OREANDA-NEWS. Fitch Ratings says that the increasing popularity of ride-sharing mobile apps in Indonesia is undermining the business models of Indonesian taxi and car rental companies.

The biggest threat is in Jakarta, where poor mass transit options make taxis a common mode of transport. 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. Fitch expects the operating cash flow of taxi and car rental companies to weaken, either from a decline in revenue or from longer working capital days.

PT Express Transindo Utama Tbk's (Express, A(idn)/Stable) receivable days has increased to 118 days in 9M15 from 98 days in 2014 and 34 days in 2013. Express has fixed-payment scheme with its drivers, who have found it more difficult to meet the payments as their revenues declined due to faltering demand. 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. This increases the risk that Express' receivable days could lengthen, which would negatively impact its working capital cycle.

Fitch expects taxi and car rental companies in Indonesia to scale back their fleet acquisitions in 2016 to improve their fleet utilisation. Express' management plans on no net additions to the fleet. Instead, management plans to focus on improving service. For instance, Express has partnered a telecommunications company to develop a smartphone application to cope with the rising competition. MPM Rent, PT Mitra Pinasthika Mustika Tbk's (BB-/Stable) car rental division, also plans on minimal net additions to its fleet. The flexibility to scale back capex is key to the ratings, especially during a down-cycle.

The ride-sharing apps are likely to continue to disrupt traditional business models in the transportation industry in 2016. Uber, Go-Jek, and Grab Bike have been offering discounted tariffs to attract users and build their market shares. 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.

Uber is facing resistance from regulators in several countries in south-east Asia, which are concerned about the unfair competition and lack of standards. So far, the Indonesian regulators' efforts to supervise ride-sharing apps have not been cohesive and clear, leaving the outlook for the transport industry uncertain.