Fuel curb in Indonesia increases need for higher ride hailing incentives, Maybank Investment Bank said Thursday.
The research house said in a note that online ride hailing (ORH) drivers will be most impacted by Indonesian government latest fuel price hike, as they have a lower price per km, despite both Go-Jek and Grab using dynamic pricing.
According to the research house, using RON92 in Indonesia now will increase fuel cost from 15 percent to 21 percent to IDR 5,400 ($0.35)/km taxi, based on 12km/liter fuel consumption.
It calculated the fuel cost for GoCar and GrabCar will increase from 25 percent and 30 percent of the fares, respectively, to 34 percent and 41 percent at median fares of IDR 2,806 ($0.18)/km and IDR 3,333 ($0.22)/km, respectively (based on the median price of Aug 2024 for an 18km trip from South Tangerang to South Jakarta).
However, it sees the fuel curb has no impact on standard online ride hailing services as most drivers operate vehicles with a 1,200cc engine.
“We see no impact on cost, but the government is likely to monitor vehicles based on license numbers and a fuel quota is a possibility,” it said.
It also anticipated no effect on 2-wheel riding hailing services as the fuel price curb plan is for 2W vehicles with engines of more than 250cc (Go-Jek’s 2W fleet is mostly 110-160cc).
“But we think that fuel quotas can hurt ORH,” it said.
Maybank also thinks the fuel price hike will impact premium ORH services, where engines are generally 1,500cc or larger.
It said users will likely need to pay the market price for RON92, which ranges from IDR 13,700 ($0.89) to IDR 14,550 ($0.94)/liter.
Thus, GrabCar Plus and GoCar Luxe’s fuel expenses will increase from 15 percent to 21 percent of the fare.
Pricing-wise, it noticed that GoCar is about 9 percent more expensive than GrabCar.
The Indonesian government plans to limit Pertalite distribution (RON 90, IDR 10,000 ($0.65)/liter) for vehicles with engines over 1,400cc, starting Oct 1. 2024.
This is not a final date and public transportation/yellow license taxis are exempted.
It is noted that Indonesia’s public transportation mostly uses RON90 (Pertalite) at IDR 10,000 ($0.65)/liter.
The non-subsidized RON92 price is IDR 13,700 ($0.89)/liter, or a 37 percent premium to RON90.
Go-Jek and Grab are using dynamic pricing, and the fuel cost can range from 15 percent to 30 percent of the average fare compared to 21 percent to 41 percent for RON92, should it be mandatory.
“In response, drivers are protesting and demanding higher revenue share, and we think revision of fare guidance is possible,
“We believe that ORH operators require incentives from the government to mitigate the impact of this regulation,” Maybank said.
It is noted that the Ministry of Manpower categorizes ORH drivers as part of the informal sector.
Maybank believes the new regulation needs to involve three ministries: communication and informatics (technology), transportation (related to fares), and manpower (working contracts).
Maybank thinks the Indonesian government could revise its fare 2W recommendations to include a minimum revenue per order.
Currently, the minimum wage in Jakarta is about IDR 5 million ($324)/month, translating to IDR31,000 ($2.01)/hour.
Based on Maybank on-the-ground discussions, drivers want waiting time to be included in fare calculations.
Hence, assuming 45 minutes of service, the driver’s cost is about IDR 23,250 ($1.51), excluding fleet costs and take-up rate.
In contrast, Maybank survey revealed that the willingness to pay only stretches to IDR 11,000 ($0.71)- IDR 20,000 ($1.3) (51 percent response), and only 4 percent were willing to pay IDR 35,000 ($2.27)- IDR 50,000 ($3.24) per order.
“Though the possibility of adjustment is high, we must consider the demand side. Hence, we expect the government to provide fiscal incentives for online ride hailing, mainly because it must be profitable and sustainable, and ORH has created jobs and has a social impact,” Maybank said.