Jake's View

KMB losses show we may need to rethink transport pricing

PUBLISHED : Sunday, 02 December, 2012, 12:00am
UPDATED : Sunday, 02 December, 2012, 5:14am

KMB has applied to the government for an 8.5 per cent fare increase over the next year, after it lost HK$12.5 million in the first six months this year.

SCMP, November 30


My relatives in Canada have a name for the bus. They call it "the loser cruiser". Bus service for them is substandard and passengers are too frequently pickpockets, drug addicts and people of erratic behaviour.

In contrast, I enjoy riding the bus into town from my home in Repulse Bay. It is a pleasure to have a frequent service, clean buses and a gentle, quiet ride. But KMB's predicament suggests we may need a complete rethink of transport pricing.

The Transport Department thought it had this problem solved some years ago with a fare-setting formula that was based on taking half the increase in the overall consumer price index and half of the increase in transport workers' wages, less a small factor for increased productivity.

But this never reflected the true cost of bus operations. It takes no account, for instance, of fuel costs and bus purchase costs. It also ignores operating conditions.

The proof is now in of how completely out of touch this formula is with reality. KMB will need an 8.5 per cent fare increase just to break even next year, says Edmond Ho Tat-man, its managing director. Some people will dispute his calculations, but I shall rely on the audit report. The company lost HK$12.5 million in the first six months this year.

As the first chart shows, there is no way the fare-setting formula can support an 8.5 per cent fare increase. Increases in both the overall CPI and transport workers' wages are running at less than 4 per cent.

The problem for KMB is not primarily costs, but operating conditions. The second chart shows a significant decline in passenger numbers over the past 10 years as a result of competing rail projects.

Increasingly clogged traffic in Kowloon has also slowed down KMB's buses, with a direct effect on revenues, while local district politicians militate against closure of uneconomic routes. The only thing the Transport Department can now do is scrap the formula entirely and come up with something that allows the bus companies to make a decent return on their investment.

But the department can also declare the formula a guideline only and say that fares will in the future be established entirely by civil servants.

In practice this will mean local politicians pushing spineless bureaucrats to allow no fare increases and keep all uneconomic routes in service, a certain formula to make bus company balance sheets shrivel.

And then we too will get the loser cruiser.