How hong kong's subway turns a $2 billion annual profit

[h=1]HOW HONG KONG'S SUBWAY TURNS A $2 BILLION ANNUAL PROFIT[/h]
Post date:
17 Apr 2015 - 10:30pm








You can find one of Hong Kong's most profitable businesses about 30 meters below the earth's surface.

The city's subway is the face of the Mass Transit Railway Corporation (MTR) -- a publicly traded company that pulled in $5.2 billion in revenue last year.

With a $2 billion annual profit, the Hong Kong's subway is an anomaly among major rail networks. New York's subway, for example, suffers from chronic funding gaps and will spend nearly $2.5 billion in 2015 to service its debt.

How does Hong Kong's train and bus network manage to clear its mind-boggling margins?

First off, this is one impressive subway system. Even with more than 5 million daily commuters, MTR trains boast a 99.9% on-time arrival rate. Fares are notoriously cheap ($.50 to $3), but cover roughly 175% of the system's operating costs.







But the company's real profits are derived from a lesser-known side of the business: property development. Some 50 major properties across Hong Kong are owned, developed or managed by MTR, including two of the city's tallest skyscrapers.

"Sometimes critics say it's a property development firm doing a side business of rail," said Tim Hau, a professor at University of Hong Kong's School of Economics and Finance.

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.

*Read the rest of the article at http://money.cnn.com/2015/03/30/news/hong-kong-mtr-subway-property/

Too complex. They should learn from Singapore. Just milk the commuters

This was exactly what Ah Saw was doing.

Only thing she could not achieve that 99.9% arrival rate, 99.9 % breakdown free period and of course keeping fares low.

But if you ask her then , she will expects her Ferrari be have 100% breakdown free guarantee! LoL

makapaaa said:

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Only one passenger a day?

They got free land. What do you expect?

Leongsam said:

Only one passenger a day?

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your reply is funny.

The land is provided by the gahmen to supply a public good which is public tpt.

Also the most important point. It is cheap n efficient n profitable unlike the mrt. Also so called free land is not uncommon in singkieland. The land PSA is sitting on is gahmen land. N even mrt land is gahmen land too.

syed putra said:

They got free land. What do you expect?

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syed putra said:

They got free land. What do you expect?

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How much does the pap charge SMRT for the land in Sinkapore ? Look elsewhere. The truth maybe that their CEO is a businessman whereas the SMRT is ruled by a General ?

hk gov owns only 26% of total land. they are milking it on rent. if they own more land like sg gov, they can build new towns, reduce housing prices, increase housing availability, and extend the mtr service to less profitable rental areas, and hurt their bottom line - something they will not do. the sg mrt system provides more welfare indirectly to sinkies.

eatshitndie said:

hk gov owns only 26% of total land. they are milking it on rent. if they own more land like sg gov, they can build new towns, reduce housing prices, increase housing availability, and extend the mtr service to less profitable rental areas, and hurt their bottom line - something they will not do. the sg mrt system provides more welfare indirectly to sinkies.

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What crap rubbish you talking?

First sentence already TOTALLY WRONG!

From the HK University website:

The People's Republic of China owns all the land in Hong Kong , except the land on which St John's Cathedral stands. The Chief Executive of Hong Kong has the powers to lease and grant state land to the public for ownership for a limited period of time (legally defined as "leasehold" land). The Chief Executive can do so by: i) granting Government leases for a certain period, or ii) granting licences for individuals or corporations to occupy Government land for special purposes for a certain period (usually shorter than a government lease). In other words, a "land owner" actually leases the land from the Government but the relevant lease period can be very long (e.g. 50 years or more).

http://www.hkclic.org/en/topics/sal...sic_knowledge_of_land_ownership_in_hong_kong/

HK MTR sets the gold standard for transits worldwide. Period.

---

The Unique Genius of Hong Kong's Public Transportation System

The use of a clever financing system has enabled the territory to provide world-class service—without breaking the bank.
NEIL PADUKONE SEP 10 2013, 1:12 PM ET



Passengers walk out of MTR railway carriage featuring Disney characters in the Sunny Bay station in Hong Kong. (Paul Yeung/Reuters)

New Yorkers are famous for complaining about the city's subway: despite an ever-increasing rise in fares, service never seems to get any better. And even still, ticket-sales still only funds part of the New York City subway system; the city still relies on supplementary taxes and government grants to keep trains running, as fares only cover about 45 percent of the day-to-day operating costs. Capital costs (system expansions, upgrades, and repairs) are an entirely different question, and require more state and federal grants as well as capital market bonds. And New York’s system is not unique: as in other cities, New York struggles to pay existing expenses and must go into debt to pay for upgrades, that is, without raising prices.

