Government to look into non-fare business of train operators

SINGAPORE — Whether the commercial and advertising spaces in stations and trains should automatically come under the line’s operator in the future is under review, as the authorities seek advice on its planned move to outsource non-fare business on the upcoming Thomson-East Coast Line (TEL).

In response to queries on Monday (Oct 23), the Land Transport Authority (LTA) said it has called a tender for a consultant to “provide advisory services for the rail non-fare business”.

Last month, when it awarded the contract to run and maintain the TEL to rail operator SMRT, the LTA said it would call a separate tender next year for the line’s non-fare business, under a pilot to optimise the use of the retail and advertising spaces in the TEL’s stations and trains. The goal was to raise the “vibrancy and financial sustainability” of the line, which will open in stages from 2019.

An LTA spokesperson said that in preparation for this new model being tested, it wants to get professional views on how to frame the commercial arrangements, revenue model, and technical and operational specifications for outsourcing this aspect of operations.

“The Government will carefully consider the results from outsourcing the TEL’s non-fare business, and will conduct a thorough review before making any recommendations for existing rail lines,” the spokesperson added.

Transport analysts interviewed by TODAY suggested that separating the non-fare business from the rail operator could signal the LTA’s plan to focus the operator’s attention on its core job of running train operations.

Dr Walter Theseira, a transport economist with the Singapore University of Social Sciences, said the Government most likely wants to separate “more cleanly” the running of public transport services and that of ancillary businesses, such as retail.

“This will, hopefully, allow for better decision-making when it comes to appointing the winners of tenders as well as better decision-making at the operator level, so that they’re not distracted by having to consider non-fare businesses and revenues,” he said.

Agreeing, transport specialist Terence Fan of the Singapore Management University said that under the new rail financing framework, rail operators are responsible for running train services, and retail was just an aside. The authorities may want operators to focus just on rail reliability and not “split the time and resources with the retail side”, Assistant Professor Fan noted.

After two major disruptions hit the North-South Line in December 2011, then-SMRT chief executive Saw Phaik Hwa came under fire for seemingly focusing more on the bottomline as she grew the operator’s retail business.

This led some to question if the rail operator had misplaced its priorities. Ms Saw, who has a retail background, had raised SMRT’s commercial revenues markedly by maximising the retail and advertising spaces in stations, which she said averted the need for large fare increases.

She stepped down less than a month after the disruptions, which were among the worst on record, affecting more than 200,000 commuters.

Dr Theseira said the question was finding the most efficient model for running a non-fare business.

There are various possibilities — the non-fare operator could pay a lease and retain the revenues from the business, or it could receive a management fee from the LTA, which receives the revenues, he suggested. The consultant would have to evaluate the options, Dr Theseira added.

The chief implication is that the rail operators could lose a profitable source of income. Under the rail financing framework, the LTA last year took over SMRT’s rail operating assets, including the trains, for the North-South, East-West and Circle lines as well as the Bukit Panjang LRT.

SMRT operates the trains and keeps a share of the earnings, but pays a yearly licence fee to the LTA, which varies according to the rail operator’s profitability.

Dr Theseira said that if the commercial spaces are taken out of an operator’s hands, it should pay a lower licence charge.

Noting the potential of the non-fare business as Singapore’s MRT coverage and ridership grow, National University of Singapore transport researcher Lee Der-Horng said the benefits of this can be seen in and around the transport systems of cities like Hong Kong and Tokyo.

While “almost every inch” of Hong Kong’s station space is used to generate revenues, Singapore is “very conservative” on this front, said Prof Lee. The consultant should devise a “good mix” of shops tailored to commuter needs, he added.

In Hong Kong, operator MTR Corporation runs on a model that melds rail and property. The Hong Kong authorities afford MTR rights to develop land around train stops, while the company develops new lines.

As a result, MTR develops shopping centres and leases real estate, among other things, drawing a different source of revenue beyond transport fares.

The Republic should take a leaf from Hong Kong, said Prof Lee, who felt that rail operators should be allowed to continue running the non-fare business here, as they could diversify into offering other transport-related services, such as city travel for tourists.

For the rail operators, running the non-fare business was also “to their benefit”, he added.