Indonesia to put a cap on discounts offered by ride hailing giants

A GrabBike motorcycle driver, left, and a Go-Jek motorcycle driver wait for orders in Jakarta, Indonesia, on Sunday, Aug. 13, 2017. Photographer: Dimas Ardian/Bloomberg

Indonesian transportation ministry is formulating a regulation to put a cap on discounts offered by app-based motorcycle taxis to minimise the ‘so-called predatory pricing’ in the market.

In the past years, Grab and GOJEK have engaged in a fierce battle for market share as they offer unrestricted discounts, creating price wars, to gain dominance in the region’s largest economy.

Land Transportation Director General Budi Setiyadi said, the large-scale promo discounts will be adversely affecting the ride-hailing firms’ businesses in Indonesia.

“The big promo [between the two companies] is not aimed for marketing, [such moves] will affect their businesses and lead to unhealthy competition in the market,” Budi was quoted as saying in several local media reports.

Budi suggested that ride-hailing majors should instead focus on investing in improving their service quality.

The Transportation Ministry has been discussing the proposed ministerial regulation with the Financial Services Authority (OJK), the Business Competition Supervisory Commission (KPPU), and also Bank of Indonesia.

The Ministry plans to launch the regulation by the end of this month.

Meanwhile, the two-wheel association (Garda) president Igun Wicaksono told DEALSTREETASIA that the Ministry has discussed the matter with the association yesterday, and they will hold another discussion within this week.

He said if it is only one company implementing a large cut on the price applying the big discount, it could attract the larger passengers’ number, but the other firm could suffer from the limited number of passengers, which then affect their business performance.

“Aside [giving benefit to] the company, the regulation will give more benefit to drivers,” said Igun.

In a statement sent to DEALSTREETASIA, Grab said that it always complies with the government’s ruling. With regard to that matter, the firm believes the regulation has been through a thorough discussion that could give benefit to the many parties.

“We also willing to collaborate [with the government] to give some input on the proposed regulation,” head of public affairs Grab Indonesia Tri Sukma Anreianno said.

In response to the government’s plan, VP corporate affairs Michael Reza Say said that GOJEK would wait for the official government rulings on the promo discounts fare.

“We expect that people should see the regulation thoroughly and on myriad sides as the regulation will surely give positive impact to our driver partners and consumers,” Michael said.

Last month on May 1, the Indonesian government enforced regulation on the increased tariff for motorcycle taxi for the ride-hailing app-based companies operating in the market, GOJEK and Grab.

After six days of implementing the new tariff, GOJEK immediately saw the decreasing number of passengers’ orders, the company said in a statement.

The government’s new tariff is set at Rp 2,000 (0.14 cents) per kilometre, rose from the previous Grab and GOJEK tariff at Rp 1,600 (0.11 cents) – Rp 1,800 (0.13 cents) per kilometre.

According to Igun, the association wants at least a minimum of Rp 2,400 per kilometer, which he said would be the ideal for driver partners livelihood.

“It’s okay if now it is capped at Rp 2,000 per kilometer. It could maybe improve gradually in the coming months,” said Igun.