Is this problem intractable? Not exactly. Take Hong Kong for example: The Mass Transit Railway (MTR) Corporation, which manages the subway and bus systems on Hong Kong Island and, since 2006, in the northern part of Kowloon, is considered the gold standard for transit management worldwide. In 2012, the MTR produced revenue of 36 billion Hong Kong Dollars (about U.S $5 billion)—turning a profit of $2 billion in the process. Most impressively, the farebox recovery ratio (the percentage of operational costs covered by fares) for the system was 185 percent, the world's highest. Worldwide, these numbers are practically unheard of—the next highest urban ratio, Singapore, is a mere 125 percent.

In addition to Hong Kong, the MTR Corporation runs individual subway lines in Beijing, Hangzhou, and Shenzhen in China, two lines in the London Underground, and the entire Melbourne and Stockholm systems. And in Hong Kong, the trains provide services unseen in many other systems around the world: stations have public computers, wheelchair and stroller accessibility (and the space within the train to store them), glass doors blocking the tracks, interoperable touch-and-go fare payment (which also works as a debit card in local retail), clear and sensible signage, and, on longer-distance subways, first-class cars for people who are willing to pay extra for a little leg space.

How can Hong Kong afford all of this? The answer is deceptively simple: “Value Capture.”

Like no other system in the world, the MTR understands the monetary value of urban density—in other words, what economists call "agglomeration.” Hong Kong is one of the world’s densest cities, and businesses depend on the metro to ferry customers from one side of the territory to another. As a result, the MTR strikes a bargain with shop owners: In exchange for transporting customers, the transit agency receives a cut of the mall’s profit, signs a co-ownership agreement, or accepts a percentage of property development fees. In many cases, the MTR owns the entire mall itself. The Hong Kong metro essentially functions as part of a vertically integrated business that, through a "rail plus property" model, controls both the means of transit and the places passengers visit upon departure. Two of the tallest skyscrapers in Hong Kong are MTR properties, as are many of the offices, malls, and residences next to every transit station (some of which even have direct underground connections to the train). Not to mention, all of the retail within subway stations, which themselves double as large shopping complexes, is leased from MTR.

The profits from these real estate ventures, as well as that 85 percent farebox surplus, subsidize transit development: proceeds pay for capital expansion as well as upgrades. The MTR’s financial largesse means that the transit system requires less maintenance and service interruptions, which in turn reduces operating costs, streamlines capital investments, and encourages more people to use transit to get around. And more customers means more money, even if fares are relatively cheap: most commutes fall between HK $4 and HK$20 (about 50 cents to $3), depending on distance. (In London, by comparison, a Tube journey can cost as much as $18). Fare increases in Hong Kong are limited by regulations linking fares to inflation and profits, and the territory’s government recently started giving a HK $600-per-month travel stipend to low-income households, defined as those earning less than HK $10,000 a month.

This model of transit management works partly because Hong Kong is a closed system: There are no suburbs from which people can commute by car, so there are strong incentives for everyone within the territory to use the system. This feature, combined with other regulations, has kept car ownership low: 6 of every 100 vehicles in Hong Kong are for personal use, whereas the number in the U.S. is closer to 70. And while the NYC subway was built over a century ago and was neglected during much of the 20[SUP]th[/SUP] century’s suburban sprawl, Hong Kong’s metro was only developed in the late 1970s. As a result, it doesn’t have to rely on signals technologies from the 1930s that are only slowly being upgraded (hence the track closures in New York).

As an independent corporation with the government serving as majority shareholder (rather than a public agency, ministry, or authority), the MTR has the freedom to develop real estate, to hire and fire who it will, and to take business-minded decisions—whereas other transit systems, including the one in New York, must deal with union contracts and legal restrictions. In Hong Kong, these value charges are often displaced onto consumers, causing real estate prices to go up a little faster than they otherwise might.

Still, value capture is a powerful idea for transit management. New York has tested the waters of this approach with its $2 billion 7-train extension to the Hudson Yards project, working with the state’s Metropolitan Transportation Authority and the project’s developers to fund the extension with property taxes from the newly served area. Dedicated taxes, too, serve a similar purpose. But fundamentally, Hong Kong’s metro succeeds because it understands that a subway system is more than just a means of transportation—it is also essential to the well-being of a city’s population and economy.

How Hong Kong's MTR sets the gold standard in transportation

BY PAULINE CHIO



I've lived in New York, Boston and Houston. For the past five years, Hong Kong has been my home.

