How Does the MTR Keep Its Fares So Low?
The government owns a majority 76 percent stake in the MTR Corporation, but you’d be mistaken if you thought that the government is throwing money into the system just to keep transportation cheap. After all, in 2014 the MTR made an impressive HK$15.6 billion profit. But what’s really interesting is that despite cheap fares, the MTR doesn’t have to subsidize its rail fees at all.
The efficiency of a railway pricing system is measured by what’s known as the “farebox recovery ratio,” the calculation of how much of the system’s operating expenses are recovered by the cost of fares. As of the first half of 2015, Hong Kong’s ratio is an unbelievably high 187 percent: the highest in the world. Thanks to a well-planned, efficient and fairly new system, we’re the envy of the transport world. Meanwhile London’s tube hovers well below with a recovery ratio of 90 percent (and a single journey will cost you at least HK$28), while the New York subway languishes with 51 percent.
But of the MTR’s $15 billion profit last year, just under half of it came from another source: property. This is where the government’s close relationship with the MTR comes in handy. The government grants the MTR land to develop into stations, but the MTRC doesn’t stop there. It builds upwards as well, creating office blocks, malls and luxury housing on top of stations. Case in point: the MTR property portfolio includes two little buildings you might have heard of called IFC 2 and the ICC—not to mention 13 malls across the territory.
And so much of the way the MTR makes its money doesn’t lie in moving people around, but in where it moves them to. After all, if you get people moving around the city between convenient destinations, they’ll be more likely to rent your offices, live in your buildings, shop at your malls.
The MTR has a vested interest in keeping its fares cheap. In our compact city, an MTR ride is convenient, efficient and affordable: almost all of us use it. In fact, this September the MTR catered to 130,932,000 trips, an average of 4,682,000 journeys per weekday. That’s the equivalent of moving two-thirds of the city’s population, each day. As a matter of fact, fare increases are linked to the consumer price index and the nominal wage index, meaning that even if it wanted to, the MTR can’t suddenly decide to triple the fares.
It makes sense, anyway. After all, all that good will is going to come in handy when inconveniences crop up—such as the fact that the Hong Kong-Guangzhou high-speed rail link is 30 percent over budget to some $85.3 billion, say, or you’re arbitrarily banning musical instruments from carriages. Because when fares are dirt cheap and your trains are punctual 99 percent of the time—what’s a few billion here and there, between friends?