New fare system could have saved MTR HK$1.53 billion

Revised fare mechanism good for the railway's revenue but it may not be such a saving for commuters, despite bid to factor in affordability

PUBLISHED : Friday, 19 April, 2013, 12:00am
UPDATED : Friday, 19 April, 2013, 5:32am

The MTR could have saved HK$1.53 billion in the past three years if it had used a revised mechanism to determine its fares, a South China Morning Post study has found.

A transport expert has described as a failure the government's bid to factor into fares the railway's profit and passengers' ability to pay, and an economist has said the revised mechanism could have been tougher.

The new formula, announced on Tuesday after a review of the MTR's fare adjustment mechanism, took into account inflation, transport workers' pay and the railway's productivity.

A profit-sharing system was also introduced in the revised formula, where the MTR would have to grant a specified amount in commuter concessions when its business profits exceeded HK$5 billion.

But the Post's study found that under the new mechanism's milder fare increases and mandatory concessions, passengers would have saved up to 78 per cent less in the past three years than under the old system, in which the railway voluntarily offered fare discounts.

For example, if the revised formula had been applied in the 2011 fare increase, the MTR's mandatory concessions would amount to only HK$125 million and it would receive HK$45.4 million less in revenue from a milder fare increase.

Compared with the HK$757 million in voluntary concessions given under the old system that year, the MTR would then have saved HK$587 million.

Under the revised mechanism, passengers' ability to pay would be measured by changes in median household income.

If the rate based on the formula was higher than the income change, discounts would be offered. But if household incomes did not rise, effective fares would be frozen.

The Post's study found that in the past five years, the only occasion in which the household income change was negative was in 2009. This meant that effective fares in 2010 would not have been raised if the new system had been in place then. But, based on the revised mechanism, passengers would still have faced a fare increase last year as the year-on-year income change was 9.3 per cent.

Under the new formula, fares in 2012 would have been raised by 4.9 per cent - slightly less than the actual 5.4 per cent imposed, which sparked a public outcry then and eventually led to the mechanism review.

Dr Hung Wing-tat, a veteran transport analyst at Polytechnic University, said the government, despite its promise, had failed to take affordability for the public and the railway's profitability into account in the new system. He was unhappy the MTR was giving only concessions instead of freezing fares or reducing their rate of increase.

Rather than concessions, the railway could freeze its fares whenever its profits exceeded a specified amount, he suggested.

"When it comes to concessions, it's tricky," said Hung. "They make you take the MTR more, and you could end up paying more than needed."

Economist Dr Andy Kwan Cheuk-chiu said he did not expect the adjusted formula to have any major financial impact on the MTR.

The railway's revenue would probably rise sharply in the next few years because several new railway lines would go into service then, he said.

"There's certainly room for the MTR to be more generous," said Kwan.

The Transport and Housing Bureau said it had nothing to add to its documents on the revised mechanism.

The amount of concessions that the MTR would have to give out is at least HK$182 million less than what it had paid in a year, but the reduction in its fare revenue would amount to only between HK$45.4 million and HK$57.1 million.