Rough ride for buses

PUBLISHED : Wednesday, 31 August, 2011, 12:00am
UPDATED : Wednesday, 31 August, 2011, 12:00am


As she does on almost every workday, accountant Kathy Fung queued up along Yuen Long's only main road to catch a bus to her Central office.

It took her more than an hour to make the journey - slightly longer than if she went on the railway, but she prefers it.

'At least I can sleep through the whole journey without changing to other transport,' the 24-year-old said. 'Others do too, so it's not surprising to wait for three or four buses before I can board.'

With that kind of passenger loyalty, the city's buses should be on easy street. But Kowloon Motor Bus, the largest bus operator in town, is reporting its second loss since 1961, the year it went public, according to an interim report from its holding company, Transport International.

KMB reported an after-tax loss of HK$16 million for the first half of this year, down from a profit of HK$136 million for the same period last year. The company's only other interim reported loss, in 2008, turned out to be overly pessimistic - the buses went on to make a HK$75.7 million profit toward the end of that year.

Transport International is a subsidiary of big developer Sun Hung Kai Properties, which in March announced a 36 per cent rise in interim net profit, to HK$21.01 billion

Less than six months ago, KMB issued an annual report boasting it was 'in a good position to take advantage of opportunities' and that smart manoeuvring had allowed it 'to partially offset the adverse effects of high fuel prices'.

The carrier says its biggest problem is the very food of its fleet - the cost of fuel. The average 'Singapore 0.5 per cent sulphur gas oil' price, the index determining the company's diesel expenses, for the first half of this year soared to US$124.80 a barrel, a 43 per cent increase from a year before.

And although Hong Kong's population is increasing, bus demand is shrinking - a result of rapid railway expansion that is bedeviling all local bus giants.

KMB is the Hong Kong bus operator with the most routes and the widest geographical spread. It is therefore being hit harder by these trends than the two main bus companies on Hong Kong Island, Citybus and New World First Bus. And it is not helped by district councillors who routinely raise strong objections to killing off little-used routes - even though, as KMB says, 60 per cent of its routes are unprofitable. A painful example was KMB's route 70, an old-fashioned time-consuming ride from Sheung Shui to Jordan, passing through Tai Po and Sha Tin with minimal use of the highway network. Just before its cancellation in 2008, this service ran at a loss of HK$8 million a year.

District-level politicians hate to see transport services in their constituencies disappear, however unused a route may be. To an elected official, failing to fight for the most resources could amount to a loss of voters' confidence.

In Tseung Kwan O, after a new MTR line was opened in 2002, residents cut back on taking the bus. But three cross-harbour routes, recently reported to be severely underused, are still operating. KMB said two of them had less than 20 per cent passenger use.

An MTR ride from Po Lam in Tseung Kwan O to Central takes 30 minutes. A bus ride takes twice as long. But district councillors do not want the underused bus services stopped.

'The case is, whether it's the MTR or buses, there are many, many passengers during morning rush hours,' said Ricky Or Yiu-lam, a Tseung Kwan O councillor. 'One should pay attention to the expanding population in southern Tseung Kwan O. The MTR is in no position to take any more of them.

'If bus companies further cut services on a certain route, of course, passengers would shift to the MTR,' Or said.

When drawing up any transport proposals, the Transport Department usually consults the affected district councils. But as a bus route, especially one for commuters, often covers several districts, that is too fragmented an approach, some say.

Stephen Ching, an economics professor at the University of Hong Kong, says the government should take a more active role to help KMB get rid of redundant routes amid district-level opposition 'on condition that that can truly help the company sustain [operations].' Apart from local politicians, the company is under pressure from its major competitor, the MTR Corp, as well as the MTR's major shareholder, the government.

KMB said: 'The fall in passengers on existing routes that compete with railway lines outpaces the number of passengers we can capture from population growth.'

For example, it claimed a major passenger decline in the northwestern districts following the opening of the Kowloon south railway link in mid-2009, which allows commuters in Yuen Long and Tuen Mun to travel directly to Kowloon's key business centre, Tsim Sha Tsui.

According to the Transport and Housing Bureau, the government 'adopts the policy of making use of the railway as the backbone of our passenger transport system ... we encourage the full utilisation of railways, with other transport means providing feeder services'.

This policy - which basically hinders further point-to-point bus services - sparked heated debate in the Legislative Council a decade ago. In one rare case, lawmakers argued for, and finally got the nod for, a regular bus route to Central for residents in Tai Po, a railway-serving district, some 20 years after the new town's establishment.

