Fare hike by Public Transport Council justified?

Categories: Singapore

As expected the Public Transport Council (PTC) has approved the fare increase for the bus and trains. This will take effect from October 1. This comes after the two public transport operator SMRT and SBS applied for the fare increase in August 2006. This fare revision represents an overall fare increase of 1.7%. Is the fare increase justified?

To answer this question, one has to understand the workings of the two public transport operator in Singapore. Unlike in many countries where public transports are managed by the government, here the two companies are public-listed companies. Therefore, bottom-line matters and they are answerable to the shareholders. How does one rationalise this seemingly conflicting interest between the shareholders and the public? The government has created a non-partisan council, the PTC, to oversees the public transport fare as well as to set benchmarks for the companies. The intention is that the PTC will balance the interest of the shareholders and the public, so that the will be a win-win solution to the fare structures. However does this ideal works?

Since the creation of the PTC in 1987, there has been at least 3 increases in fare structures. The oft mentioned justification is that to maintain a world class transport system, there should be some form of profits so that the public transport company can expand its scope and hence further improve its services. This sounds reasonable until one looked at the result of a survey carried out in 2005 by PTC on the satisfaction of service. Surprisingly, despite the fare increases in 2000, 2001 and 2002, the mean satisfaction rate was only 6.4! If this is maintainance or improvement on our world class transport system, then the justification seemed flawed; unless of course, the transport system had not been world class after all before the fare hikes. Even taken into account the sometimes unrealistic demands of Singaporeans, the satisfactory rates seemed rather low.

Looking at the financial reports of both companies, one finds that both companies are very well managed. They have been making handsome profits consistently through the years, even during the SARS crisis. From the financial reports of SMRT, the company has double digit growth every year. SBS, although making less profit, still has a healthy growth of around 5%. Even last year, when the price of petrol has gone up 2-fold, both companies manage to make a profit. Kudos to the management. Hence, despite annual growths, both companies still made submissions for fare increases.

The North-East MRT line (NEL), was awarded to the SBS, when it was opened in 2003. The fares were set higher than those of existing MRT lines of North-South Line and East-West Line. This was because of the lower ridership and hence relatively higher operating cost. This was despite the fact that the NEL was not build by SBS, but funded by tax-payers money. Again the higher fare structure for the NEL was set and approved by the PTC.

Who are the people making up the PTC? A look at the make up of the council members, and one will immediately appreciates that all of them are from the management sector. This is reassuring because of their competency. However, from statistics, the members - professionals, business persons, academia, union and grassroot leaders - all tended to own cars. As a result, one wonders whether they really know what is happening on the ground. No doubt they can get feedback from the public, but second experience is not a true experience. Being in the upper middle or even upper income class, apart from grassroot and union leaders, do they really know about the hardship experienced by the less fortunate?

In granting the fare increase this time, two reasons were cited. One was because of a rosier economic outlook and the other because of higher employment figures. Both reasons are welcome indeed. But just because of a rosier outlook, does not mean more money in our pockets. Higher employment figures means more people will hold a job. Those who are already drawing a salary will not be affected by both the reasons given. Hence, the justification given by PTC is flawed!

Of course like previous fare increases, measures were taken to help to placate the public. Both companies, being very responsible companies, help to defray the impact when they pledge to give out one-off $20 transport vouchers, totalling $1 million between them. This is against an expected earnings of $10 million from the fare hikes. And thanks to their generous $20 voucher, now the needy gets to make 10 free rides if they chalked the maximum fare trip, and still have left over for a $1 drink. In terms of days, they get to make free trips over five days out of total of 250 working days. Furthermore, this $1 million is just 'paper loss', because irrespective of whether the vouchers are used, the operating cost remains the same.

To be fair to the public transport company, it is indeed commendable that they have manage to cap the maximum fare from $1.20 in 1990 to just $1.90 in 2006. This is despite an inflation rate of 3% yearly and rising manpower costs.

So is the fare increase justified? I think it depends on what the priority is in the Singapore model of public transport. If its priority is to the public, then the increase is not justified. The public transport company had been making handsome profits consistently for the last few years. This is despite the SARS and the oil crises. With such profits, it is hard to see why further fare increase is necessary. The profit already made can be ploughed back to improve the service or to increase the scope of the company. Further more, profits can be made through other avenues like advertising panels or shop space. With a rosier economic outlook, one would not be surprised that the revenue from these channels will increase. Hence, there is little need for any fare restructuring unless it is for the benefits of the shareholders. And this is clearly seen in the financial reports which showed yearly increases in the dividend payout.

Reference:
Fare increase from October