi industry: In a jam
With the arrival of mobile applications offering new transportation services, the Indonesian taxi business is facing a huge number of challenges ahead, especially with a shortage of drivers and skyrocketing public demand
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With the arrival of mobile applications offering new transportation services, the Indonesian taxi business is facing a huge number of challenges ahead, especially with a shortage of drivers and skyrocketing public demand.
Based on our study, Uber's standard tariff, in light traffic, is around a third cheaper than taxi fares (Table 1).
These new competitors are, moreover, here to stay. The Transportation Ministry has granted temporary operational licenses, while the government is still drafting new regulations for e-commerce businesses.
Uber, operating in 57 countries, began its Indonesian operations in mid-2014, focusing on Jakarta. It now has around 700 operating units in Jakarta, and has expanded to Bali and Bandung.
Uber collaborates with rental companies in Indonesia and taps into their under-utilized cars for its operations. Normally, Uber gets a 20 percent service fee from passenger payments, with the remainder going to the drivers. In some cases, that amount may be split with owners of car rental companies.
On the motorcycle taxi front, we expect new applications to gain government support, especially in Jakarta, as they may help reduce the number of cars on the streets and ease traffic jams.
Go-Jek, a local mobile application, has seen phenomenal growth (Table 2) on high consumer demand for its services and is now supported by around 14,000 drivers in Jakarta.
In fact, our channel checks reveal that many taxi drivers have become Go-Jek drivers, attracted by flexible working hours and an up to 50 percent income hike. A Go-Jek driver can generate a net income of around Rp 5 million to Rp 7 million per month, assuming 25 working days and a daily income of around Rp 200,000 to Rp 280,000.
Taxi drivers, meanwhile, earn an average monthly income of around Rp 2.7 million to Rp 3.5 million, based on our market survey.
Hence, Go-Jek is extremely popular, forcing the company to limit the number of daily applicants to 300 because of high interest from potential drivers.
We believe this concept has a great deal of potential going forward, as Jakarta Governor Basuki 'Ahok' Tjahaja Purnama is supportive of this service, which he sees as aligned with his vision of making Jakarta a smart city with less traffic congestion.
We think that this application is attractive to low-to-middle-income people as a 'business-partnership', charging only 20 percent of total revenue as service fees, with simple requirements to join.
The threat from these mobile application services is worse for Blue Bird (BIRD) than Express Transindo Utama (TAXI) as BIRD's revenues are 100 percent based on drivers' incomes, which are set to decline as Uber and Go-Jek enter the fray.
As we also expect fewer drivers to be available, we forecast lower utilization rates ahead, causing earnings downgrades. We lower our TPs for BIRD to Rp 5,500 (from Rp 7,400) and TAXI to Rp 520 (from Rp 820). Thus, we retain our UNDERWEIGHT sector rating with unchanged REDUCE ratings for BIRD and TAXI, despite their severe market underperformances year to date (Table 3).
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The writer is a research analyst
