Regulating the Ride-Hailing Apps Revolution in Indonesia
On Saturday, 01 April, 2017, the new regulations for ride-hailing apps in Indonesia came into effect, designed to protect consumers of these apps and support traditional transportation services such as taxi operators, minivans, buses and motorcycle taxis. The regulations include maximum and minimum tariffs for four-wheeled-vehicle rides that are booked through the online app, as well as a limit on the number of vehicles available. However, authorities will give time to these ride-hailing apps to adjust to the new regulations due to the "magnitude of the technical rules".
Ride-hailing apps such as Grab, Uber and Go-Jek have become tremendously popular in Indonesia over the past two years. As the public transportation system in Indonesian cities is very weak, citizens were always dependent on taxis, minivans, three-wheeled bajajs, or the motorcycle taxi (known locally as ojek) to move across the city (if they did not have their own vehicle). The online transportation apps were a true revolution in Indonesia. Through the app on the mobile device consumer can simply order a car or motorcycle taxi and then wait to be picked up by the driver.
Moreover, the ride fare of these apps is very cheap (ride-hailing apps are still subsidizing fares in order to gain market share by creating a loyal customer base) and the tariff is determined before the ride begins which is in great contrast to the traditional taxi services that usually use a meter. For the consumer this is a big advantage. Whereas traditional taxi drivers may tend to take the long way in order to let the meter run as long as possible to make an additional earning, the driver of the ride-hailing app vehicle will take the fastest route, simply because it is in his interest (and if the driver takes the wrong way then it is not the consumer who will need to pay for the additional distance that is covered).
The ride-hailing apps revolution in Indonesia also created big tensions between the traditional transportation services providers (who saw their earnings collapse) and the drivers of the ride-hailing app vehicles. In led to demonstrations and in some cases to violence with the drivers of traditional transport providers being instigators. Demonstrators called for a ban on these new transport services providers as they constitute illegal participants in the market. In Bandung (a city in West Java) the use of ride-hailing apps have in fact been banned since September 2015 as they "violate public transportation requirements" (as there were no regulations with regard to this new phenomenon, drivers of ride-hailing app vehicles did not obtain vocational licenses or send their vehicles for regular road-worthiness tests and therefore were considered to violate requirements).
The Indonesian government tries to seek a middle way. Indonesian President Joko Widodo stated earlier that he does not want to disallow ride-hailing apps because they address a critical need within Indonesian urban society. Furthermore, Indonesia needs to embrace technological advances rather than blocking them. However, the government also wants to support the victims of this revolution: the tens of thousands (perhaps even hundreds of thousands) taxi drivers, motorcycle taxi drivers, bajaj drivers, minivan drivers as well as to encourage demand for public transportation across Indonesian cities (although being in a weak condition now, there are various transportation infrastructure projects under construction right now, including railways, and a LRT system).
Therefore, the government designed regulations that do not kill the ride-hailing apps but do curtail their business. The new regulations include caps on tariffs and fleet size, as well as licensing. The ride-hailing drivers will now have to send their vehicles for inspection to ensure they comply with certain safety and road-worthy standards. Authorities say the new rules provide equal (hence fair) conditions for both the traditional and modern transport services.
Indonesian Transport Minister Budi Karya added the government wants to see cooperation between the modern ride-hailing apps and the traditional transport operators. A fruitful example already exists. Blue Bird, Indonesia's biggest taxi operator with a taxi fleet of around 35,000 taxis, has just started to cooperate with ride-hailing app Go-Jek Indonesia for its Go-Car services (the Go-Jek app has been downloaded some 40 million times). Part of the Blue Bird drivers have been added to Go-Jek's fleet, implying that when consumers use the Go-Jek app then a Blue Bird taxi may be the one that will come (but it is still Go-Jek's lower tariff that applies).
Blue Bird, listed on the Indonesia Stock Exchange, was among the victims of the ride-hailing revolution in Indonesia. It saw its net profit plunge 38 percent year-on-year in 2016 to IDR 507 billion (approx. USD $38 million). For Go-Jek the cooperation is also a lucrative one as it had a hard time of keeping up with demand. With the large pool of Blue Bird drivers (in various big cities across Indonesia) being added, the supply-side of Go-Jek gets a good boost.
As a result of the cooperation, Blue Bird shares rose 2.12 percent to IDR 3,860 a piece on Friday (31/03). So far this year the company's shares have risen 28.67 percent. In the two preceding years its shares plunged due to the arrival of the new modern players in the market.
Stock Quote Blue Bird - BIRD:
However, the ride-hailing apps' motorcycle taxi services, which are the most popular choice of consumers in Indonesia, remain unregulated.
Although ride-hailing apps are not making profit they do have an interesting business model as they grow a large customer base. Once they go public or sell shares to investors, they will manage to generate lucrative gains from the capital market.