SINGAPORE — Outsourcing the rail system’s non-fare business for the first time, the Land Transport Authority (LTA) has awarded tenders for the operation of advertising and retail spaces along the future Thomson-East Coast Line (TEL).

The move is expected to draw more than S$164 million in concession fees in the next 16 years, churning significantly higher non-fare revenues for every rider than the levels today, LTA announced on Tuesday (Aug 27).

This, in turn, will substantially improve the long-term financial sustainability of the new MRT line, LTA said. 

Saying it was encouraged by the strong market interest in this round of tenders and the quality of the bids, the government agency is exploring how it could expand this outsourcing framework to other transport assets, which could include bus interchanges, other rail lines, and road and pedestrian infrastructure. 

Asiaray Connect, an advertising company, will be the TEL’s advertising operator.

The retail operator of the train line will be a three-way consortium comprising: 

• SMRT Experience, which manages the retail and advertising spaces in train stations and bus interchanges run by transport operator SMRT

• JR East Business Development SEA, a subsidiary of the Japan-based East Japan Railway Company

• Alphaplus Investments, an investment company of supermarket chain NTUC FairPrice.

The two operators will each be granted a 16-year concession when the TEL starts revenue service, LTA said.

The 43km, 32-station TEL — to be operated by SMRT — will open in five stages between this year and 2024. It will serve Changi Airport by about 2040.

The tenders this round were called in January and closed in April, with seven proposals from Singapore and international firms.

The bidders were evaluated on the quality of their proposals, and their ability to enlarge the non-fare business and generate revenue on the advertising and retail fronts.  

ADVERTISING

On the advertising operator, LTA said that Asiaray Connect received the highest “quality” score for its bid, which featured a mix of digital and static-media products tailored to each MRT stop.

“Its digital-media products also allow for the application of advanced technologies, such as video and data analytics, for dynamic and responsive advertisements that can adapt quickly to the fast-changing preferences of commuters,” LTA added.

Asiaray’s bid was also competitive, offering more than S$140 million in concession fees over the 16-year term.

The company is wholly owned by Asiaray Media Group, which has 25 years’ experience in mainland China and Hong Kong, with a focus on airport and metro-line advertising.

“The award of the advertising-operator tender to a company with core expertise in advertising will also inject new ideas and competition into the market,” LTA said.

RETAIL

As for the retail operator, the consortium of SMRT Experience, JR East Business Development SEA and Alphaplus Investments submitted a proposal that included well-designed retail spaces with a “thoughtfully curated tenant mix catering to commuters’ diverse needs”, LTA said.

These include Cheers convenience stores at several MRT stations along the line.

Its proposal will maximise the revenue potential of the train line’s retail spaces, with concession fees totalling S$24 million over 16 years, LTA added.

OUTSOURCING NOT A MAGIC BULLET 

Still, transport economist Walter Theseira of the Singapore University of Social Sciences said that outsourcing those parts of the rail business will not “magically guarantee” financial viability.

He described the move as an attempt to generate the most value from non-fare assets. Right now, rail operators run the non-fare business, too.

The authorities have outsourced these aspects of the operation because it remains unclear if rail operators can bring in the most money from the non-fare business, Associate Professor Theseira said.

“If it is the case that the (rail) operator is not the most efficient in making money from the non-fare assets, (LTA) would do better as the authority to have somebody else do it, because (LTA) can channel the extra money it is getting into the line,” he added.

Transport specialist Terence Fan from the Singapore Management University said that outsourcing the non-fare business makes the system “fairer” because it gives the market a voice and hands the LTA an opportunity to pick the best operator.

It also signals to the rail operator that it should focus on train reliability and operations, he said.

Assoc Prof Theseira said that expanding the outsourcing model to other parts of the transport network was a move worth exploring, but the authorities should understand the efficiency gains from doing so.

The question is whether the bids would surpass the margins that SMRT would have recorded if it had run those parts of the business itself. 

“It has to be more, because if it is not, then you might as well let the (rail) operator do it.”

The authorities can get a grip on this by comparing the bids with the financial data of the rail operators that run advertising and retail in-house, and derive estimates, Assoc Prof Theseira added. 

Running from Woodlands North through the Central Business District to Sungei Bedok and Changi Airport, TEL is aimed at improving connectivity between northern, central and eastern Singapore.

When fully operational, the line is expected to serve about 500,000 commuters daily in its initial years. Over the long term, this figure will rise to about one million riders.