All are great cities but when it comes to public transportation, Hong Kong wins the prize hands down. In fact, we've been spoiled here in Hong Kong with MTR trains that are fast, clean and frequent.

I normally don't have to wait more than three minutes for the next train. I recently spoke with the CEO of the MTR Corporation, Jay Walder. He used to lead New York City's subway system and was recruited to head up Hong Kong's Mass Transit Railway (MTR) in 2012.

He says, “When I started in this industry, we called it mass transit. Everybody was thought of as one group. Five million people a day [Hong Kong's daily ridership].

What we are now working to say is, ‘How do we go from being one group of five million to saying this is five million individuals?’ ” To answer this question, the MTR has physically woven the rail network into daily life.

Many MTR stops spill out into underground shopping malls attached to office buildings and apartment complexes. So the movement between home, work and leisure often feels seamless.

The MTR has a unique business model. The government owns 77% of the MTR Corporation and gives it special land and development rights. The MTR owns 13 shopping malls and manages others.

The stores pay rent and in some cases, a portion of sales revenues to the MTR. On an even bigger scale, the MTR Corporation is a major property developer. It has developed the four enormous residential compounds along the Airport Express train route.

All of this has made the MTR extremely profitable and one of the few mass transit systems in the world that actually makes money. In 2012, its profits were more than US$ 1.2 billion.

“Capital investment --the ability to continue to invest -- is a critical aspect,” says Walder. “We have the advantage here that we are running on a financially sustainable basis.”

During a recent CNN interview, Walder and I walked out of Kowloon Station together and looked at the real estate surrounding us. The MTR had its hands in developing all of it: Elements Mall (MTR owns it), the apartment complexes (MTR built them, sold off the units but manages the residential buildings), the 118-story ICC skyscraper (MTR developed it but doesn't own it).

“The key is the integration that takes place. We literally think about the railway five, six or seven stories below ground. We're also thinking about what it means above ground,” Walder says.

Hong Kong’s MTR model is catching the eye of other countries. The MTR is currently operating rail lines in mainland China, Australia, the UK and Sweden.

Oh and I almost forgot to mention the best part: the average train fare is about US$1.

Asterix said:

What crap rubbish you talking?

First sentence already TOTALLY WRONG!

From the HK University website:

The People's Republic of China owns all the land in Hong Kong , except the land on which St John's Cathedral stands. The Chief Executive of Hong Kong has the powers to lease and grant state land to the public for ownership for a limited period of time (legally defined as "leasehold" land). The Chief Executive can do so by: i) granting Government leases for a certain period, or ii) granting licences for individuals or corporations to occupy Government land for special purposes for a certain period (usually shorter than a government lease). In other words, a "land owner" actually leases the land from the Government but the relevant lease period can be very long (e.g. 50 years or more).

http://www.hkclic.org/en/topics/sal...sic_knowledge_of_land_ownership_in_hong_kong/

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i said hk gov, not prc. ultimately after 50 years are up, prc will take land holdings away from the 6 families. for now, hk gov owns 23%, not 26%, which is my mistake. sg gov owns 87%.

this is the most comprehensive and factual academic paper on sg vs hk land use that is independent of gov bs and propaganda....

http://www.academia.edu/4295896/Comparative_Studies_Singapore_vs_Hong_Kong_Housing_Policy

"You want to run this Government cheaper? What are we quarrelling about? A vast sum of money? No. Pittance. If the MRT
were not run honestly, by the Minister for National Development and the Minister for Finance, if it were run like some other countries in Africa, the salary is
not enough pocket money for the children. Let us have a sense of proportion."

http://sprs.parl.gov.sg/search/topi...9400-ZZ_1+id009_19850322_S0002_T00041-budget+ (column 1230 ,4.45pm)

Another example why paying millions of dollars to politicians does not mean a better outcome-let's have a sense of proportion here. Till today there is still no political accountability for the MRT's fiasco-no political appointment holder ask to leave or demoted.

i read somewhere that MTR make their massive profits by developing the land around their train stations into shopping malls,thats how they make their massive profits by dumping millions of passengers everyday right next to their malls.

makapaaa said:

... But the company's real profits are derived from a lesser-known side of the business: property development. Some 50 major properties across Hong Kong are owned, developed or managed by MTR, including two of the city's tallest skyscrapers ...

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datz nutting le ... wait til dey hear dat sinkielan 1 going 2 own 1 telco ...

yellowarse said:

... BY PAULINE CHIO ...

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pauline alrite ... but where got chio? ...