20 January 2019
Balancing the interests of its shareholders and the general public remains a key challenge for Hong Kong rail operator MTR Corp. Photo: Bloomberg
Balancing the interests of its shareholders and the general public remains a key challenge for Hong Kong rail operator MTR Corp. Photo: Bloomberg

Will MTR redefine its role under new CEO?

Being the sole railway operator in Hong Kong and a lifeline for millions of commuters in the city, MTR Corporation is no stranger to criticism and attacks.

While it is widely acknowledged as one of the world’s best public transport providers, the company has often faced flak over perceived confusion in relation to its roles and responsibilities.

As a listed entity that is majority owned by the government, MTR is accused of focusing more on generating profits for its shareholders rather than protecting the interests of the general public.

The rail operator seems to forget that its primary duty is to ensure affordable railway transport service, rather than act as a property developer and trying to maximize its earnings, critics say.

Now, with a new CEO taking the reins, calls are growing that MTR must rethink its position and role and do a course correction.

Lincoln Leong officially became MTR’s new boss from this week after serving as acting CEO since August last year when Jay Walder abruptly stepped down.

Leong’s ascent to the top job came as MTR announced on Monday that its net profit jumped 20 percent for the year ended December, thanks to a sharp increase in home sales and a rail fare increase.

Ridership increased during the fourth quarter of 2014 as street blockades by pro-democracy protesters prompted more people to take the metro.

But higher fares were the main reason for the strong results. Under a government-mandated fare adjustment mechanism, MTR can review its fares every year to reflect the actual operating costs. The fares can be raised each year without the approval of lawmakers.

Meanwhile, the company also reaped huge profit from property development along various stations, which partly offset the capital expenditure involved in building new railway lines in the city.

The annual fare hikes in June, as well as extremely high prices set for apartments in MTR-linked housing projects, have been fueling discontent among the public. The company should not forget its primary role as a public service entity, people say.  

Meanwhile, some critics also aver that MTR’s service quality has been flagging recently as the firm focuses on collateral businesses such as property projects. A rise in the number of service delays is cited as evidence.

Responding to the demand for cheaper fares, MTR will budget HK$2.2 billion this year for special fare offer arrangement such as 10 percent discount for return trips. But such small rebate won’t be enough satisfy the public.

What MTR, as the city’s largest public transport firm and a leading property developer, needs to do is to resolve its conflicting role in serving the shareholders and the public interests.

As the government holds more than 70 percent stake in MTR, it can play a key role in pushing for a more efficient structure and possibly reward passengers with lower fares, as well as reduce the firm’s reliance on profit-sharing from the property projects.

But it seems the government’s current policy is oriented more toward generating maximum returns for itself, rather than ensuring benefits for the public.

The annual fare adjustment mechanism has been under fire since it was implemented in 2007. Fares were mostly revised up based on the macroeconomic environment, taking into account factors such as labor cost and inflation.

The rail operator should instead have focused more on boosting the operating efficiency and cutting costs, which could have helped it offer cheaper services to the public, critics say.

The railway operations of MTR reaped HK$8 billion profit last year, marking an increase of about 8 percent from 2013.

The huge profit shows that the railway operation is no longer an unattractive spot for MTR, and that it is now, in fact, a stable cash cow offering steady return. Meanwhile, the company itself bears no financial responsibility for building new lines.

To address popular concerns, MTR should negotiate with its largest shareholder, the government, to work out a new formula on fare adjustment.

The rail operator can consider profitability, not operating costs alone, in making its fare review decisions. Given the firm’s record profit last year, fares can perhaps be frozen for one or two years as a way of rewarding passengers.

One must note that Hong Kong’s private bus operators New World First Bus and CityBus — which is owned by NWS Holdings — have been doing well in keeping the costs down despite fierce competition from MTR.

The bus operators have been holding their fares as well as offering special rebates during specific periods.

Now the question arises: will Leong, MTR’s new boss, be willing to step up and be prepared to make some adjustments in the firm’s business strategy, even if it means settling for slower profits growth?

Overall, the government — as an investor, policy maker and regulator in the local transport market — may also need to clarify its role in MTR as the government involvement in the rail firm creates an unfair market.

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EJ Insight writer

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