Tuesday, December 11, 2012

Public Transport Fare Hikes

Our transport minister announced possible fare hikes for our public transportation system recently.

So.. No big deal, right? There is inflation and naturally there should be price hikes, no?

But 2012 has been a unique year for Singapore's public transportation system.

It was a year where our MRT (subway) system broke down several times and caused massive delays since the subway companies had no prior experience dealing with these break downs. A detailed investigation was done and it was concluded that $900M was required to rectify and remedy the faults in the subway lines. This cost was co-funded by the government, namely the Land Transport Authority (see source here)

It was a year where bus drivers went on strike. A first in Singapore across any industry since goodness-knows-when.

The public transportation system is mainly run by 2 listed companies - SMRT and SBS Transit.

SMRT and SBS Transit had profits of $119.9M and $36.7M respectively. According to the Workers' Party - this translates to a Return on Equity of 15.1% and 11.3% respectively. The median ROE for Singapore listed companies in comparison was 7.8% over the same period.

Now, something the transport minister said was very disturbing. Mr Lui Tuck Yew said that bus fares may have to go up in order to accommodate wage increases of bus drivers.

Now, I work in a bank and the banking industry is a competitive industry. Banks are always looking to hire good people and to do that, you often have to either provide more opportunities for those individuals, or simply pay more.

But when banks need to pay their employees more, do they increase their prices to their customers? Would a retail bank increase their mortgage interest rates so that they can "accomodate wage increases" of their branch staff? Would an investment bank increase its IPO fees so that they can pay their staff better?

I can understand why wages for bus drivers need to be increased.

However, there are many ways to do that though - you can cut down costs in other areas of operations, increase efficiency (for example, by having double decked bus instead of single decked buses), design more efficient and better bus routes (oh my, I don't want to go into this again).

Increasing bus fares to the public and using bus drivers wages is a very lame excuse for any profitable company. See this post on a separate blog for the writer's analysis of where the money is with SMRT.

And actually, why is this comment made by the Transport Minister, when the revenue of the fare increase would go straight into the 2 listed companies and not the Land Transport Authority? ( I also wonder why the Land Transport Authority would subsidise these 2 companies through things like co-funding of repair costs? It's like having the Monetary Authority of Singapore subsidizing ATMs network repairs for banks should there be a breakdown!)

There is something about our public transportation system that seems very wrong somewhere.

Singapore is not a big country. I really do believe that if left completely to the private sector, there will be real competition in this space and I'm sure we'd have a much more efficient, and maybe even cheaper public transportation system.

Photo from SBS Transit website
Now, I don't understand why we still have so many single deck buses


Blur Ting said...

It IS a public service and they should stop treating it like a money making machine.

Celine said...

You are right. Disturbing symptom of Singapore Incorporated instead of Singapore as a country....

Petunia Lee said...

Way to go! OKC! You say what I think!!

Open Kitchen Concept said...

Ting - actually if left to the private sector, I believe companies could make money and provide more efficiency than having 2 oligopolies supported by government (and taxpayers' money) dominating the scene..

Open Kitchen Concept said...

Celine - Singapore Incorporated indeed!

Open Kitchen Concept said...

Thanks Petunia!

Wen-ai said...

Totally agree with you! I've always wondered why can't our public transport be run like our NTUC Fairprice? A co-op kind of structure where there are still competition(i.e.: the Cold Storage, the Prime Mart, the Sheng Siong .. etc) but our NTUC still survives and doing well right? NTUC Fairprice technically is not profit driven but from what I see, it is a very well-run supermarket chain, providing invaluable service to Singaporeans.

Open Kitchen Concept said...

True, Wen Ai. They shouldn't restrict competition in the transportation industry

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