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Go-Jek's and Grab's motorbikes have swarmed onto taxi operator Blue Bird's turf in Indonesia. (Photo by Dimas Ardian)
Company in focus

Grab and Go-Jek face resurgent rival in Blue Bird

Indonesia's taxi trailblazer bets on connected cabs and regulatory lift

SHOTARO TANI, Nikkei staff writer | Indonesia

JAKARTA -- Before smartphones were everywhere, before Grab and Go-Jek were multibillion-dollar unicorns, before anyone had even imagined online ride-hailing, Blue Bird was the innovator in Indonesia's transportation market.

The taxi company, founded in 1972 by the grandmother of its current President Director Noni Purnomo, was the first in the country to operate metered cabs. Its sky-blue cars came to symbolize the bustle of Jakarta. Blue Bird was at the forefront of the cellphone-powered transportation revolution, too, launching a reservation app for BlackBerry in 2011, not long after Uber's first ride in the U.S.

Nearly a decade on, however, the ride-hailing era has proved far harsher than Purnomo expected. The streets of the capital and other cities are awash with the green of Grab and Go-Jek motorbikes, while the number of cabs in Jakarta has plunged 53% since 2015 to 11,400.

Now Blue Bird is counting on a streak of strategic moves in the early months of 2019 -- and some regulatory changes -- to help it soar again. The plans include a degree of diversification, but Purnomo's company intends to keep taxis at its core, and its success or failure could show whether cab operators have a future.

The most recent move came in late April, when Blue Bird launched a fleet of 30 electric vehicles. The buzz focused on how this was another first for Indonesia's taxi industry. The overlooked significance was how the company plans to use the cars to power earnings and fight back against the growing ride-hailers.

"Electric taxis are part of the pilot" for the company's new "internet of things" system, said Purnomo, who recently assumed her role after serving as head of Blue Bird's holding company. She explained that the system will work in "real time" and allow the company's data center to monitor everything in detail, from engines to vehicle location and driver performance. Eventually, the entire fleet of 30,000 taxis and buses will be IoT-enabled, giving the company data it can use to improve efficiency and lower costs.

Blue Bird President Director Noni Purnomo speaks to the Nikkei Asian Review in Jakarta. (Photo by Shotaro Tani)

For Blue Bird and its smaller taxi peers, every profitability boost helps.

For 2016, the year after ride-hailing truly took off, Blue Bird's sales dropped 12% to 4.7 trillion rupiah ($326 million), with net profit plunging 38%.

For 2018, the company achieved its first net profit growth since 2015, with the figure rising 7.6% to 457 billion rupiah, partly thanks to one-off international events. But its shares are trading around 75% below their peak in 2015 and 54% below the initial public offering price of 6,500 rupiah in 2014.

Express Transindo Utama, the second-largest taxi operator, has fared worse. It fell into the red in 2016 -- its first loss since it listed in 2012 -- and has yet to recover.

"Nobody could predict [the ride-hailers' impact] at that time, because it was very new," Purnomo recalled of the early days, though Blue Bird quickly recognized the threat and partnered with Go-Jek in 2016. This allowed Go-Jek users to order taxis through the app, even though Blue Bird had its own app.

Much like the ride-hailers, the My Blue Bird app lets customers order cabs on their smartphones with predetermined fares and cashless payment options. Yet, while it has been downloaded over 1 million times on the Google Play store, Go-Jek has racked up 50 times that figure. Go-Jek and Grab provide other services through their apps -- like e-payments and deliveries -- to lock in users.

Backed by abundant funds from global investors, the two ride-hailers have built overwhelming fleets. Go-Jek alone counts 1.7 million drivers, versus the 22,100 taxis Blue Bird had nationwide in 2018.

Along the way, Grab's and Go-Jek's cheaper motorcycle rides have lured customers away from the regular taxis from which Blue Bird derives around 70% of its operating profit.

Purnomo emphasized that the biggest disruption was "not the technology" but the price competition. "We're bound by regulation because we are [classified as] public transportation," she said. "Our tariff is regulated by the local government. So, those are the restrictions that we have to adhere to, and that's why we cannot go into this price war."

The classification means Blue Bird must shoulder the cost of maintaining its own vehicles. The ride-hailers leave that up to individual drivers, allowing for cheaper rates and constant discounts.

Sri Sulastri, a 29-year-old woman in North Jakarta, used to be a regular Blue Bird customer but finds ride-hailing a better deal. "Around 2015, I found out about online ride-hailing, and it was more efficient," she said, though she added that she "didn't immediately stop using Blue Bird."

