Bus operators get limited reprieve from government measures
Even with a $1.bn subsidy, operators will still bear roughly 46% of the cost burden, says CIMB.
Singapore’s government will be investing S$1.1bn over 10 years to increase bus capacity, a move aimed at reducing overcrowding.
Of this S$1.1bn, S$280m will be spent on the purchase of 550 buses over the next five years, and S$820m to subsidise their operating costs over the next 10 years. Operators are expected to purchase 250 new buses, funded by them.
While this subsidy is needed to incentivise operators to expand their bus fleets as buses are already loss-making; CIMB said that any further fleet expansion will merely sink them deeper in the red.
Here’s more from CIMB analyst:
Positives:
- Lower capex as fleet expansion is partially funded by the government, putting less strain on cash flows.
- Higher opex from bigger headcounts and higher fuel consumption will be partially funded by the government.
Negatives:
- Operators will still incur opex from their enlarged bus fleets. The government can only defray costs. We estimate it costs S$190,000 or so p.a. to operate a bus, of which S$103,000 will be subsidised by the government. Operators will still bear the remaining S$87,000.
- Limited scope for margin improvements. During his speech, Mr Tharman Shanmugaratnam made it clear that the government will be monitoring and scrutinising operators’ costs for the purchase and running of the buses. Should their losses turn out lower than expected, funding will be reduced correspondingly.
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