By Aloysius Chia
Recently, it has been reported that SMRT and SBS Transit had submitted their applications to the Public Transport Council (PTC) to raise their fares (The Straits Times, 19 Dec 2013).
The recurring breakdowns and the increasing fare adjustments, with its multiple contradictions, is a salient example of how markets will never work for commuters in the long run.
First of all, a market in which there are mainly 2 competitors (for trains and buses) – essentially a duopoly – can never benefit consumers in terms of prices, simply because there is no competition.
The monopolistic nature of the market, with its required heavy infrastructure investments and maintenance on trains and rail networks, not only makes it hard for competitors to enter the market, it likewise prevents a competitive landscape from ever emerging. That is why the PTC is needed to regulate prices.
However, there is a disjunction between government and private sector goals.
The goal of the government is to extract the best possible service from transport providers, making sure that services are running smoothly and efficiently so that commuters can travel, and that the economy can function properly.
The goal of transport companies, being private first and foremost, is to maximize profits. This means that they have to run in the most cost efficient manner as possible.
According to SMRT’s Annual Report 2013, total ridership for its rail network from 2009 to 2013 increased from 510 to 690 million. Yet, its average occupancy per car decreased from 73 to 65 passengers.
What could explain this? If more stations are added and passengers taking trains from more diffuse locations, this means that they are more spread out and going directly to their destinations, and thus, there are less passengers per carriage even if overall passenger numbers go up.
Although operators may project ridership into the future, banking on an increase in population and tourists to justify current use, this is not in the interest of private rail operators. Their interest is in maximizing the number of passengers per carriage because it means running more cost efficiently.
Thus apart from factoring rises in operating costs, it is also in their interest to raise fares. Because carriages are becoming less cost efficient, they need to make up for the decreased load with higher prices to offset the costs of running the carriage.
This highlights a certain contradiction in the government’s role in being both a major shareholder and regulator in the rail landscape.
By being the major shareholder, it seeks to maximize its yields and profits. Yet at the same time, by being the regulator, it seeks to ensure operators meet standards, which may not necessarily be efficient.
Thus market economics completely fails the interests of commuters in this instance, because it does not lead to either the most cost efficient or best priced outcome.
When each time demand for public transportation increases as the country’s population increases, more stations are added, as reflected in the LTA’s masterplan for more rail lines (LTA 2013 Masterplan). Because of this, it will not be getting very much out of maximizing its carriage load in terms of profits for the foreseeable future, and will have to look to other places for it, such as shop rentals and increased fares.
Ultimately, what commuters might expect in the long run is that, if government owned holdings in SMRT and SBS Transit remain at cross-purposes, it will not favor much in the interest of the public.
This is because if it has to choose between a loss to itself through having less profits, versus a loss to commuters who would bear the increasing cost of transportation, it will most likely choose what benefits itself.
This is the outcome of having to fully privatize public transportation, while letting it be largely be owned still by the government. It is an outcome of a corporate view of the role of government, where it seeks to gain by outsourcing entities treated as profitable entities, while easily deflecting criticism because it does not own it directly.
By implementing market economics half-heartedly, what essentially happens is that the government may just be the only real monopoly in the marketplace.