Civic Exchange
Merging Hong Kong’s Railways: The Public Interest Perspective
price level)78 is the total cost of providing service to all the firm’s customers divided by the number of customers, we can see that the average cost of most transport services is highly dependent on the load factor. For example, let us consider a relatively stable population of customers for public transport in a given area,79 then by definition, the greater the number of choices, the lower the average load factor on each of them. Take a case where 100,000 people have to be moved from point A to point B (and back) each working day. Say they have two modal choices. 40,000 people choose rail and 60,000 people choose bus. If a third option (e.g., PLB) were added, and that third option is to have enough customers to be commercially viable, then the split might become something like 35,000 people take rail, 50,000 bus, and 15,000 PLB. In this illustration, adding the choice of PLBs raises the average cost of services by rail or bus substantially (i.e., by 14% for rail and 20% for buses). This is not to say PLBs should be eliminated. Rather, the point is to show how the dynamics of load factors and the average cost of service tend to work, so as remind us that choice is not free. To take an actual example, the cost per rider of the MTRCL’s Airport Express goes up when it faces high levels of competition (frequent service, lower fares) from buses and hence lower load factors.80 Again, the point is not that competition on transport to the airport should be eliminated, but rather that in cases like this, high levels of competition where the prime carrier has a high fixed cost has the undesirable effect of substantially raising the cost of service provision by that main carrier. One might ask, “why build rail lines to the airport at all if buses are cheaper and offer greater flexibility?” For various reasons, including faster travel time from relatively distant airports, and freedom from the travel time uncertainties and other problems associated road congestion, major airports around the world tend to have rail connections. Yet, in the interest of greater flexibility of service, supplemental road transport is also provided. A dilemma arises when the Government feels it must have rail services, but then allows the ‘supplemental’ road services to compete to the point where the load factor on the airport rail line falls below economic levels. The point in this particular case (as noted more generally above for rail systems overall) is that the road transport services only appear to be less expensive because riders do not pay the external costs such service imposes. Greater coordination among transport modes (e.g., feeder bus service to rail stations; feeder mini-bus service to rail stations, stops on major bus routes etc) does impose an additional ‘cost’ on travellers in the time and inconvenience required to switch modes. Yet, the benefits in terms of the potential for lower fares, reduced road congestion and street-level air quality are substantial.
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Again, including ‘normal’ profit. In other words, to the extent that if the option of alternatives to public transport such as private cars or telecommuting are not widespread, and most travel is non-discretionary. 80 One can always get a seat on the airport express, and usually a choice of seat. 79
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