April 17, 2017

New government regulations and outright crackdowns on drivers are threatening to choke the growth of ride-hailing apps in Southeast Asia.

The apps, a prime example of the sharing economy, were expanding rapidly in the region up until last year, thanks to the explosion of smartphone use. Demand remains strong for the innovation since subways and other forms of public transportation are under-developed in many places.

In Indonesia, local ride-hailing operator Go-Jek boasts about 30m users, a sum equal to a quarter of all domestic smartphone owners. Local media report that 20m rides per month were arranged last year through the company’s app.

Grab, a rival headquartered in Singapore, says its business, which adds motorcycles to its fleet of cars, expanded by more than 600 per cent in 2016. The company has also started operating the service on a trial basis in Myanmar, one of the less developed countries in the region.

One survey shows that 30 per cent of consumers in the Asia-Pacific region say they have used a ride-hailing app. But just as rides at a push of a button started becoming an everyday occurrence in Southeast Asia, a wave of restrictions came crashing down.

Protests by taxi drivers against ride-hailing apps have been spreading in Indonesia. Responding to pressure by the cab industry, the government announced on April 1 that it will institute within three months minimum fares and a registry for four-wheeled vehicles used by ride-hailing apps. Go-Jek, Grab and US giant Uber Technologies have strongly denounced the new rules.

Fares charged by ride-hailing vehicles often undercut those of conventional taxis. Uber’s starting fares can be roughly half those of cabs. Under Indonesia’s new rules, each province will set their own minimum fares. That could erode the competitive advantage enjoyed by the apps.

These regulatory changes are coming into play because the taxi industry, a powerful political interest, is threatened by the ride-hailing revolution. Earnings at taxi companies have been on a downward spiral since the advent of the apps. Blue Bird, which runs the largest fleet in the nation with more than 30,000 cabs, saw its net profit dive 38 per cent in the year ended last December, with sales dropping 12 per cent.

Friction between ride-hailing businesses and traditional taxi companies is growing in other Asian countries as well. Since March, Thai authorities have started cracking down on drivers who use personal vehicles to transport people who arranged the rides through apps.

“The apps are not illegal in themselves, just the use of personal vehicles,” said a senior transport official.

Public opinion has favoured the ride-hailing companies, and Uber collected signatures from more than 40,000 supporters in an online petition.

Riding taxis in certain Asian countries can be a complicated affair. Fares are often negotiated on the spot due to the lack of meters, and drivers can arbitrarily refuse customers. Ride-hailing apps are attracting a growing customer base because the fares are far more certain, as well as cheaper.

Regulation of the ride-hailing industry varies widely throughout the globe. Clicking for rides is allowed in the US, the home base of Uber and Lyft. But that service is banned in some European nations after pushback by taxi companies.

In many Asian countries and jurisdictions, ride-hailing apps are stuck in legal limbo, at the whim of state authorities, such as those in Thailand and Indonesia, creating a cloud of uncertainty around their use.

Ride-hailing operators are searching for ways to cope with the tightened restrictions. In Indonesia, two-wheel taxis are seen as a loophole since they are exempt from legislation both already on the books and forthcoming.

In order to avoid the label of an unlicensed taxi company, Uber has formed a partnership with Express Transindo Utama, Indonesia’s second-largest cab operator. Go-Jek has also teamed up with Blue Bird in smartphone ride booking. In Taiwan, Uber is working to relaunch its service that has been suspended since February.

Additional reporting by Nikkei staff writers Hiroshi Kotani in Bangkok, Kensaku Ihara in Taipei and Tomomi Kikuchi in Singapore.

A version of this article was first published by the Nikkei Asian Review on April 13. Website | Subscribe. ©2017 Nikkei Inc. All rights reserved.

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