Fare Hike Is Not Linked To Oil Price?
I expect the blogosphere to explode with entries regarding Raymond Lim's response to a resident's query of "With oil prices now plummeting, why not fares too?" during his dialogue session yesterday. His reply, "The answer is that public transport fares are not directly linked to oil prices."
His response really caught many people by surprise. When the bus companies applied for fare increase to the Public Transport Council (PTC), increase in fuel costs was cited as one of the supporting factor by SBS.
If you refer to the second and third quarter 2008 financial statements of SBS, fuel and electricity cost (which is a function of oil prices) forms about 30% and 29.1% respectively, it can be easily seen that fuel price is a big part of the operating expenses. Even though staff costs is the biggest portion of the operating costs, it has dropped from 45.7% in second quarter 2007 to 40.7% in 2008; and dropped from 44.7% in third quarter 2007 to 41.4% in 2008. In fact, the operating cost increased was largely due to the increased in fuel and electricity cost. It can be seen that fuel and electricity cost has formed an increased operating cost portion of 20% in Q2 2007 to 30% in Q2 2008; and from 21.4% in Q3 2007 to 29.1% in Q3 2008. All these data show that oil prices has a significant impact on the operating cost of the public transport companies when oil price reached a high of US$147.27 on 11 July 2008 from a 2007 nominal price of US$64.20.
It is thus very surprising that Raymond Lim had said that transport fares are not directly linked to oil prices.
However, even though during the period of high fuel price, SBS has still manage to report a pre-tax profit of $7.893 million in Q2 '08 and $10.338 million in Q3 '08. Regardless, the PTC approved the application of fare hike with effect from 1 Oct 2008, an overall net hike of 0.7 per cent in bus and train fares.
Now with crude price hitting US$33 on 19 Dec, a near 5-year low, it is only 22% of the record high price reached on 11 July 2008 and only 51% of year 2007's nominal prices. Surely, the PTC should be prepared to lower the fares. If such factor does not warrant a drop in fare price, then when?
With the steep drop in oil price and 0.7 per cent fare hike, SBS is going to make a record profit come the next few quarters. When the world is in a global recession, only our public transport companies can expect to make record profit instead.
Surely, something is wrong here and the PTC should act and reduce the fares in the upcoming review.
7 comments:
Give him a break. He running out of excuses already.
Erm... then who is going to give the commuters a break?
This is shear incompetence on PAP's part. This greed from the PAP which knows no bounds. The abuse needs to stop. Fellow Singaporeans, please remember the abuse during the next election. Don't let some small carrots during election time sway your votes.
for heaven sake, if oil price is not linked to transport cost, transport companies should not use high oil price as a reason when asking for fare increase…..talk about manpower cost, transport companies have started employing FTs as drivers and this should drive manpower cost down instead of up…..so pls stop using manpower cost as reason…….
But because of the recession, there may (will) be a reduction in ridership...
Hence the price hike will go some way in propping up the revenue numbers (profits as well since operating costs are lower)...
Then the mega-million dollar question remains - isn't this going to just benefit the transport companies?
However, it's no secret who has substantial stakes in these companies...
Demand for public transport is largely inelastic; Even in a recession, you'll still need to go to work. The loss of leisure trips during the downturn is offset by the organic growth of the population.
When the population grows, demand for public transportation is higher. So far, our public infrastructure is nearly at maximum capacity. Just take a look at the crowded MRT trains every day, and it can be safely concluded that the demand hasn't changed one bit.
I agree with Cobalt Paladin: if this is not a good time to drop fare prices, then I'm interested to know the circumstances under which Raymond Lim will concede to a fare reduction.
First, perhaps an explanation of what "not directly linked" means. Basically idea is very simple: oil shot from US$30 to $150 per barrel in like 2 years. Transportation costs didn't go up 5 times. Now that price is more sane at $50+, cannot expect prices to drop by a third either. That's what it means. :-)
I think the problem lies in the regulatory framework. PTC is not a setter of prices.
What happens is that the transportation companies bring their proposals for changes in prices to the PTC for the PTC to "approve". So in this light, PTC is passive.
I believe that in theory, the transportation companies can bring a proposal to the PTC to reduce fares. Whether this will happen doesn't require a genius to figure out.
Perhaps the solution is to have a separate body submit proposals to the PTC to reduce fares with appropriate justification - but this is hard. SBS and SMRT will not willing release information on its costs etc. to such a third party. Also, who should do it? Case ah? :-P
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