Formula for calculating public transport fares adjusted with reduced fare volatility for passengers

Following the review of the public transport fare adjustment formula and mechanism, the Public Transport Council (PTC) has released recommendations to reduce the volatility of fare changes, while ensuring affordability for commuters.

PTC was tasked to review the effectiveness of the fare adjustment formula and mechanism by Minister of Transport S Iswaran in August 2022.

The fare adjustment formula calculates the percentage of allowable fare charges by factoring in the various costs that affect public transport operations.

The Workgroup said that it sought a “wide range of perspectives during the review process” through surveys, public engagement sessions and dialogues with the public transport industry.

PTC proposed changing the Productivity Extraction (PE), used in the previous fare formula from 2018 to 2022, to a Productivity Contribution (PC) that will be fixed at 0.1 per cent for the next five years. This is to maintain the expectation for public transport operators to strive for continuous productivity improvements.

It also recommended replacing the Network Capacity Factor (NCF) which is based on annual changes in public transport network capacity and ridership, with a Capacity Adjustment Factor, fixed at 1.1 per cent for the next five years.

The NCF will be based on actual and planned capacity improvements from 2020 to 2026, including the opening of the Thomson-East Coast Line. Compared to the NCF, a fixed Capacity Adjustment Factor reduces variability due to capacity and ridership changes.

The Workgroup recommends retaining the Core Consumer Price Index (cCPI), Wage Index (WI), and Energy Index (EI) at its existing weightages.

Hence, the proposed fare adjustment formula from 2023 to 2027 will be as follows:

0.5 cCPI + 0.4 WI + 0.1 EI – PC + C

Three major developments were considered when proposing the new formula: The inflationary environment, uncertainty in ridership patterns and recovery post-pandemic and continuous enhancements to the public transport system with rising government subsidies.

The 2023 fare adjustment quantum will be finalised and announced in the second half of this year.

Additionally, the Workgroup recommends retaining the Deferred Fare Adjustment mechanism. Under the mechanism, PTC has the discretion to defer the fare adjustment quantum, in part or in full, to subsequent Fare Review Exercise (FRE), taking into account the prevailing social and economic conditions.

“The recommendations will allow the fare adjustment formula and mechanism to better respond to the macroeconomic and operating environment while continuing to ensure fare affordability for all commuters, particularly vulnerable groups,” said PTC.

It revealed that the Government subsidises public transport by more than $2 billion annually or more than $1 for every journey taken, “which has gone a long way towards ensuring fare affordability for commuters.”

The Ministry of Transport said that it has accepted PTC’s recommendations for the 2023 Fare Adjustment Formula and Mechanism Review, including its proposed fare formula.

“With the new formula, the PTC will continue to adjust public transport fares to keep pace with operating costs, while ensuring that fares remain affordable for commuters.”