SMRT off-peak travel discount not enticing enough

The meager S$.50 fare incentive should be made into a more attractive fixed percentage-based discount, says Maybank Kim Eng.

SRMT began offering morning off-peak travel incentives to reduce overcrowding and alleviate maintenance needs in the longer term, but the current discount offered is too little a perk for most high-earning Singaporeans.

"A percentage-based discount could work better in maximising the intended effect of an off-peak rate, and create more goodwill for its target commuter segment," said Maybank Kim Eng.

Here's more from Maybank Kim Eng:

Increasing incentive of early-bird discounts. SMRT will be extending the morning off-peak travel discount scheme to five more stations in town (total: 14 stations) and increasing the discount quantum from SGD30 cts to 50 cts. This applies to commuters who end their journey at these 14 stations before 745am. This scheme, effective from 6 Aug 2012, is part of SMRT’s effort to ease the morning rush hour train load.

Would you wake up earlier for SGD50 cts a day? Our opinion: probably not, especially if you are earning an average or above-average wage. We suggest an alternative of a fixed percentage-based discount, which we believe would give a better incentive to those living in fringe locations to switch to an earlier travel schedule.

Small impact, but a negative one nonetheless. The new discount is intended to persuade another 3–4 % of commuters to start travelling earlier. This translates to approximately 2,000 more commuters daily and a revenue loss of SGD0.25m p.a. for SMRT. Including the existing commuters who are already travelling during this time period, we estimate the total negative impact on SMRT’s top and bottomline to be under SGD1m. Although the financial impact to SMRT may not be material (less than 1% of FY12 profit), we believe the push for such initiatives reaffirms SMRT’s/LTA’s concern about over-loaded trains. The discounts, in light of the absence of fare revisions this year, will further diminish the bottomline for shareholders.

We remain concerned about the continuous pressure on SMRT to improve maintenance efforts without any fare relief this calendar year. While current efforts to reduce overcrowding should reduce the strain on SMRT’s trains, and alleviate maintenance needs in the longer term, we think that a percentage-based discount could work better in maximising the intended effect of an off-peak rate, and create more goodwill for its target commuter segment.