Tuesday, July 19, 2011

SMRT & SBS - Excessive Profits??

Recently, an application for a fare hike of up to 2.8% has been submitted jointly by SMRT and SBS to the PTC for consideration and approval. Not unexpectedly, there is a widespread outcry especially in the online world against such a move. It smacks of excessive profiteering on the part of the operators at the expense of the commuters. The WP, though Gerard Giam has launched a much lauded criticism against the move and reiterate his call for a nationalised transport operator operating solely based on cost recovery and certain efficiency KPI metrics. A key cornerstone of his argument is the currently excessive profits made by SMRT and SBS which could be used to improve services and reduce fares.The question really is his argument logical and implementable??

Currently, SMRT and SBS made a net profit of $162M and $54M repectively in 2010.  If you look at the profit per trip, i did a rough calculation and it came up to around 0.18 cents and 0.054 cents respectively. A closer examination of SMRT balance sheet reveal that they actually made a loss on their bus and LRT operation. Additionally, a large segment of the profit actually came though renting and advertising. If you strip these elements away, the profit per trip for SMRT is actually around 0.12cents. I suspect the same logic apply for SBS, albeit at a smaller scale. So, we have the following:-

SMRT (profit per trip, 2010 est) = 0.12 cents
SBS (profit per trip, 2010 est)     = 0.05 cents

Firstly just by looking at the numbers, I do not think these are excessive figures to look at, especially when the operators need to reserve a certain of the profit dor future maintainence and upgrade works. For SMRT crucially, if they had not gone into renting and advertising agressively, the profit per trip may even be flat or negative in view of the much higher margin derive from renting and advertising.

If we go by the WP suggestion of a nationalised transport operator with the current efficiency and cost structure, I am not convinced we can do better on cost per trip basis. More likely, a nationalised transport operator without a profit driven motivator will not likely to pursue alternative revenue streams to subsize the commuters.

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