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Fare adjustment formula caps fare
increase rather than leave to operators to set
The Public Transport Council (PTC), in
deciding whether to grant a fare increase this year, would look at
the fare adjustment formula (Price Index -- 0.3%) which is 1.8% for
This fare adjustment formula protects
the interests of commuters by capping the increase rather than
leaving it to the operators to decide what the market can bear.
Commuters also benefit via a productivity extraction (0.3%) where
operators share their productivity gains with the commuters. This is
also to encourage the operators to become more efficient in their
operations if they want to maintain their profitability.
PTC checks on overall economic
outlook, affordability and operators’ profitability
The PTC will have to take into account
overall economic conditions, the affordability of public transport
fares and the operators’ profitability when deciding whether or not
to allow fare increases.
The current economic outlook is
positive, with the full year GDP growth forecast for 2007 having
been revised upwards to 7.0% - 8.0%. The unemployment rate has also
come down to an estimated 2.4% in June 2007, the lowest in the last
The PTC has assessed that there are no
extenuating circumstances due to economic conditions or
deterioration of affordability of fares to not grant a full fare
increase. However, the PTC also did a “reality check” on the
operators’ ROTA as an indicator of profitability to further ensure
that commuters’ interests are protected. The PTOs’ ROTAs, compared
with companies with similar industry structures and risk profiles,
suggest that our rail industry has done very well in the last year.
On balance, the PTC thus decided to raise only bus fares, and
maintain rail fares at the current level, to the benefit of
Even with the fare increase granted on
bus fares this year, fares are likely to stay affordable with a
likely increase in general wage levels. The average wage growth was
5.5% for the 1st quarter of 2007. Affordability is also maintained
by the fact that child/student fares and prices of concession passes
will remain unchanged.
ROTA of SBST and SMRT
Comparison was made with the ROTA of
companies such as Hong Kong’s Transport International Holdings and
MTR, Stagecoach Group, Arriva PLC, FirstGroup PLC, SembCorp
Industries and Singapore Airlines. The ROTA of these companies
ranged from 4% to 9.7%.
Impact of fare increase on commuters
More than half of all trips do not see a
fare increase. Those travelling by rail only, adult EZ-Link for some
bus trips, paying cash fares on buses, children/students who pay
concession fares and those with monthly concession passes (students
and NS men) do not face fare increases.
Of the commuters affected by the fare
increase, 3 in 5 of them take direct journeys. The Adult EZ-Link bus
fares for such journeys will increase by at most 2 cents.
For Example: A bus journey from Toa
Payoh Bus Interchange to Orchard Road that currently costs 87 cents
will see a 2-cent increase from 1 October to 89 cents. This is an
increase of 4 cents per day or less than a dollar (about $0.88) per
Among commuters who have to make one
transfer to another trunk bus, they will see a fare increase of at
most 4 cents.
For example: A bus journey from Ang
Mo Kio to Alexandra Road with a transfer at MacRitchie Reservoir
currently costs $1.581. From 1st October, the commuter
will see an increase of 3 cents to $1.61 (a 2-cent increase for the
1st leg and a 1- cent increase for the 2nd leg). This is an increase
of 6 cents per day or about $1.32 per month.
Comparison of average bus and rail
fares across cities
1 This consists 65 cents for the 1st leg
of the bus journey, $1.18 for the 2nd leg and a 25 cent transfer
2 The PPP is the rate of currency
conversion at which a given amount of currency will purchase the
same volume of goods and services in two countries. Another way of
looking at the PPP is that when it is used as a currency converter,
the price level is the same in both countries.
Release 11 Sep 2007