Submission to the Transport Department on Public Consultation on the Review of the MTR Fare Adjustment Mechanism

1. The Consumer Council (the Council) is pleased to provide views on the review of the Fare Adjustment Mechanism (FAM) of the MTR Corporation Limited (MTRCL).

The Council's Views

2. According to the website of the MTRCL, its daily average patronage of domestic service exceeded 4.5 million passengers in November 2022._[1]  Under the Government's policy of using railway as the backbone of Hong Kong's public transportation system, the reliability of railway service is a significant element of the daily activities in Hong Kong and thus has a great impact to the productivity strength of Hong Kong’s economy.  Therefore, the FAM and service quality of the MTRCL are highly related to consumer interests and the community as a whole, namely on the aspects of passengers safety, service quality and affordability.

3. While agreeing that the current approach to the setting of the FAM is objective and transparent and that the FAM direct-drive formula_[2] should be maintained, the Council puts forwards in below its views on the “Productivity Factor” of the FAM, the “Service Performance-linked Arrangement” and the “Affordability Cap” arrangement, with an objective to enhance consumer welfare regarding railway services.

Productivity Factor (PF)_[3]of the FAM

4. Regarding the PF of the FAM, the Council understands that the PF has been set as 0% since 2017/18 and that the MTRCL has provided a special annual adjustment of 0.6% from 2017/18 to 2022/23 to lower the fare adjustment rate calculated according to the FAM formula, so as to ensure that passengers can still benefit from a moderated fare adjustment to an extent which is consistent with the original PF of 0.6% applicable to the period from 2013/14 to 2016/17.  According to a news report, it is predicted that the PF value applicable to the fare adjustments between 2023/24 and 2027/28 would highly likely be set as 0 due to the happening of social unrest and COVID-19 pandemic on patronage of recent years._[4]

5. If the PF will be set as 0 between 2023/24 and 2027/28 as reported, the Council is of the view that the MTRCL, a public utility that enjoys a high competitive advantage under the Government’s public transport policy with railway as the backbone and its indirect subsidy, plays an important role to support economic recovery by helping the public in offloading some inflationary burdens.  As such, the Council sincerely hopes the MTRCL to continuously provide the special reduction of 0.6% for the coming years between 2023/24 and 2027/28.

Service Performance-linked Arrangement (SPA)

6. In its 2016 submission at the time of previous FAM review, the Council commented that there should be means to take into account the overall service performance, especially in covering the service quality to passengers.  In view that there seems no significant improvement in the service quality in past 5 years (see below paragraphs for details), the Council reiterates its proposal of introducing more factors in the calculation method of the SPA.

Frequency of occurrence of service disruption

7. According to the SPA, the MTRCL would set aside an amount for serious service disruptions (defined as disruptions of 31 minutes or above) caused by factors within the MTRCL’s control to be given back to passengers through fare concessions.

8. The Council opines that this arrangement might drive improvement in terms of reducing the minutes of service disruption in order to prevent build-up of a large amount of penalty.  It could be regarded as an ex-post approach rather than a preventive measure.

9. According to the past 5-year figures from the MTRCL’s Annual Reports, the average number of cases of serious service disruptions per year was 11.2 (See below graph).  Solely in 2021, there were 16 cases of serious disruptions, double that of 2020.

10. The Council considers the overarching principle is that the MTRCL should strive to reduce the number of cases of service disruptions, in addition to shorten the duration of service disruption.  In this regard, the Council recommends that a two-factor approach should be adopted, i.e. to take both the frequency and length of disruption into the calculation of the amount to be set aside under the SPA, with a view that such factors will encourage the company to place focus towards more preventive actions.  To carry out a proper evaluation of the frequency of disruption, historical records could be taken as a benchmark.  If an increasing trend is observed, a progressive increment on the amount set aside per incident should be considered.

Safety of railway services

11. Besides that the current SPA simply counts on the length of duration of service disruption, it does not include the safety of services in the calculation of the amount to be set aside for fare concessions.

12. In recent years, there are raising public concerns about the safety issue of the MTR services, mainly because of the occurrence of some serious incidents.  Just recently on 13 November 2022, several doors were detached from a train in an accident at Yau Ma Tei Station,_[5] which prompted an evacuation that put one passenger in hospital and caused serious service disruption.  Similar accident has happened before.  In December 2021 at Causeway Bay Station, a set of train doors was dislodged after an advertising panel component became displaced._[6]  These incidents were of wide public concern and sparked widespread discussion on railway safety.

