How Hong Kong's subway turns a $2B annual profit(money.cnn.com)
money.cnn.com
How Hong Kong's subway turns a $2B annual profit
http://money.cnn.com/2015/03/30/news/hong-kong-mtr-subway-property/
12 comments
Not sure if that's a totally fair assessment. Arguably privisation may have led to the increase in numbers: http://upload.wikimedia.org/wikipedia/commons/e/e8/GBR_rail_...
I've had the same realisation in Japan: rail and postal services have been privatised there as well and they work supremely well. It made me think that good/bad service stems from culture more than from government vs. corporate organisation structures.
There are two ways to privatise: to create a competitive market (liberalisation) or simply to outsource the execution of what is essentially still public policy (to provide quality public transport).
Japan is an example of the latter, the UK is a strongly ideologically (Thatcherite) driven attempt at the former. And those almost almost fail when it comes to infrastructure.
Not so much a matter of culture but ideology.
The whole private versus public debate is a red herring: in the end, these services depend completely on a functioning government taking full responsibility for the outcome, regardless of how the outcome is achieved.
Japan is an example of the latter, the UK is a strongly ideologically (Thatcherite) driven attempt at the former. And those almost almost fail when it comes to infrastructure.
Not so much a matter of culture but ideology.
The whole private versus public debate is a red herring: in the end, these services depend completely on a functioning government taking full responsibility for the outcome, regardless of how the outcome is achieved.
I don't agree fully. With the rail network I think it's pretty much the same in Japan as in the UK - since you have one set of rails going from point A to point B for most (A,B), it's not a liberalisation in either countries. With postal services we have to look at packages and letters separately - the former market is completely liberalised, for the later JP still has a de facto monopoly - that doesn't mean you're not allowed to create your own letter mailing service though, it's probably just that you can hardly match them at their price point.
So I don't think Japan's case is that much different from the UK from a market perspective and I'm not quite sure whether the ideology is that different either - if you (as in the premier minister responsible for it) don't have a free market ideology, why putting privatisation on your flag at all?
So I don't think Japan's case is that much different from the UK from a market perspective and I'm not quite sure whether the ideology is that different either - if you (as in the premier minister responsible for it) don't have a free market ideology, why putting privatisation on your flag at all?
The infrastructure in the UK is owned by Network Rail, which is a central government body.
The failure has been the privatisation of the ToCs (train operating companies), and the lack of competition between them. There are many other places in the EU where the incumbent was split up into smaller, state-owned companies and then the ToCs have been opened up to competition, with good results. The problem with the British situation is there is essentially a monopoly granted to a single company for a number of years — and this doesn't give much incentive to invest.
The failure has been the privatisation of the ToCs (train operating companies), and the lack of competition between them. There are many other places in the EU where the incumbent was split up into smaller, state-owned companies and then the ToCs have been opened up to competition, with good results. The problem with the British situation is there is essentially a monopoly granted to a single company for a number of years — and this doesn't give much incentive to invest.
You can't have real competition with networks, be they road, rail, telephone, internet
Internet? Then why is Google driving down prices wherever it rolls out fiber?
Because they cherry pick densely populated areas. They're not providing a universal service.
Where do you draw the line? Air travel/airports? Mobile data networks?
Competition fails where the cost of redundancy is prohibitive, which leads to either large scale partitioning (local monopolies) or monopoly (global monopoly). It doesn't really make sense to build several rail lines connecting city A to B. The same goes for telephone lines -- in all but the most dense centers, the infrastructure cost is so dominant that redundancy doesn't make sense. Now for mobile data for example, you can, for a more modest investment, cover large areas with cell towers, so direct competition occurs.
The United States is still limited to only four competing firms when it comes to mobile networking, thanks to the limited amount of available wireless spectrum and high costs for the access to that spectrum.
The metro in Tokyo is really expensive though. It costs almost 1000 yens for a one way trip from the suburb of Tokyo to central Tokyo.
