ComfortDelGro unaffected by 4.2% fare cuts

The $8.9m revenue drop will be made god by the LTA.

With ComfortDelGro's bus business already under the new government contracting model, the recently announced 4.2% fare cut will not affect its bus revenue, since all revenue risk from bus fares will be on LTA and not the operator.

According to OCBC Investment Research, with CDG’s rail segment not as significant its bus segment, the fare reduction of 4.2% translates to a total decrease in fare revenue of only S$8.9m for CDG.

"This is compared to SMRT’s S$34.6m (rail revenue) and LTA’s S$35.6m (i.e. bus revenue). CDG is also not required to contribute to the public transport fund since fares will be reduced. In addition, we believe this fall in rail revenue will be mitigated with higher revenue as long as DTL phase 3 commences operations on time in FY17," OCBC stated.

The Public Transport Council announced the said fare cut, which will commence by the end of December. While the fare adjustment formula, which takes into account wages, core inflation and energy costs, yielded a maximum fare adjustment quantum of -5.7%, PTC has decided to transfer the rest of the -1.5% quantum to next year's fare review exercise, to spread out the impact of volatile energy prices over time.

More so, the brokerage firm noted that fares for fully-underground lines including, North-East Line and Circle Line and Downtown Line will be reduced to the same level as above-ground options.

"Currently, fare differential exists as it was introduced in 2003 with the opening of NEL to take into account its higher operating costs. Going forward, all rail fares will adopt a purely distance-based approach, with fares based on shortest travel path. ComfortDelGro’s (CDG) 75%-owned subsidiary, SBS Transit, operates NEL and DTL, which are both fully-underground rail lines," OCBC explained.