Balancing financial viability with affordable fares

Balancing financial viability with affordable fares

While fares must be kept affordable for commuters, the public transport business must remain financially viable so operators have the incentive to be efficient and productive, Transport Minister Lui Tuck Yew said in Parliament yesterday.

This is because if the industry is not sustainable in the long run, commuters may have to bear the brunt of much higher fares or it will leave the Government and taxpayers to subsidise the operations.

This happened in other cities with a nationalised transport system which is not run efficiently, Mr Lui added.

He was responding to questions from Ms Lee Bee Wah (Nee Soon GRC) about the upcoming 2.8 per cent fare hike in April.

She had asked why public transport operators SBS Transit and SMRT could not absorb the increase since they are profitable.

To this, Mr Lui said: "The fact is that operating buses and trains is not a highly profitable business, far from it. In fact, of all the profits that are generated, roughly about 95 per cent comes from the non-fare business and, at most, 5 per cent comes from operating trains and buses."

Non-fare business includes rental of retail space, advertising sales and taxi rental.

Mr Lui said that fare revenue and income have crept marginally above costs only in recent quarters.

Although SBS Transit's profit rose from more than $11 million to over $14 million last year - a huge gain in percentage terms - Mr Lui noted that this profit margin is about 1.5 per cent when compared against the total revenue of about $1 billion.

For SMRT, the profit margin in its last financial year was 5 per cent, he added.

Mr Lui said that besides making profit to pay a reasonable return to shareholders, operators also have to pay for future capital expenditure.

SMRT, for example, has financial obligations of about $2 billion from now to 2019, which include buying over operating assets and additional trains.

This figure, Mr Lui said, is more than three times the cumulative profits the company has made in the last five financial years.

Mr Lui said there was a downside to stifling every possibility for the operators to make a profit.

"Because if they run a shoddy operation, it's very expensive...and ultimately we all bear the costs," he added.

In reply to Workers' Party chief Low Thia Khiang's point that fares would not have to go up if public transport operators were productive, Mr Lui said this was possible in theory.

But the fact is that the public transport operators, like other public and private entities, also face cost pressures, such as expectations from their employees for wage increases, he said.

adrianl@sph.com.sg


This article was first published on Feb 14, 2015.
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