Err, no, the maximum fare on the Tokyo Metro is Y310 (~US$2.5). Y1000 is enough for a trip of up to 60km one-way on JR, or even longer on cheaper private railways. Of course, in Tokyo there are people who commute that far, but that's definitely at the expensive side of the spectrum.
Actually, Tokyo is so huge that "suburb" could mean anything from Shibuya, to the second largest city in Japan (Yokohama). It all depends on what we mean by "Tokyo":
https://en.wikipedia.org/wiki/Greater_Tokyo_Area#Various_def...
https://en.wikipedia.org/wiki/Greater_Tokyo_Area#Various_def...
Yes, but you don't take into account the fact that you have to pay again when you change line.
Only if you change line to a different operator, and there are transfer rebates.
Last time I lived in Tokyo, my hourlong commute that took me literally across the city (Yoyogi-uehara to Nezu) cost all of Y240 one way. This was on the cheaper side, but I'd wager the average commuter pays somewhere around Y500-600 (private railway plus metro), plus it's normally the employer that pays for the teikiken (commuter ticket) anyway.
Last time I lived in Tokyo, my hourlong commute that took me literally across the city (Yoyogi-uehara to Nezu) cost all of Y240 one way. This was on the cheaper side, but I'd wager the average commuter pays somewhere around Y500-600 (private railway plus metro), plus it's normally the employer that pays for the teikiken (commuter ticket) anyway.
As a New Yorker visiting HK for the first time this week, it's hard not to walk away impressed.
The NYC Subways are so completely inferior it's no wonder they operate at a loss.
I ride the A/C trains daily and my commute varies from 30-90 minutes depending on an unknown set of variables. At least 2 days a week I find myself cursing the subway for being late, running with delays, or getting me stuck underground somewhere without any notice or announcements.
Perhaps even more inferior than the actual train experience is the wayfinding experience.
The MTR's letter/number exits (which google maps supports wonderfully) makes leaving the subway as great as riding it.
Even as a 7-year veteran NY'er I sometimes find myself trying to figure out which is the right exit to take at each station to get above ground. I usually say "ok I want to go south east, find the most south east exit I can" but as a tourist this must be so confusing.
It almost seems like a catch-22. If the MTA got their shit together and fixed up the subway lines to make them more reliable, maybe they'd be closer to breaking even, but since they are in a deficit (or are they? [1]) they can't actually fix things on time or properly at all.
I have to say the NYC subway is mostly pitiful (especially outside of Manhattan) and the MTR is nothing short of impressive.
[1] http://newyork.cbslocal.com/2013/09/28/mta-audit-reveals-una...
The NYC Subways are so completely inferior it's no wonder they operate at a loss.
I ride the A/C trains daily and my commute varies from 30-90 minutes depending on an unknown set of variables. At least 2 days a week I find myself cursing the subway for being late, running with delays, or getting me stuck underground somewhere without any notice or announcements.
Perhaps even more inferior than the actual train experience is the wayfinding experience.
The MTR's letter/number exits (which google maps supports wonderfully) makes leaving the subway as great as riding it.
Even as a 7-year veteran NY'er I sometimes find myself trying to figure out which is the right exit to take at each station to get above ground. I usually say "ok I want to go south east, find the most south east exit I can" but as a tourist this must be so confusing.
It almost seems like a catch-22. If the MTA got their shit together and fixed up the subway lines to make them more reliable, maybe they'd be closer to breaking even, but since they are in a deficit (or are they? [1]) they can't actually fix things on time or properly at all.
I have to say the NYC subway is mostly pitiful (especially outside of Manhattan) and the MTR is nothing short of impressive.
[1] http://newyork.cbslocal.com/2013/09/28/mta-audit-reveals-una...
Well... keep in mind that the NYC subway opened 110 years ago while the MTR started in 1979. It's brand new!
But yeah, the signage is terrible. Paris's system is even older and even if you don't speak much French it's still easier to find the right exit than it is in NYC.
Why can't we have nice things?
But yeah, the signage is terrible. Paris's system is even older and even if you don't speak much French it's still easier to find the right exit than it is in NYC.
