Why is a profitable giant like MTR Corp raising train fares?

Factoring the rail operator’s property profits into the fare adjustment formula looked like a win for commuters last year
But when a company with billions in profits is allowed to hike prices in the current economic climate, it leaves the public feeling short-changed

Alice Wu

Published: 9:30am, 8 Apr 2024

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MTR fares went up by 2.3 per cent last year, are going up by 3.09 per cent this year, and you can safely expect them to get even more expensive next year, thanks to the new and improved fare adjustment mechanism agreed between the MTR Corporation and its majority shareholder, the Hong Kong government.

Under the formula, the increase cannot be higher than the year-on-year change in the median monthly household income – which was officially 3.09 per cent for the fourth quarter of 2023. For this year, the total fare hike would have been 5.05 per cent, including a 1.85 per cent increase deferred from last year, but commuters will only have to pay 3.09 per cent more, because of the affordability cap.

The catch, of course, is that the difference will be pushed over to 2025 and 2026. And as with compound interest, the increase will become higher because it will be calculated on a higher fare base.

Unlike other public transport operators, the city’s rail monopoly does not need to seek government approval of every fare hike proposal, because it uses a pre-agreed fare adjustment formula.

The fare adjustment mechanism, created with the government-led merger of the MTR Corp and the Kowloon-Canton Railway Corporation, resulted in the first fare increase in June 2010. Since then, MTR fares have gone up nine more times. In theory, an adjustment can be made upwards or downwards. In practice, while there were three years of no fare hike, 2021 was the only year when fares came down, by 1.85 per cent. The largest increase, of 5.4 per cent, came in 2012.

People stand in a bus queue at Hong Kong International Airport in 2023. The city’s bus companies applied for fare increases last year. Photo: Sam Tsang

The government has tried to mitigate the situation by reviewing the formula, which takes into account the inflation rate, a wage index for transport workers and a “productivity factor” that is subtracted from the total of the other two factors.

Last year, transport minister Lam Sai-hung sounded quite confident that the government had finally got it right by linking the railway company’s post-tax profits from property development to the productivity factor. The revision, which Lam called a “breakthrough”, apparently meant that the more the rail and property giant earns from its development projects along its rail lines, the smaller the fare hikes will be.

Property and punctuality were MTR successes before the scandals

Again, this sounded good on paper, until the company’s property profits plummeted last year. In effect, the 3.09 per cent fare hike is the price commuters are collectively paying for the MTR Corp’s poor property performance.

Lawmakers have already started questioning why the company’s other earnings were not factored in. As Michael Tien Puk-sun noted on a radio programme, “Last year, the company earned HK$7 billion, but it is not reducing its fares because its property development business profits were only HK$2 billion. Other profits came from advertisements and rent.” There are also overseas investments. Why leave them out of the equation?

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The company’s expanding rail services have also taken commuters away from other modes of public transport. In March last year, five bus companies went to the government for permission to raise fares. One requested a 50 per cent fare hike for its airport routes and another, with the largest fleet of buses serving the city, asked for a 9.8 per cent rise. The requests were quickly met with condemnation, and the government vowed to be a gatekeeper who would keep public transport fares at a reasonable and affordable level.

Meanwhile, the city’s minibus operators have also been struggling. About 100 minibuses were repossessed by banks in the past three years, as changes in tunnel tolls impacted on ridership.

The MTR Corp must be aware of the current economic conditions just from its balance sheets, and yet, even with annual profits of HK$7.78 billion, it has gone for the biggest fare hike allowed, ignoring its social responsibility as the city’s sole rail company. The MTR Corp doesn’t have a ridership problem, and it seems commuters are expected to just suck it up when it comes to fare increases.

In this instance, the government has fallen somewhat short in looking out for the little guys – the general commuting public. Hong Kong’s “rail plus property” model has worked for decades and is the envy of public transport systems around the world. In continuing to make this business model work for the people the rail network serves, prices must be kept affordable and fair.

Alice Wu is a political consultant and a former associate director of the Asia Pacific Media Network at UCLA