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ExCo approves NWFB's Fare Increase

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The Executive Council has approved an average fare increase of 2.4 per cent for New World First Bus Services Limited (NWFB) from April 22, 2001, which is considerably lower than the 9.2 per cent increase applied for by the company.

Under the approval, the fares of NWFB's cross-harbour routes will not be increased whereas the fares of its non-cross-harbour routes will be increased by five per cent. This amounts to a moderate increase to minimize the impact on passengers as about 33 per cent of NWFB's passengers will not be affected by the fare increase and 64 per cent will pay 10 to 30 cents more per trip.

In its deliberations, the Council considered carefully the need that bus fares should be set at a level which is acceptable and affordable to the public, and the need to provide bus operators with a reasonable rate of return to encourage them to continue to invest in and further improve service. Other relevant factors including the forecasts of costs and revenue of NWFB, the financial position and service performance of the company, and the current economic climate were also taken into consideration.

The Council also took into account Transport Advisory Committee (TAC)'s advice that a fare increase by NWFB should be allowed but that the rate of increase should be moderate to minimise the impact on passengers. A copy of TAC's detailed advice is attached.

"It was noted that NWFB has made substantial investment and efforts to provide a high quality service and improve the environmental performance of its fleet. The service and environmental performance are much better than those of the previous franchisee whilst NWFB is charging only the same fare level as in 1998," a Government spokesman said.

"NWFB has been implementing measures to improve its operational efficiency. Notwithstanding the fact that there has been deflation since 1997 when the previous franchisee's fares were increased, bus operating costs are not fully elastic and hence have not been reduced in the past few years."

"In approving the fare increase, the Council was mindful of the need to minimize the impact of bus fare increases on passengers. About 33 per cent of NWFB's passengers will not be affected by the fare increase, 64 per cent of passengers will pay 10 to 30 cents more per trip, 2.8 per cent will pay 40 to 50 cents more, and 0.04 per cent, being passengers on recreational, special and night services, will pay 60 cents more," the Government spokesman added.

NWFB submitted an application on November 1, 2000 for an average fare increase of 9.2 per cent on all its services. This is the first fare increase application submitted by NWFB since the commencement of its operation in September 1998.

End/Tuesday, April 17, 2001

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Appendix

27 March 2001

Mr Nicholas Ng, JP

Secretary for Transport

16/F, Murray Building

Garden Road

Central, Hong Kong

New World First Bus Services Limited's Fare Increase Application

The Transport Advisory Committee discussed New World First Bus Services Limited (NWFB)'s application for a 9.2% overall fare increase at its meeting on 20 March 2001. This letter sets out the Committee's views and advice to the Chief Executive in Council.

In considering NWFB's application, the Committee has taken into account all relevant factors including:

(i) changes in operating costs and revenue since the last fare adjustment;

(ii) forecasts of future costs, revenue and return;

(iii) the need to provide the operator with a reasonable rate of return;

(iv) public acceptability and affordability; and

(v) the quality and quantity of service provided.

Members noted that NWFB had a negative return in 1998/99, the first year of its operation, but had achieved a positive return starting from 1999/2000. The change in the Composite Consumer Price Index since December 1997 (the date of the last increase of China Motor Bus Company Limited's fares, from which the fares of NWFB's routes are mostly inherited) is around -6.9%. Whilst the economy has picked up in the past year or so, the benefits of economic recovery are not yet fully felt by the general public. It could be argued that these factors do not lend support to the 9.2% increase requested by NWFB.

On the other hand, Members noted that NWFB has been providing high quality service to the travelling public and has shown strong commitment to further improvements in service, as evidenced by its huge investment of over $2 billion and its proactive efforts to introduce new measures to improve the service and environmental performance of its bus fleet. The company has provided much better services whilst charging only the same fare level as in 1998. Members also noted that bus operating costs are not fully elastic and hence had not been reduced in spite of the negative inflation in the past few years. In fact, NWFB's operating costs are forecast to rise in the next few years.

Members noted that the Legislative Council Panel on Transport was briefed by NWFB and the Administration on 23 February 2001. While some LegCo Members considered that NWFB should continue to freeze its fares or reduce the magnitude of the increase, some other Members considered that NWFB's proposed rate of increase was acceptable.

Taking into account all the relevant factors, the Committee considers that NWFB should be allowed a fare increase which would encourage it to continue to improve its service and environmental performance. However this should be a moderate increase at a level lower than that requested by the company in order to minimize the impact on passengers.

On this basis, the Committee is of the view that there should not be any increase in the fares of NWFB's cross harbour routes which generally charge higher fares than local routes. For NWFB's local routes, the Committee's view is that the fare increases to be permitted should only result in an overall increase of not more than 3%, instead of the 9.2% requested by NWFB. This could be achieved by either of the following two options:

Option A : fare increase of $0.1-$0.5 per bus trip for regular routes i.e. 5% increase on local routes only, which is equivalent to an overall increase of 2.4% for NWFB.

Option B : fare increase of $0.2-$0.6 per bus trip for regular routes i.e. 5.9% increase on NWFB's local routes only, which is equivalent to an overall increase of 2.9% for NWFB.

Under either option, NWFB's average rate of return would remain relatively low, as compared with the industry average; but it should, in the Committee's view, still be able to encourage the company to continue to invest in and improve its services.

I should be grateful if you would convey the Committee's views and advice to the Chief Executive in Council so that they would be taken into full account in the Council's deliberation on NWFB's application. The Committee's views and advice may be released for public information when the Council's decision is announced.

(Cheng Hon-kwan)

Chairman

Transport Advisory Committee


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