MTR's fare-freeze has other public transport operators upset

Yu Kam-yin March 05, 2020 17:51

As Hong Kong grapples with an economic downturn following months of social unrest and the ongoing coronavirus crisis, MTR Corporation announced recently that it will not raise fares for passengers using the Octopus card for the rest of this year.

The railway company's decision may have been welcomed by the general public, but not quite so by other public transport service operators in the city. The reason: the rail giant’s fare freeze could affect the other firms' prospects for fare hikes.

In particular, MTR’s move is likely to undermine the chances of bus service provider Kowloon Motor Bus Co (KMB) fn getting the green light from the Executive Council (Exco) for the firm's proposed 8.5 percent fare hike.

At the height of the anti-extradition bill movement last year, MTR became a major target of protesters, with almost 90 percent of its stations sustaining unprecedented serious destruction.

And now, the Covid-19 epidemic has dealt a further blow, with passenger numbers falling significantly as many people work from home and social and business activities have also dwindled as a result of the outbreak.

According to the analysis of an individual who is familiar with the matter, the fare freeze announced by MTR was more a publicity stunt than anything else, with the company trying to project an image of being a “conscientious enterprise” that stands with the Hong Kong people in tough times.

Meanwhile, by freezing its fares, MTR can gain greater leverage over the tenants in its shopping malls when it comes to negotiating rental revisions in the coming day.

Here is the rationale: if tenants demand further rent reduction, MTR can argue that it has sacrificed a lot by freezing the fares, and there is only so much it can take further.

The source then went on to explain that under the existing Fare Adjustment Mechanism (FAM), a key element that determines the level of MTR fares is the fluctuations in the Composite Consumer Price Index (CCPI).

And since the CCPI has remained on a downward trajectory since the end of last year, the railway operator is aware that it is hard to justify further fare hike proposals this year. So why not make an fare-freeze announcement and boost the company image?

Overall, no matter what, it is inevitable that MTR’s decision will disrupt the fare hike plans of other public transport operators.

In 2018, the KMB tabled a 8.5 percent fare adjustment proposal to the government for scrutiny.

And unlike the MTR, which has to follow the FAM formula when it comes to raising its fares, all the KMB needs is the thumbs-up of the Chief Executive in Council.

But, nearly two years on, it is believed that the KMB’s fare hike proposal is yet to be put on the meeting agenda of the Exco.

As a matter of fact, several Exco members have said clearly that they have serious reservations about green-lighting the KMB’s proposal at a time when the overall economic environment is continuing to deteriorate, and when all business sectors are "crying uncle”.

Coming to the government, even if it vetoes the KMB’s fare hike plan, the administration may not necessarily earn brownie points with the public.

While we can only wait and see what happens, for now it appears that the Exco would rather put the KMB’s fare hike proposal aside for the time being. After all, the authorities have their hands full with several other, far more pressing, issues.

This article appeared in the Hong Kong Economic Journal on Feb 21

Translation by Alan Lee

[Chinese version 中文版]

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Yu Kam-yin

Columnist of Hong Kong Economic Journal.