Why can't we have nice things?
French subway exits are mostly in...French.
Look for the "sortie".
Look for the "sortie".
The NYC subway also has more riders (about 25%), more lines (about 2x), more stations (about 3x), and more miles of track (2-5x depending on how you count). It's also the only system in the world that I'm aware of that runs 24-hours a day, which impacts the ability to do routine maintenance.
[1] http://en.wikipedia.org/wiki/MTR [2] http://en.wikipedia.org/wiki/New_York_City_Subway
[1] http://en.wikipedia.org/wiki/MTR [2] http://en.wikipedia.org/wiki/New_York_City_Subway
Also keep in mind that the NYC subway has nearly 300 more stations than the MTR. Very hard to compare systems because of factors like that.
So it's really only viable because it gets rent free land from the tax payers.
It seems like it's just some magic accounting trick to not count the revenue that the tax payer would have received for the land currently being given tent free.
In other words, public transport is just not a profitable business.
It seems like it's just some magic accounting trick to not count the revenue that the tax payer would have received for the land currently being given tent free.
In other words, public transport is just not a profitable business.
It's hard to count the value in having well run, on time and cheap mass public transport system.
Maybe the tax payer at some point subsidized this effort, but it doesn't have to keep doing so to get the benefit. The government was unlikely to develop and run these malls themselves, so it seems like they government would've just sold the land and then had to run the MTR itself.
Seems like a win-win to me.
Maybe the tax payer at some point subsidized this effort, but it doesn't have to keep doing so to get the benefit. The government was unlikely to develop and run these malls themselves, so it seems like they government would've just sold the land and then had to run the MTR itself.
Seems like a win-win to me.
Yeah, I'm in favor of well run public transport, I think it's a vital part of a well functioning society. I even think that land should be developed around transport lines in a holistic manner (both to make them social hubs and to make the most effective use of real estate and construction disruption. But this is just poor accounting if the land and the right to build on it is just transferred for free.
On the other hand, the company is majority owned by the government anyway, so this is probably still the smart thing to do (depends on how that $1 Billion plus a year profit gets fed back into the government funds via their shareholding and whether social benefits are driving their construction plans rather than short term profit).
On the other hand, the company is majority owned by the government anyway, so this is probably still the smart thing to do (depends on how that $1 Billion plus a year profit gets fed back into the government funds via their shareholding and whether social benefits are driving their construction plans rather than short term profit).
They also have the advantage of a relatively small area to cover with a hugely dense population.
The ticket prices are low as well so almost everyone actually uses the MTR. Pretty prime conditions for a profitable public transportation system.
The ticket prices are low as well so almost everyone actually uses the MTR. Pretty prime conditions for a profitable public transportation system.
According to the article the fares cover 175% of the operating costs. So even without the additional income from real estate it's still a profitable business.
ah, i missed that - i read in the article that the land development and rental was making up the majority of their profitability.
I have fond memories of the MTR from the first time I visited Hong Kong in 1991 as a teenager. We stayed in a hotel that was above a shopping centre and either near or above an MTR station too and it was very convenient. I remember being amazed as a 14 year old that you could catch an elevator down from your room, down past the lobby and walk out into a supermarket, a food court, a department store, etc.
I've wondered here in Australia why suburban supermarkets don't run bus services from their doorstep (rather than the main road on the other side of the carpark) and let commuters park-and-ride from their carpark which would otherwise be somewhat empty during a weekday. Get transport back to your car, but drop in to pick up groceries before driving home.
I've wondered here in Australia why suburban supermarkets don't run bus services from their doorstep (rather than the main road on the other side of the carpark) and let commuters park-and-ride from their carpark which would otherwise be somewhat empty during a weekday. Get transport back to your car, but drop in to pick up groceries before driving home.
>Fares are notoriously cheap ($.50 to $3), but cover roughly 175% of the system's operating costs.