When the MTR's South Island Line (East) opens as scheduled in three years, New World First Bus and Citybus - now the dominant transport providers in the area - predict that they will lose as much as half their passengers. The Sha Tin-Central Link, bringing a rail service to places like To Kwa Wan for the first time in 2018, is also likely to take away KMB passengers.

'KMB wishes to emphasise that if, and only if, the duplication is removed and resources redeployed via route reorganisation can KMB's efficiency be maintained,' the company said.

Keeping fuel costs down is another challenge. Some commentators advise bus companies to invest in hedging measures to manage the risk of more expensive fuel - something that has been adopted by Singapore's largest bus operator, SBS Transit, according to the company's documents.

But the man who heads operations for the two main bus companies on Hong Kong Island, Citybus and New World First Bus, says that is a bad idea.

'Cathay Pacific actually made a big loss some years ago as a result of oil hedging,' said William Chung Chak-man.

'Bus companies are not experts in investment. Oil hedging is just like a gamble.'

Chung, echoing competitor KMB, said bus operators could no longer shoulder rocketing oil prices, although he admitted that the companies he manages are not expecting any financial loss at the moment.

The two Island operators, Chung said, would join KMB in arguing that the government should initiate a 'fare stabilisation fund', an idea that KMB floated when announcing a loss warning in mid-July. Critics shot down the notion, with some bloggers saying KMB was seeking something that even insurance underwriters would not provide: guaranteed profitability, this time from taxpayers. The government quickly rejected the idea to avoid giving the impression of government-business collusion.

New World First Bus and Citybus came up with an alternative. 'What we are hoping for,' Chung said, 'is more like fuel surcharges currently levied in the aviation industry. Bus companies could first agree with the government on a certain acceptable level of oil prices.

When oil prices rise beyond that, passengers would need to pay, for example, 50 cents more each trip to cover the extra cost'.

Hung Wing-tat, an engineering professor at Polytechnic University, objected. 'What if the oil price goes down? Are bus companies going to return a part of the profits back to passengers?'

Hung, a long-time transport researcher, recommended the approach used in Singapore, where a government body, the Public Transport Council (PTC), set up a 'fuel equalisation fund' through legislation almost two decades ago to 'ensure that volatile fuel prices do not have a significant impact on public transport fares', as the official website puts it.

Under Singapore's system, a contribution is required if actual fuel prices drop below the reference fuel prices set by the council. In 2009-10, for example, the PTC set the reference diesel price at S$0.8149 (HK$5.26) per litre for SBS Transit. This is roughly equivalent to US$107 a barrel. But as the average actual fuel price for that period was lower than US$100, SBS ended up contributing S$4.8 million of its S$54.3 million profit. So far, SBS has paid out almost S$40 million in the government fund since 1992.

If fuel is more than the reference price, bus operators in Singapore can apply to the PTC to draw down their fund contributions to 'cushion the impact of fuel rises, thereby enabling them to tide over periods of higher fuel prices without increasing fares', the website says.

However, Anthony Chin, an economist at the National University of Singapore, said the process was not transparent and no one knew how much bus companies had been paid back.

Unlike some of its international counterparts, Australia for instance, the local government says it has no plan to run bus services itself, saying that keeping them commercial will result in more efficient operations. But Chung said: 'If it should be a business, then why should there be so many restrictions imposed on fares, routes, frequency?

'Nor does the bus industry seem socially-oriented,' Chung said, 'as we have to bear losses without any help from the public or government.

'I always fear tomorrow's buses might become yesterday's ferries,' he said, referring to the cross-harbour ferry business that once prospered until the completion of the tunnel linking Hung Hom and Causeway Bay in 1972.

Bus franchises, usually granted for 10 years at a time, govern the mode of bus operations in the city. The government believes the system facilitates 'the operation of loss-making but socially-desirable routes'.

At present, the government allows fare reviews only when there are extraordinary changes in the consumer price index or in transport employees' wages and productivity. When that happens, the administration considers a basket of factors, including affordability for people, service quality and future business expectations.

But Chung said this system gave bus companies too little information on why fare increases were approved or not.

And the government formula was based too much on the local economy, when much of an operator's expenses hinge on outside factors. Fuel fluctuates globally and parts maintenance is mainly from Britain.


The number of buses KMB operates, covering 394 routes in the city. It was established in 1933 and has more than 12,000 staff