13. The Council believes that the MTRCL, the biggest service provider of Hong Kong’s public transport in terms of patronage, must have put passengers' safety first; and the Electrical and Mechanical Services Department, the railway safety regulator, must have put in place safeguards to ensure the safety and reliability of MTR services.  Nevertheless, given the rise of incidents in recent years, the Council is of the view that further measures (e.g. penalty scheme with different penalty levels which are based on independent assessments of the severity of each safety incident) should be considered to provide deterrent for the MTRCL to prevent similar events, so as to safeguard the safety of passengers.

Customer satisfaction

14. Other than the frequency of occurrence and duration of serious service disruption are part of the elements that measure the quality of service, customer satisfaction level is also an important indicator to report service performance to the public.

15. As indicated in the MTRCL’s Annual Reports, customer satisfaction has been generally on the downward trend over the past five years.  The following graph shows that customer satisfaction for the service quality of the Domestic and Cross-boundary services has dropped by 4.3% from 2017 to 2021._[7]

16. This reflects that the quality of services probably has not been improved or even degraded, which should be well addressed in this review in order to strengthen its quality of services to the public and the soon-to-be recovery of tourism to Hong Kong.

17. The Council once again suggests including other factors that can objectively measure the service performance of railway operation in the SPA.  The suggested factors include three aspects: (i) train service (e.g. train reliability, train punctuality, train service delivery and passenger journeys on-time, which have been reported in the annual report of MTRCL, but have not been taken into account in the FAM); (ii) quality of customer services (e.g. cleanness of the facilities and courtesy of service personnel); and (iii) readiness of emergency support services.  If these factors could be expanded to include in the SPA, it could enable a better assessment and management of the MTRCL in its service quality in totality.

Affordability Cap Arrangement

18. According to the Affordability Cap arrangement, regardless of the outcome of the direct-drive formula, the fare increase rate of that year would not be higher than the year-on-year change in the Median Monthly Household Income to address public affordability.  If the fare increase rate exceeds that cap, the increase rate within the cap will be applied this year, while the rate that exceeds the cap will be recouped in the following fare adjustment.  As indicated in the consultation paper, under this arrangement, there will be a total fare adjustment rate of +3.35% that has been accumulated and to be carried forward to 2023/24.

19. The Council considers that deferring the fare increase, instead of limiting the fare increase within an affordable range is not veritably relieving consumers’ financial burden as that increase will still be carried forward to the following year.  The affordability issue could be intensified with the prospect of steep fare rises.  While noting that the Government has been providing subsidies for targeted groups to relieve the fare burden of passengers, the Council suggests the Government to explore the feasibility of using other measure(s) to reduce the impact of price increases to the general public, for changing the practice of recouping the increase rate exceeding the cap in the next fare adjustment.  Reference can be drawn from the UK:  To give people more time to buy cheaper tickets at the existing rate and the price rises would be delayed for passengers to travel at a lower price for the entirety of two months (i.e. temporarily freezing fares for passengers)._[8]

20. Furthermore, the MTRCL could explore the possibility of offering more options of discounted tickets, for instance, instead of a monthly pass, to offer longer period discounted tickets (says, 3 monthly pass) or to increase the fixed number of trips per user pass.  The MTRCL could also consider relaxing the limitation on the use of the monthly pass (e.g. offer passes that are applicable at more lines) to suit the need of more consumers and help relieve the financial burden of the heavy users of railway services.

Other Comment - Higher Fares for Shorter Journeys

21. Subsequent to the opening of Tuen Ma Line (TML) of the MTRCL in July 2021, the public concerns about the unreasonable fare structure of TML, i.e. "higher fares for shorter journeys".  

22. The former Secretary for Transport and Housing pointed out in 2021 that such circumstances accounted for less than 2% of the over 4,000 trip combinations in the entire MTR network.  Also, among those "higher fares for shorter journeys", half of them involved fare differences within one dollar.  However, it would take as long as five to six years to have the above fare anomalies resolved._[9]

23. Some legislators also advised the Government to address the issue in the 2023 fare adjustment exercises, but the issue is not mentioned in the current consultation paper.  While acknowledging the complexity of the fare-setting process, the Council is of the view that increasing transparency in the determination of fare is important for addressing consumers’ concerns.  In view that there will be more new railway lines (e.g. the Northern Link) to be opened, which may result in more similar situations and debate about the fair setting of pricing, the Government might need to increase the communications with consumers, and urge the MTRCL to speed up the review process and adjust the fare structure as soon as possible, in order to secure a reasonable fare for consumers.

Conclusion

24. To conclude, the Council hopes the Transport Department would take consideration of the above views and suggestions and closely monitor the impact of fare adjustment on consumers for the welfare of them.