>Here's how it works: MTR enjoys a special relationship with the Hong Kong government, which is also its majority shareholder. The government provides land -- at no cost -- for use by the train operator....
So fares cover 175% of operating costs - but the firm does not face any real estate costs.
In an expensive place like Hong Kong, I would imagine that real estate dwarfs all other operating costs for most businesses. Is it realistic to not count real estate as an operating cost? It's obviously being paid for, and I'd be surprised if subway fares would cover market price for this firm's land.
>Here's how it works: MTR enjoys a special relationship with the Hong Kong government, which is also its majority shareholder. The government provides land -- at no cost -- for use by the train operator....
So fares cover 175% of operating costs - but the firm does not face any real estate costs.
In an expensive place like Hong Kong, I would imagine that real estate dwarfs all other operating costs for most businesses. Is it realistic to not count real estate as an operating cost? It's obviously being paid for, and I'd be surprised if subway fares would cover market price for this firm's land.
Exactly. That is why public transit needs to be funded by Value Capture. https://vimeo.com/32548658
Reading about them makes me think of Vanderbilt, who I have heard (but cannot find the source) made some of his domestic ferry services free, in hopes that you would buy food on the trip.
As an aside, Vanderbilt was (possibly) responsible for one of the more memorable business quotes I've come across:
You have undertaken to cheat me. I won't sue you, for law is too slow. I'll ruin you.
Yours truly,
Cornelius Vanderbilt
As an aside, Vanderbilt was (possibly) responsible for one of the more memorable business quotes I've come across:
You have undertaken to cheat me. I won't sue you, for law is too slow. I'll ruin you.
Yours truly,
Cornelius Vanderbilt
I love the MTR in HK.
In addition to creating an awesome public transportation system, I think that MTR also has the potential to be the government's vessel in balancing the HK real estate market.
"Some 50 major properties across Hong Kong are owned, developed or managed by MTR,including two of the city's tallest skyscrapers."
Slightly misleading on the source of the profits. It's important to read this section of the article:
"But the company's real profits are derived from a lesser-known side of the business: property development."
and
"Here's how it works: MTR enjoys a special relationship with the Hong Kong government, which is also its majority shareholder. The government provides land -- at no cost -- for use by the train operator, and MTR is then allowed to develop the areas above and around its stations."
So the government loans out land (which is crazy expensive in hong kong) for free and the MTR gets to keep the profits for leasing out that land via malls, etc.
"But the company's real profits are derived from a lesser-known side of the business: property development."
and
"Here's how it works: MTR enjoys a special relationship with the Hong Kong government, which is also its majority shareholder. The government provides land -- at no cost -- for use by the train operator, and MTR is then allowed to develop the areas above and around its stations."
So the government loans out land (which is crazy expensive in hong kong) for free and the MTR gets to keep the profits for leasing out that land via malls, etc.
This reminds me of the US where the railroads would get copious amount of land near the tracks, in relation to how many miles of tracks that they built.
http://en.wikipedia.org/wiki/Pacific_Railroad_Acts
Also, the MTA in NY has air rights in some places. Not that they are necessarily using them verify efficiently: http://en.wikipedia.org/wiki/Hudson_Yards_Redevelopment_Proj...
http://en.wikipedia.org/wiki/Pacific_Railroad_Acts
Also, the MTA in NY has air rights in some places. Not that they are necessarily using them verify efficiently: http://en.wikipedia.org/wiki/Hudson_Yards_Redevelopment_Proj...
As a mainland Chinese who frequents Hong Kong I have very bad impression of their subway. It is so expensive and with old technology. Guess that is how they make such profit.
China has the benefit of building all it's metro systems in the past decade. Hong Kong's is a bit older. But if you visit London you'll be shocked by the price, and the lack of good technology.
It's a true legacy system, that will take decades to modernise.
There is no mobile coverage on the London Underground. In Hong Kong 4g is continuous and uninterrupted all the way from the Shenzhen border to Central.
It's a true legacy system, that will take decades to modernise.
