THURSDAY, March 28, 2024
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Mass transit: Between the lines

Mass transit: Between the lines

HONG KONG - In a surprise move mid-July, Singapore announced the buyout of its rail and metro network by a unit of the country’s state investment fund.

The S$1.2 billion (US$895 million) deal is an odd situation for Singapore’s SMRT Corporation (public transport operator). After all, in 2015 — despite four years of disruption, station floods and other woes — it still made a profit of S$109 million (US$81).
 
But according to Richard Anderson, the managing director of the Railway and Transport Strategy Centre (RTSC) at Imperial College London — a policy and advisory group that works with metro systems worldwide — the SMRT situation is a symptom of a wider Asia mass-transit malaise. Namely, the region’s subways are not profitable enough to stay sustainable.
 
“There’s an important distinction in Singapore between how profitable SMRT group is and how profitable the metro is,” Anderson told China Daily Asia Weekly, adding: “I know that publicly people think Singapore’s metro has been profitable, but actually, relative to others in Asia, it’s not.”
 
According to its annual report, SMRT’s metro made a technical loss last year. Only a S$17 million property rebate enabled it to end the year S$7.4 million in profit.
 
Speaking to China Daily Asia Weekly, Rajiv Biswas, Asia-Pacific chief economist at analysis firm IHS Markit, explained Asia’s rapid metro growth is due to the equally rapid population growth in large cities, as well as poor road infrastructure and gridlock.
 
In response, the Asia-Pacific region has become a leader in urban mass transit. Beijing has grown from seven metro lines to almost 20 in under a decade, with three more lines to be completed by 2020. New metros — in the Chinese cities of Fuzhou, Dongguan and Nanning — are also set to open this year.
 
Transport: Hong Kong model shows that profitability is possible for mass transit
 
Beyond the Chinese mainland, new rail transport hubs are planned or under construction in cities like Jakarta, Dhaka and Hanoi. Meanwhile, Singapore, Taipei, Seoul and India are also expanding their networks.
 
On paper, revenue looks good. The latest available figures from the Seoul Metro, the nationalised South Korean rail provider, show it raked in 914 billion won ($825 million) in 2012. Taipei managed to garner NT$800 million ($25 million) that same period.
 
But — as with Singapore — they are not necessarily profitable.
 
The concern is that while relatively limited amounts of money are raised from areas like advertising, the majority of revenue comes from tickets — and this is often unable to cover costs.
 
Alexander Barron, associate director of RTSC, explained that in Asia fares are often never raised in line with inflation. “People think they’re paying the same,” he said. “But they’re actually paying dramatically less.”
 
An example is Beijing, where fares were reduced to 2 yuan (30 cents) for the Beijing Olympics in 2008 yet not raised for another seven years. As new lines opened, trips grew longer but fares stayed the same. Only last year did the system switch from a flat rate to a zone-based fare.
 
A similar story is seen in the Indian capital. In June, New Delhi introduced unpopular price hikes of about 30 per cent. Original costs had been between 8 and 30 rupees (12 to 45 cents), which according to India’s The Economic Times had not been changed since 2009.
 
A further reason for debt, said Anderson, is the expansion of metros into suburban areas where there are fewer people.
 
“In the long term,” he said, “if these cities become megacities and growth continues in China, you might expect those areas to fill up with people. But of course, when you’re linking land use and transport development together — if your transport comes much earlier than your land use development, you’re left with a problem.”
 
Japan faces an inversion of this. As the capital, Tokyo, sucks in workers from the rest of the country, the semi-privatised, smaller urban subways in other cities face dwindling passengers and rising government subsidies.
 
According to Michael Li, an associate professor at the division of information technology and operations management at Nanyang Business School (NBS) in Singapore, Japanese metro expansion plans have been used differently from China’s. “In Japan,” he said, “building infrastructure has become a typical fiscal measure to stimulate the economy.”
 
Yet, with the final line at the small northern university city of Sendai completed last year, no further line extensions or new subway systems have been reported.
 
Faced with increasingly shallow pockets, operators are looking for new ways to cover running costs. Governments, it seems, may have grown tired of throwing money — figuratively if not literally — into holes in the ground.
 
In 2014, Standard & Poor’s reported that Chinese operators were widening their finance channels by seeking out private capital. There was also, it said, the “rail plus property” model used in Hong Kong.
 
According to Biswas, the Hong Kong model is a pioneering example of how a metro operator can keep costs low but achieve strong returns. In this case, he said, they had shifted away from purely ticket revenue and looked to capture the commercial value of rental and sales of offices and shopping malls built around railway stations.
 
Li of NBS describes it as “leveraging on real estate”.
 
Nevertheless, Hong Kong also has a huge fare box recovery ratio — the percentage of costs reclaimed solely through the sale of tickets.
 
Compared to New York City, where fare box recovery fluctuates around 30 per cent, or London, which can rustle up 92 per cent, Hong Kong’s recovery rate is roughly 180 per cent. Hong Kong’s MTR Corporation has a long history of raising fare prices to match inflation and in 2015 the company made a profit of more than HK$10.9 billion (US$1.4 billion).
 
Unlike many other networks, however, the operator is over 70 per cent owned by the Hong Kong Special Administrative Region government. It also operates lines in Beijing, Hangzhou and Shenzhen on the mainland, parts of the London Underground, and the Melbourne and Stockholm networks.
 
This, argued Anderson, puts the operator in a unique position. While non-fare revenues like owning land can help metros, he said, “they’re no panacea for not having a decent fares policy. You need fares to change at least with inflation or you’re going to find yourself in a mess further down the line.”
 
Studies by RTSC show only an average of around 15 per cent of operating costs can be recovered from non-fare revenue like advertising, rentals and retail.
 
It also does not help that some of Asia’s metros run at suboptimal capacity. The typical train in Hong Kong has about 50 per cent more total capacity than one in Beijing. Yet the latter city has a population almost three times greater.
 
“Station stop times are too long and turnaround capacity — the speed at which trains turn around and go back — has not been designed properly,” explained Anderson. “And that affects the financial profitability of a metro, because if you can only work at 70 per cent of your potential capacity, people don’t come to the metro.”
 
The result is similar to that seen pre-World War II in metros like London or New York, said Barron of RTSC. Fares then were very low — in New York City, between 1904 and 1940, rides were only 5 cents. Other revenue methods were all but non-existent.
 
“You could argue that they’re still trying to recover from the consequences of that,” he said.
 
If he is right, Asia can learn some lessons from the problems being faced by older networks.
 
For example, two years ago, the then commissioner for London’s transport operator warned if fares and overcrowding were not fixed by 2016, the capital might face “serious social unrest”.
 
But it is not all doom and gloom, according to Anderson. Policy can still be adjusted, as seen in Beijing. And overall, Asia’s metros are a massive success story.
 
“If you consider the development of Asian cities in the 1990s and 1980s, and their poor level of attention to the development of transport infrastructure, relative to what China and India have achieved in 10 or 20 years, we’re in a very good place.”
 
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