In November, the Public Transport Council (PTC) announced the start of the annual fare review.

The 2014 fare review continues from that of 2013, with 3.4% of the previously approved 6.6% fare increase carried forward to 2014 as part of a two-stage adjustment. While the public transport operators (PTOs) welcome larger fare revenues to offset operating expenses, the general public may not take too kindly to another fare hike. The oft-cited reason is that fares should not rise without a perceived improvement in bus and train services. In this article, I seek to address various perspectives and evaluate the fare review mechanism.

Why must fares be reviewed regularly?

It is helpful to first look at the objective of fare reviews. The PTC uses it as an instrument to ensure affordability of fares for the public and, at the same time, to safeguard revenues for PTOs in view of financial viability. The fare formula reflected below serves as the balancing act:

0.4cCPI + 0.4WI + 0.2EI – 0.5%

• “cCPI” denotes the change in core Consumer Price Index over the previous year, or in other words, the inflation rate.
• The Wage Index (WI) reflects the change in average monthly earnings compared to the previous year, and is based on the annual national average.
• The change in Energy Index (EI), which is a composite of cost changes in electricity and diesel, is relevant to the PTOs’ operating expenditure.
• Finally, the 0.5% subtraction is a productivity extraction defined for 2013 to 2017.

It is apparent that fares will not be allowed to increase at an uncontrolled rate, given that the change in wages year-on-year is built into the formula. The other two abbreviated components contribute to the extent to which PTOs can mitigate rises in operating costs.

As members of the public, we often hear about the “cost pressures” cited by the PTOs. Fuel and electricity expenditures constitute part of it, though energy prices have fallen over the past couple of months. Even so, a decrease in energy costs may not necessarily translate into immediate savings on this front, especially if the operators practise fuel hedging – a risk-management measure to purchase future quantities of fuel at a capped cost. In fact, SBS Transit and SMRT are also required by the PTC to make contributions to the Fuel Equalisation Fund (FEF) to safeguard fares from sudden rises in energy costs.

Other essential inputs for transport operations include renewal of vehicles and higher labour costs to attract and retain skilled employees.

How will commuters be affected?

Let us assume that the maximum allowed 2.8% fare increase announced by the Transport Minister on 17 December [1] is applied. For a commuter who makes an average of 2.5 trips per day, if each single journey cost $2, the fare increase works out to be an additional $4.20 per month. While this may not affect those earning above the national average wage, low-income families ought to receive financial support to mitigate the burden of fare increment. Students and senior citizens who are not drawing any income should also be insulated from fare increases.

What is not directly reflected in the fares is the amount of subsidies drawn from our tax reserves to fund purchases of buses and construction of depots under the Bus Service Enhancement Programme (BSEP) [2]. In this instance, the funds are indirectly derived from the public without resulting in a fare increase.

Adopting a balanced perspective

Prior to the fare hike from 2013’s review, fares were revised downwards in 2009 before its last increase in 2011. In November 2014, Cedric Foo, Chairman of the Government Parliamentary Committee for Transport, reported that the compound annual growth rate for fares amounted to less than 0.5% in the last six years.

Much of the public dissatisfaction boils down to the influence of data about the PTOs’ profits. Despite reports suggesting that the PTOs were expected to receive a revenue gain of S$53.5 million from April’s fare increase, both SBS Transit and SMRT reported operating losses in their bus business. The outlook was brighter in terms of the rail business, with both PTOs yielding profits (if we were to discount the start-up cost for the new Downtown Line).

Equity function

Beyond the manifest functions reflected in the formula, the fare review also serves a latent function of facilitating social equity. Transport Minister Lui Tuck Yew stressed the need to safeguard the interests of students, senior citizens, low-wage workers and persons with disabilities. I support the notion that working adults should shoulder a greater share of fares in order to subsidise and insulate these groups from potential fare hikes. As mentioned, the fare review formula accounts for the average wage increase, hence there is a minimal impact on overall affordability.

Provide compensation for service lapses, review performance standards

Moving forward, there are two possible solutions for the negative public perception towards fare reviews.

Presently, commuters are skeptical about fines handed out for service lapses as they do not benefit from it despite being directly affected by the let-down in performance. These fines go towards the Public Transport Fund that provides financial assistance for the needy.

Better frameworks could be put in place to compensate commuters affected by service delays. In London, if a journey is delayed by 15 minutes or more on the Underground due to reasons within the operator’s control (including signal failure but not poor weather), a full refund of the single fare will be offered.

The second solution will be to constantly review performance standards to improve service quality. One criteria for the Quality of Service (QoS) measurements is the passenger loading factor on buses, which should not exceed 95% during peak hours. A downward revision on maximum passenger loading can have a positive impact against overcrowding, though more buses will have to be deployed and other associated costs will come into play. The point to make on top of the utility of measures is that if commuters are satisfied that performance issues can be addressed effectively via other interventional means, the stigma of fare adjustments is likely to go away.

Conclusion

Viewed solely as an exercise to balance costs and ensure affordability of fares, the fare review could be said to have fulfilled its objectives. Nevertheless, fares are rarely dissociated with service levels from a consumer’s point of view. To address that, adequate compensatory mechanisms and a more robust performance monitoring metric should be put in place. The authorities have rolled out the BSEP and Bus Service Reliability Framework (BSRF) to enhance bus services, while the bar has been raised for rail reliability standards as well. Come 2015, the new package-based tender system for bus operations is set to encourage greater competition within the industry and hopefully improve service quality without driving up costs greatly.

For now, all eyes will be on the announcement of PTC’s decision in the first quarter of 2015 – is it a matter of whether fares are increasing, or the dreaded question of “by how much”?

Leonard Chew has recently completed his Masters in Transport and City Planning at the University College London with a dissertation about car-sharing.

Top photo from author

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[1] On 17 December 2014, the Transport Minister revealed in an interview with Channel NewsAsia that the maximum allowed fare increase for the 2014 fare review will be 2.8 per cent instead of the 3.4 per cent rollover figure from 2013 owing to lower energy costs.

[2] The motivation behind the BSEP was to deliver increased bus capacity within a short period of time, and to achieve this without directly impacting fares.