Thursday, November 19, 2015

The Future of Public Transport in Singapore

Singapore's public transport sector is dominated by two companies, ComfortDelgro Corporation and SMRT Corporation.
ComfortDelgro owns 75% of the bus routes through SBS Transit, 22% of train services through the NEL line and 62% of taxi market share.
On the other hand, we have SMRT with 25% of bus routes, 78% of train services and 11% market share of taxi services.
Together, they own 100% market share of bus and train routes and 78% market share of taxi services.
This duopoly in the public transport sector has led to a dearth of innovation as evidenced by how quickly taxi booking applications such as GrabTaxi and Uber have captured a sizable market share without owning a single taxi. In the absence of competitive forces, their first reaction to rising costs is not to innovate but to pass on the costs to consumers.
A strong example of this is credit card fees. Most merchants absorb credit card fees, choosing to utilize credit card services as a way to legitimize the business, gain additional sales and reduce the cost of payments reconciliation.
SMRT and ComfortDelgro however, chooses to pass on this cost to consumers through a 10% administrative charge when credit card fees are typically only 2% of transaction value. This unfair surcharging practice led to Visa pulling out its services from taxi operators in 2013.
Therefore, it is hardly surprising when transport operators choose to reach out to the Public Transport Council (PTC) as a first instinct to raise fares, since this has become their modus operandi when faced with falling profits or rising costs.
However, change is on the horizon. Taxi booking applications have the ability to revitalize the taxi industry and to force this duopoly to embrace innovation or see itself becoming the Kodak of taxi operators.
Furthermore, a new entrant to the bus services industry, Tower Transit is on track to bring in new industry best practices that allows the operator to pay competitive salaries while keeping costs low and meeting the Bus Service Enhancement Programme (BSEP) objectives.
One such practice is having a separate team to refuel, maintain and park buses at the end of the day, utilizing economies of scale to keep costs low while allowing bus captains to concentrate on their primary duty; driving.
In the near future and with the implementation of the Government Contracting Model in the public transport sector, there will inevitably be changes in the public transport industry. Whether these changes come about through the revitalization of existing operators or through new entrants with new tricks up their sleeves, will be the big question.