Taxis Need to Scale Back Fleet to Compete with Ride-Sharing Apps, Fitch Says

Licensed cab operators and rentals in Indonesia will face a cash crunch and must scale back fleets next year, as rigid regulation limit their price competitiveness against ride-sharing apps, Fitch Ratings said on Wednesday.
"Demand for taxis and rental cars is already slowing due to weaker economic growth, and the growth of ride-sharing apps, such as Uber, Go-Jek and Grab Bike, has intensified competition in the transportation market," analysts at Fitch Ratings said in a statement.

Receivable days, or the average number of days a company takes to collect payments on goods or services, at Express Transido Utama, the second-biggest cab operator in Indonesia, increased to 118 days this year from 98 days in 2014 and 34 days in the year before, according to Fitch Ratings.

"At the same time, the more attractive pay and flexible working hours have prompted some drivers to switch to working for the car-sharing apps," Fitch said. "This increases the risk that Express' receivable days could lengthen, which would negatively impact its working capital cycle."
The rating agency said taxi and car rental companies may need to scale back their fleet acquisitions in 2016 to improve their fleet utilization. Express and MPM Rent, Mitra Pinasthika Mustika's car rental division, for instance has planned for no or minimal net additions to its fleet next year, Fitch said.
In addition, ride-sharing apps, like Uber, Go-Jek and Grab Bike have been offering discounted fares to acquire customers and build their market shares, a move that cannot be countered by taxis, whose tariff is pegged by the government.
"Unlike taxi operators, they do not have to comply with regulatory requirements in areas such as infrastructure, licensing and tariffs, which give them a cost advantage and make them more nimble compared with taxi operators," Fitch said.
The agency noted that until Indonesian regulators devises cohesive and clear regulation on ride-sharing apps, the outlook for taxis and rental industry remain uncertain.