SINGAPORE (Sept 4): Singapore’s Public Transport Council (PTC) announced Tuesday that public transport fares could increase by as much as 7% in the fare review exercise for 2019, on the back of double-digit increase in energy prices.

This would mean that commuters paying by cards – approximately 90% of the total commuter base – could see fare prices increase by as much as 10 cents per trip.

This follows a fare hike of 4.3% implemented in December last year, which translated into a card fare increase of 6 cents for adult commuters and a fare increase capped at 1 cent for concessionary commuters.

“Average fares today are 4 to 7 cents lower than in 2015, just before fares were reduced 8.3% for three consecutive years, in part due to the dip in energy prices from 2015 to 2017,” the PTC says. “Over the last five years, the gap between costs and fares has been widening. This gap has, thus far, been funded by the government together with the rail operators.”

Over the next five years, the government expects to provide $5 billion in subsidies for public bus services and spend around $4.5 billion to renew its rail operating assets.

According to the PTC, operating costs have also been driven up by rising energy prices, which rebounded 26.2% in 2017 and 32.3% in 2018.

It adds that other macroeconomic price indices in the fare formula have also increased over the past year.

For example, the PTC notes that the Wage Index, a proxy for the wage growth of public transport workers, went up by 3.5%.

Meanwhile, the core Consumer Price Index, which measures inflation rate changes, rose by 1.7% – the highest in four years.

According to the PTC, Singapore’s public transport system has improved in line with fare affordability. Over the last five years, more than 1,000 buses and 200 trains have been added to the system.

Rail reliability has also improved significantly, with the MRT network achieving a Mean Kilometres Between Failure (MKBF) of 1,000,000 train-km – a seven-fold increase from 2015.

The PTC says it “will consider the views of commuters and relevant stakeholders, and will continue to strike a fair balance between fare affordability and the financial sustainability of the public transport system.”

“In considering fare affordability, the PTC will pay special attention to concession groups and needy commuters,” it adds.

PTC will announce its decision on the fare adjustment quantum in 4Q19. Public transport operators may submit their fare applications – which must not exceed the allowable fare adjustment quantum – by Sept 23.

Last year, the maximum allowable adjustment quantum of 4.3% was implemented for bus and train fares. PTC noted that both rail operators – ComfortDelGro-owned SBS Transit and Temasek-owned SMRT – had applied for the full fare adjustment.

However, market watchers say the public transport operators are unlikely to benefit much from the fare hike, even though it ticks all the right boxes for the rail operators.

“Based on our rough estimates, assuming a full 7% increase in fares, this could add on about 2-3% to our forecasts in FY20F,” says DBS Group Research analyst Andy Sim in a flash note on Wednesday.

But Sim says there are “various moving parts”, which raise uncertainty on just how much the rail operators can expect to rake in from the potential fare hike.

The North East Line is now on the New Rail Financing Framework, with a cap-collar and cost-revenue sharing formula, he notes.  

At the same time, the Downtown Line faces a fixed licence charge payable from this year, while a revenue share charge could be payable if operating surplus exceeds a certain amount.

Meanwhile, bus operators are unlikely to see any direct positive impact on operations given the current contracting model they operate on.

For ComfortDelGro in particular, Sim says the potential improvement in its rail operations could be dragged by continued headwinds in its taxi operations.

Even as the total number of private rental vehicles continue to expand, he notes that ComfortDelGro’s taxi fleet continues to contract.

Further, the continued weakness of the British pound would also lead to lower contribution from its UK operations when translated into Singapore dollar.

DBS is keeping its “hold” call on ComfortDelGro with an unchanged target price of $2.59.

As at 3.49pm on Wednesday, shares in ComfortDelGro are trading 7 cents higher, or up 2.8%, at $2.53.