As the disruption worsened, the public transport companies lobbied the government for "a level playing field," Purnomo said. They wanted ride-hailers classified as transportation businesses, too -- a possibility the transport ministry considered in 2018. This would bind Grab and Go-Jek to the same rules and force them to employ their drivers directly.

The government, however, was reluctant to stifle a fast-growing sector, especially as Go-Jek was becoming Indonesia's first unicorn -- a startup valued at $1 billion or more. The ride-hailers' evolution into one-stop platforms for all sorts of services also makes classification difficult. They are still "application companies."

This could be the year the tide turns, though, thanks to Blue Bird's strategies and new rules.

In January, Blue Bird set up a joint venture with Japan's Mitsubishi UFJ Lease & Finance and a local company to sell secondhand cars. "We renew our cars every five years," Purnomo said. "Every month, we have to sell about 600 used cars. So we expanded this to also sell other people's used cars." Blue Bird holds 51% of the company.

In the same month, the operator signed the first deal under its Blue Bird Friend program, partnering with a local taxi company in the old city of Yogyakarta. Under the revenue sharing program, Blue Bird will help the other company renew its fleet and provide driver education, while the partner will run Blue Bird-branded taxis.

"I think that's one of the ways for us to go and expand the market," Purnomo said of the move to fill gaps in her network while maintaining "the same standard of quality."

March brought an acquisition of Cititrans, which runs intercity shuttle buses. "The acquisition of Cititrans and collaboration with local taxi companies will strengthen its market expansion," said Nurulita Harwaningrum, an analyst at MNC Sekuritas, adding that the taxi tie-ups could be broadened to other regions with many potential customers but not enough cabs.

The government, for its part, may have just changed the game. It imposed new fare rules on ride-hailers in May -- spurred not by the transport industry's appeals but by ride-hailing drivers' complaints about low pay.

Ride-hailing companies "only wanted the big market base" and dangled low fares, Transportation Minister Budi Karya Sumadi said in March. "But the concern is different with the drivers."

Blue Bird taxi drivers wait for passengers in Jakarta as a Go-Jek bike passes. (Photo by Dimas Ardian)

Grab and Go-Jek must now charge at least 2,000 rupiah per kilometer for motorbike rides in the greater Jakarta area, which is, according to local media, 10% to 20% more than the previous rates. A similar rule for four-wheeled rides will take effect in June, setting a minimum base fare of 3,500 rupiah per kilometer in Sumatra, Java -- where Jakarta is located -- and Bali. The minimum fare for Blue Bird's regular taxis is 4,100 rupiah per kilometer in Jakarta.

"Since the institution of the [motorbike] tariffs, we have observed a decrease in the number of Go-Ride orders," Go-Jek said in a statement.

Suddenly, the playing field is not quite so uneven. Harwaningrum noted that by narrowing the gap in fares -- cabs may even be cheaper when ride-hailers' algorithms push up rates at peak times -- "the government is helping the taxi company become an option again."

Drivers, meanwhile, are returning to Blue Bird years after they left in droves to work for the ride-hailers. Purnomo attributes this to her company's perks, some of which it offered before ride-hailing caught on.

"We have free clinics for the drivers and their families which ... would not be provided if you're an independent driver," she said. "We give scholarships to the children of our drivers and we help the wives of the drivers to join our [program] for vocational training. This kind of relationship is, I think, one that they missed."

Eko Listyanto, executive director at the Institute for Development of Economic and Finance, thinks the taxi industry "will likely still grow."

"Drivers on ride-hailer applications might be hard to control or monitor," he said. "Transportation companies will have a level of expertise on managing transportation businesses that technology companies might not develop further, or they will need high investment and a long time to develop."

Purnomo added that anytime an industry is disrupted, "there's always a pendulum type of movement until it finds its equilibrium."

"When ride-hailers came and introduced this new business model, a lot of people looked and tried the different services," she said. But she thinks the pendulum is swinging back to taxis, and that there will remain a steady stream of customers who prefer cabs. "Our market segmentation is slightly different to [the ride-hailers'] market segmentation," she added.

The pendulum might be swinging so much that Go-Jek is said to be considering investing in Blue Bird. "I cannot comment on any rumors with regard to investment," Nadiem Makarim, Go-Jek's founder and CEO, told the Nikkei Asian Review in a recent interview. But he stressed, "We continue to have a very good relationship with them."

Purnomo "strongly" believes her taxi company still has room to expand.

"What is important for us is, how can we be part of our customers' [lives] from the time they leave home until the time they come back home? We may not be able to be there 100% of the time, but we want to be there most of the time."

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