There is no mobile coverage on the London Underground. In Hong Kong 4g is continuous and uninterrupted all the way from the Shenzhen border to Central.
The lack of mobile coverage on the London Underground is because the phone companies refused to pay the rent demanded. (I don't know if the demand was fair.)
Fares in London cover 91% of operating expense: http://en.wikipedia.org/wiki/Farebox_recovery_ratio
London's system is OK for it's age. Trains very in age from under 1 year to approaching 40 (with replacements on order, or planned), some lines have new signalling systems, others don't -- yet. That's not much different to Hong Kong.
Fares in London cover 91% of operating expense: http://en.wikipedia.org/wiki/Farebox_recovery_ratio
London's system is OK for it's age. Trains very in age from under 1 year to approaching 40 (with replacements on order, or planned), some lines have new signalling systems, others don't -- yet. That's not much different to Hong Kong.
Another thing Hong Kong does that's awesome, is interchanges.
Typically two adjacent lines will share two stops in common. The first will be designated to transfer in one direction, and the second for the opposing direction.
They arrange these transfers so that your next train is waiting on the opposite side of the platform.
London is never going to be able to do that.
Typically two adjacent lines will share two stops in common. The first will be designated to transfer in one direction, and the second for the opposing direction.
They arrange these transfers so that your next train is waiting on the opposite side of the platform.
London is never going to be able to do that.
Does interchange really matter when there is a train every 3 mins?
I always laugh at the idiots getting stuck in the doors after a mad dash. Can they really afford not to wait?
I always laugh at the idiots getting stuck in the doors after a mad dash. Can they really afford not to wait?
Interchange means changing from one line to another.
They exist in London where it was possible to install them, but it's very difficult to retrofit (if underground) so many of the old lines are stuck the way they are -- with an underground walkway between lines.
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They exist in London where it was possible to install them, but it's very difficult to retrofit (if underground) so many of the old lines are stuck the way they are -- with an underground walkway between lines.
London does this on plenty of lines — there are plenty of cases of stations where the platforms are parallel with a 5m tunnel between them.
> Fares in London cover 91% of operating expense
Note that capital expenses (fixing tunnels, buying new trains) are not included in operating expenses, so London Underground runs at a significant deficit:
2,542m (Operating expenses) + 1,227m (Capital expenditure) - 2,286m (Fares) = 1,483m
http://www.tfl.gov.uk/cdn/static/cms/documents/annual-report...
Note that capital expenses (fixing tunnels, buying new trains) are not included in operating expenses, so London Underground runs at a significant deficit:
2,542m (Operating expenses) + 1,227m (Capital expenditure) - 2,286m (Fares) = 1,483m
http://www.tfl.gov.uk/cdn/static/cms/documents/annual-report...
No mobile coverage is the best thing about the tube.
I'm from the US but I have spent time in HK and in mainland China (mostly Dongguan and Beijing). I can say, as many others in this thread that nothing in the US is close to HK's MTR, or Beijing's Subway.
This makes a lot of sense. I was living in Seattle during the big debate over how to replace the seismically unsafe viaduct (tunnel vs. roadway). The viaduct runs one block from the waterfront and is prime real estate and I don't know why they couldn't allow real estate development above the tunnel to fund the tunnel and bring additional state revenues. There's enough room in that space to build dozens of new skyscrapers.
Sooooo... government favouritism and sketchy business practices. Who would have thought?
The goal of the government is to maximize welfare.
I would say that in this case, your so-called "government favouritism" and "sketchy business practices" benefits citizens immensely.
I would say that in this case, your so-called "government favouritism" and "sketchy business practices" benefits citizens immensely.
"MTR trains boast a 99.9% on-time arrival rate. Fares are notoriously cheap ($.50 to $3)"
Overall, privatisation has been a disaster for the UK rail industry (in my opinion). Despite the fact that we have some of the highest rail passenger numbers in Europe, we also have the highest fares in all of Europe and poor to mediocre services.
Our rail services are incompetently (and greedily) run and the political will to change this is depressingly weak (across all political parties).