The Government says bus fares have not kept pace with costs, and might need to go up. Commuters say bus companies are profitable. The hard facts? Bus operations lose money. But transport companies make money when you add revenue from train and other operations.
By Maria Almenoar, The Straits Times, 10 Jan 2013
THE profitability of Singapore's two public transport operators has come under scrutiny in recent weeks, after the Government hinted that fares may need to go up to keep the two operators commercially viable.
Transport Minister Lui Tuck Yew last month argued that fares had not kept pace with costs and suggested that they have to go up to increase salaries of bus drivers, among other costs. He did not say when fare hikes might take place.
A fare review is under way and a report is due early this year.
Some commuters have asked if a hike is necessary, pointing out that SBS Transit and SMRT are profitable.
The financial statements of the two companies were posted on forums, with netizens highlighting these companies' profit pools.
S'pore operations: Profitable
AS A group, there is no doubt the companies are profitable.
ComfortDelGro, which runs SBS Transit, ended its 2011 financial year (FY) with an operating profit of $399.2 million. This is up from $388.4 million the year before. Its 2012 results are due next month.
Nearly half - 45.8 per cent - of its operating profit, however, comes from overseas businesses in countries such as Australia, China and Britain.
If just local operations are considered, the conclusion is the same: profitable.
Local operations, which include bus, train, taxis, engineering and advertising revenue, resulted in $216.4 million in operating profit.
As for SMRT, its group operating profit for FY2012 was $148.7 million, lower than the $195.6 million in the preceding year.
Most of the profit came from local operations. Only 2 per cent or $3 million came from overseas ventures.
Commuters looking at these numbers might well ask why they have to pay higher fares when these public transport companies are financially healthy and profitable.
Mind the buses
BUT the counter-argument from the operators is that commuters should look at just their local bus operations.
These are certainly loss-making.
SBS Transit, which runs about 70 per cent of the bus routes, ended its last financial year at $6 million in the red for its Singapore core bus operations. This excludes revenue from advertising.
SMRT fared worse. It had an operating loss of $11.6 million for its local bus operations at the end of its last financial year. Higher fuel costs and staff wages were the main factors that ate into their bottom line.
So should the commuting public be sympathetic that these companies' Singapore bus operations are losing money?
National University of Singapore's transport economist Anthony Chin points out that it is not possible to separate bus operations from the group's overall operations. Bus operations are meant to feed into the train system which forms the backbone of Singapore's transport network. They are not intended to be profitable on their own, he said.
This is why both operators are also allowed to run train operations: SBS Transit runs the North-East Line, which produced $19.7 million in operating profit for FY2011.
SMRT has the North-South, East-West and Circle Lines, which yielded $91 million in operating profit for FY2012.
Taken together, SMRT's bus, train and LRT operations made $79.1 million in operating profit.
ComfortDelGro's total for these segments contributed $13.7 million in operating profit. In other words, the operators' core business of running public transport services in Singapore is profitable, even if bus services alone are not.
If revenue from advertising and rental are included, the profits are higher.
Some observers also argue that even if transport companies are making an operating loss for their core bus business, the Government should step in with bigger subsidies before turning to higher fares to fund the shortfall.
Government funding
SUBSIDIES from the Government already come in different forms for buses and trains.
Operators buy buses and collect fare revenue. But they receive waivers in road taxes and a waiver in certificate of entitlement (COE) premiums from the Government.
Can the Government do more to fund bus operations?
Recently, it decided to bolster the operations of buses to help improve service levels for commuters with the $1.1 billion Bus Service Enhancement Programme, to be rolled out over five years starting from 2012. The money is to buy 550 buses over five years and to operate and maintain them for 10 years. Without this financial subsidy, the operators are unlikely to run 40 new routes because they are unprofitable.
As for train operations, the Government used to pay for the cost of building the train infrastructure. Operators would be given the first set of rolling stock including trains.
With new train lines like the Downtown Line, however, the Government builds all the infrastructure and owns the rolling stock, and then leases them out to operators.
Overseas transport companies operate on different public transport models. In Europe and Australia, the operators work on a cost-plus model, where they bid to run a route and the Government collects the revenue. The operators are paid a fixed fee, plus incentives if they meet or exceed service standards.
In Hong Kong, train operator MTR Corporation is given land above train stations to develop.
Singapore's model is one of using public funding for infrastructure projects but relying on private sector operations for transport services. There have been calls for a major overhaul, but it is not clear if other models will work better.
While the status quo continues, the Government's objective is to make sure public transport operators remain financially viable to deliver efficient, reliable service to commuters.
Mr Lui had argued that there is a "real significant mismatch" between the costs that operators face and how much they have been allowed to raise fares.
Fare adjustments have been about 0.3 per cent cumulatively over the past five to six years while operating costs have risen by about 30 per cent, he noted.
He added later: "The purpose of fare increases is not to boost the short-term profits of public transport operators. It is also not just to improve salaries of bus drivers but to improve service to commuters while keeping public transport operations commercially viable.
"This is why we must work with the public transport operators to ensure that when granted any fare increase, they would re-invest part of this revenue to improve the public transport system to benefit commuters."
Mr Cedric Foo, chairman of the Government Parliamentary Committee for Transport, said there is a need to strike the right balance between the interests of commuters, the Government and operators. Operating costs had increased and the Government cannot be expected to keep subsidising the operators, so increasing fares was one way to offset this cost, he said.
Analysts also say there might be concerns about the companies' profitability from an investor's point of view.
CIMB analyst Lee Wen Ching noted in a report on land transport: "Margin pressure remains inevitable for operators, from rising staff and energy costs, which together form more than half of their operating costs, amid a lack of fare pricing power."
Analysts say both companies need to continue to diversify their operations locally and internationally so they can absorb any additional costs.
ComfortDelGro runs buses and taxis in Australia, China and even Vietnam. SMRT's operating profits are significantly bolstered by advertising revenue from their bus, train and station billboards and commercial rental contributions from leasing out areas within their stations. These make up 48.4 per cent of its group operating profit.
SMRT, which owns a 70 per cent stake in a venture with NTUC FairPrice, won a recent bid to lease and operate 41,000 sq m of commercial retail space at the Singapore Sports Hub.
National University of Singapore's Professor Lee Der Horng, who does research on transport, says commuters may not be persuaded of the need for higher fares when companies are profitable and can raise revenue through overseas operations or domestic commercial activities.
The companies should be encouraged to increase their efficiency and productivity, he said.
Clearly, whether or not the fare review leads to higher fares will be a matter that is closely watched, given that many people rely on public transport.
Fare increases are never popular. But commuters have said that they might go along with them if they can be convinced that they are necessary. Some have called for improvements in service standards, or reliability of public transport, before fares go up, for example.
Making the case for higher fares will not be easy. For now, public transport companies here remain profitable, based on their core Singapore transport operations. Profits can also be augmented with other revenues locally and overseas.
Things may of course change. But as long as public transport operations here remain highly profitable, the case for higher fares will be a hard sell.
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