The wheels on the bus go round and round: Government takes Singapore buses under its wing

Bids for buses will be implemented.

The middle of the work week ended quite differently for bus operators as the LTA revealed that it will reformat the public bus sector. Under the new structure, bus operators will have to bid for operation rights.

According to OCBC, LTA announced last evening that it will restructure the public bus industry to a “Government contracting model” beginning from 2H14 (but implementation to take place only in 2H16 after the expiration of the current Bus Service Operating Licenses on 31 Aug 2016).

This is aimed at improving service quality and injecting more competition into the industry.

Here's more from OCBC:

The key implication of this is that revenue risk will now fall under the Government instead of the public transport operators (PTOs). Under this model, bus operators will bid for the right to operate bus services via a competitive tendering process.

The Government will own all bus infrastructure and operating assets. Three out of 12 bus packages (~20% of existing buses) will be tendered out starting from 2H14, and the contract length will be five years (can be extended by another two years on good performance).

The remaining 80% of buses will continue to be operated by the incumbent operators, and these will also come under the new contracting model when their licenses expire on 31 Aug 2016.

Overall, we believe this will enable the PTOs’ bus operations to return to profitability. We expect ComfortDelgro to be a bigger beneficiary than SMRT as the former operates the largest bus fleet in Singapore via its 75%-owned subsidiary SBS Transit (~75% market share) and also has experience operating a gross cost contracting model for its UK and Australia bus businesses.