“I will summarise the plan as being tied to profits, reducing the burden and doubling down on the rebates,” Lam said at a press conference.

The present fare formula incorporates the composite consumer price index and the nominal wage index for the transport sector recorded in December of the previous year to align with up-to-date economic conditions and salary levels.

The formula also includes a “productivity factor” that will be subtracted from the total of the two statistical factors – with the latest change, calculation of this factor will now be linked to the profit of MTR Corp’s property development business, a major money earner for the company.

A profit-linked fare concession arrangement has been used since 2013, but it is the first time the profitability of MTR Corp has been added as a permanent component of the fare adjustment formula.

The subtraction factor would be set at between 0.6 and 0.8 percentage points, depending on the profit levels.

The higher figure would apply when MTR Corp made more than HK$10 billion (US$1.27 billion) in property development profits in the previous year and the lower would apply if the figure dropped below HK$5 billion.

MTR Corp reported a net profit of HK$10.4 billion from property development for 2022, which outstripped the overall profit of HK$9.8 billion.

Based on the updated mechanism, the new factor would take 0.8 percentage points off the possible fare increase in this year.

The rail giant, in which the government holds a majority stake of about 75 per cent, raked in HK$13.4 billion in revenues from its Hong Kong transport operations last year.

The productivity factor had been set at zero previously by agreement between the government and MTR Corp, though the company had been offering a special 0.6 per cent reduction from the formula in the past six years, which will end because of the formula update.

Lam said the new element linked to property development profits in the formula was different because the mechanism was going to “last forever” and have a long-lasting effect on future fare revenues.

The package revealed on Tuesday also included a one-off 1.2 percentage point reduction from the 2023 fare adjustment, and a 1.85 percentage points rollover to be covered in the 2024 fare adjustment.

Combining these with the 0.8-point reduction from the updated formula, Lam said the package would mean cutting 3.85 percentage points from this year’s fare increase.

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The actual rail fare adjustment rate for 2023 will be finalised when last December’s nominal wage index for the transport sector is released later this month.

The affordability cap, based on the fourth quarter’s median monthly household income, will also remain in force and this year’s fare rise would be limited to 2.84 per cent as a result.

The new rail fares determined under the renewed mechanism are to take effect in June.

MTR Corp will also increase the maximum contribution to a fare concession fund from HK$25 million to HK$40 million for every service disruption.

If the disruption happens during peak hours, the penalty will be increased by 20 per cent. Penalties for disruptions that last more than three hours will also be upped.

The past year’s disruptions were calculated under the new arrangements and the penalties will be applied as fare discounts on four days in April and May when passengers using Octopus or QR codes will get half-price tickets.

The MTR will continue its Monthly Pass and City Saver tickets, and rail users who connect to one of the specified green minibus routes can save 20 HK cents from the fourth quarter this year until 2028.

Jacob Kam Chak-pui, the CEO of MTR Corp, said the affordability of rail fares in Hong Kong compared well with other rail systems and maintenance of the present fare setting mechanism would continue to provide the operator with stable sources of revenue.

“As our railway network enters a mature stage, the costs of maintaining, upgrading and renewing railway assets have been ever increasing,” Kam said. “The corporation requires stable sources of revenue.”

But lawmakers and pressure groups criticised the amendments as window dressing and argued that fare reductions offered under the new formula were not enough to keep ticket prices low.

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Lawmaker Michael Tien Puk-sun, a former chairman of rail operator KCR, said, although public concerns had been reflected in the proposals, details of the arrangement promised only limited concessions for railway passengers.

“The formula hasn’t changed. The profit linking mechanism just meant that at most 0.2 percentage points could be reduced on top of the original reduction of 0.6 percentage points,” Tien said.

He also warned that property sales income could fluctuate with each transaction, but the railway operator’s other cash earners, such as advertising and rental income from its malls, which were not factored in the new formula, were relatively stable.

Legislator Gary Zhang Xinyu, who has worked for MTR Corp, agreed the fare reduction under the proposals were “very conservative, and even lesser than the current amount”.

Zhang said the potential maximum additional reduction of 0.2 percentage points under the new subtraction factor would only amount to about HK$33 million a year, based on his estimate of the average MTR fare revenue over the past 10 years.

Quentin Cheng Hin-kei, a spokesman for pressure group Public Transport Research Team, highlighted that the government would need to consider contingency plans for the formula if the railway company recorded losses on property development in the future.

“In Hong Kong, we are used to thinking that the property market would never record losses – it’s only about how much you earn,” Cheng said.

“However, over the past six months, we have seen plummeting prices in multiple land sales. If losses really do occur, what would happen to the fares?”

The first review of the fares mechanism in 2013 saw the introduction of an affordability cap, as well as a fare concession fund tied to the rail operator’s service disruptions in the previous year and underlying profits.

Another review of the mechanism in 2017 saw an expansion of concessions.

Rail fares have been frozen three times in the past six years, including last year, under the revised mechanism.

The only fare reduction under the mechanism was in 2021, after the first year of the coronavirus epidemic in the city.