Ride-hailing fares increase sparks debate in Indonesia

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A driver and passenger ride on a motorbike, part of the Go-Jek ride-hailing service, on a busy street in central Jakarta, Indonesia on December 18, 2015. DARREN WHITESIDE/REUTERS/THE STRAITS TIMES

If the Indonesian government increases the fares of ride-hailing services too high to please the drivers, it could turn away customers who find them no longer economical.

That’s the finding of a study by the Research Institute of Socio-Economic Development (Rised), which concluded that more than 70 per cent of current customers would cease using ride-hailing services if fares are set higher than 2,800 rupiah ($0.20) per km.

 

At present, Go-Jek’s lowest rate for ride-hailing services is 1,900 rupiah per km for long-distance rides in Jakarta, while Grab’s lowest rate is 1,800 rupiah per km under similar circumstances.

Short-distance rides in Jakarta go as high as 5,000 rupiah per km with both providers.

Rised recommended the government set the minimum fare for online ojek (motorcycle taxis) at less than 2,800 rupiah per km because higher fares may chase away 71 per cent of current customers, according to its recent survey of 2,001 regular users.

“Consumers are very sensitive in this ride-hailing business,” Rised researcher Rumayya Batubara said.

A trip of 8.8km using a ride-hailing service now costs 19,000 rupiah. The cost may increase to 27,300 rupiah if the Ministry of Transportation were to enforce a proposed minimal fare of 3,100 rupiah per km, as reported by several media outlets.

In others words, the proposed fare would make customers spend an extra 7,900 rupiah each day on fares, whereas 48 per cent of respondents said they were only willing to spend an extra 5,000 rupiah. Twenty-three per cent said they were not willing to spend any more at all.

 

“Thus, [the proposed] fare may cut consumer demand by up to 71 per cent,” said Rumayya.

Economist Fithra Faisal Hastiadi pointed out that such a drastic drop was possible because 40 per cent of motorcycle ride-hailing customers were lower-income individuals who earned less than three million rupiah monthly – less than Jakarta’s minimum wage of 3.9 million rupiah.

For such low-income customers, the proposed price hike would increase the cost of transportation from at least 19 per cent to 27 per cent of their monthly income.

“What’s clear is that this fare hike is politically incorrect,” Fithra said.

He added if online ojek demand were to drop, it would also reduce the income of local businesses such as eateries and retailers that use ojek to deliver goods.

In addition, Rumayya explained that the survey was Rised’s response to a lack of media concern over how the Ministry of Transportation’s plan to raise minimum fares, announced late last year, would affect customers.

The ministry’s land transportation director general, Budi Setiyadi, has promised that a regulation would be issued in March this year setting the ideal fare at between 2,000 and 2,500 rupiah per km, while the maximum would be 6,000 km rupiah.

The ministry itself was responding to a series of rallies last year by ojek drivers who were demanding a minimum fare of between 3,000 and 4,000 rupiah per km because, they said, they could not live on the current rates.

However, Igun Wicaksono, a spokesperson for the rallying drivers, recently said that drivers were willing to accept fares of between 2,500 and 3,000 rupiah per km.

Zumrotin K Susilo, a former Indonesian Consumers Foundation (YLKI) chairwoman, said she concurred with Rumayya and Fithra on the detrimental impact of the proposed rate hike on lower-income consumers, but she also expressed sympathy for the drivers.

She estimated that a fare increase of 20 per cent from 2,200 rupiah per km (Rised’s benchmark fare) to 2,600 rupiah per km would be fair to both customers and drivers.

More critically, she said the government should require ride-hailing platforms to provide health and work insurance for drivers, which would improve their welfare without burdening the customers.

“The problem is that the government is chasing the customers. It should chase the providers instead,” she said.

Go-Jek and Grab, which form a duopoly in Indonesia’s online ojek market, have so far avoided paying drivers insurance and fixed wages by labelling them “partners” instead of employees. As employees they would receive compulsory worker protection under the 2003 Manpower Law.

Go-Jek spokesman Michael Reza Say told the Jakarta Post his company calculated fares based on consumer-side data such as purchasing power, buying behaviour and geographical demand.

“For the drivers, we provide competitive rates, incentives for the hardworking ones and other benefits,” he said. THE JAKARTA POST/ANN