Ride-hailing services are favored by people because they help them save money, but the price discounts are raising concerns over the business sustainability of the operators, a forum discussion revealed on Tuesday.

Singapore ride-hailing giant Grab generated last year Rp 43 trillion (US$3.07 billion) in consumer surplus for its passengers in Greater Jakarta alone, according to a recent study by research firm Tenggara Strategics and think tank Centre for Strategic and International Studies (CSIS).

Grab’s total surplus, which is how much less consumers pay for services compared to how much they are willing to pay, combines the surpluses of its two-wheeled GrabBike service (Rp 5.73 trillion) and its four-wheeled GrabCar service (Rp 40.41 trillion).

“Imagine taking a taxi to the airport. We are ready to pay Rp 200,000. But by using Grab we can get a ride for Rp 150,000. We can save Rp 50,000. The 50,000 is the consumer surplus,” explained CSIS economist Yose Rizal Damuri at the study’s launch on Tuesday in Jakarta.

“What does [the findings of the study] mean?” said Yose at the discussion. “It means that when prices are high, consumers tend not to make transactions. The implication is that discounts are still important.”

The figure was generated by aggregating data from more than 850 million ride-hailing orders in the metropolis as captured by Grab’s database in late May and early August, according to Tenggara Strategics.

The way the consumer surplus was calculated was by extrapolating the fares offered with the orders and whether or not users accepted the fares, said Tenggara researcher Stella Kusumawardhani. Rejection presumably meant the fares were too high.

“Let’s say at the same minute and location, a passenger gets a ride for Rp 50,000. OK [ride accepted]. But [another passenger] gets Rp 70,000 and the ride is rejected. We capture that data,” she explained.

The way the Transportation Ministry’s Land Transportation Director General Budi Setiyadi sees it, Grab’s ability to reduce its users’ ride-hailing costs by trillions of rupiah last year was through subsidized discounts on rides.

“I’ve said before that discounts are allowed as long as it doesn’t go beyond [the ministry’s stipulated] upper and lower fare limits. If it exceeds the limit, it tends to be unhealthy competition,” said Budi following the discussion.

He was referring to Ministerial Decree No. 348/2019 on the calculation of ride-hailing ojek (motorcycle taxi) fares, which imposes maximum and minimum fares depending on the region.

He said the ministry issued the decree not only out of concern for users and drivers but also to ensure the ride-hailing industry’s sustainability, which would be jeopardized if players continued their “cash-burning” approach to rapid expansion.

“I think ride-hailing is generally good. Good in the economic sense, how Go-Jek and Grab create quite a significant amount as a livelihood for many Indonesians,” Budi said.

Grab head of public affairs Tri Sukma Anreianno said technology, whether related to route optimization or driver supply adjustment, played a very important role in generating the surplus by minimizing operational costs.

In a broader sense, ride-hailing services, such as Indonesia’s Go-Jek and America’s Uber, also minimize operational costs by cutting overhead costs related to maintaining vehicle fleets.

In fact, Uber conducted in 2016 its own consumer surplus study — the inspiration for Grab’s study — that found the American ride-hailing company’s surplus hit $2.9 billion (5.6 percent less than that of Grab) in 2015 in Chicago, Los Angeles, New York and San Francisco.

Despite the big surplus, Uber’s prospectus released in April says the ride-hailing giant booked a gaping $3 billion operating loss last year and may not achieve profitability, as it “expect[s] operating expenses to increase significantly in the foreseeable future”.

Popular

RI, Australia strengthen partnership on taxing crypto assets

Analysis: Indonesia denies normalization with Israel to enter OECD

Citroen to produce electric cars in Indonesia