Fare Adjustment Mechanism
Fare adjustments are a sensitive issue for many of our stakeholders, particularly those living on low incomes or who depend on our services for convenient transportation to and from remote parts of our city. The Fare Adjustment Mechanism (FAM) was agreed with Government at the time of the rail merger in 2007. It is designed to meet three key objectives, namely, to ensure that our fares reflect Hong Kong’s economic conditions, to address the travelling public’s concern about affordability of our services, and to ensure that we generate sufficient revenues to support our operations over the long term.
Review of the FAM
The FAM is subject to review once every five years, either upon request of the Company or the Government. The first review was completed in 2013, resulting in revisions to the pre-set “Productivity Factor” and new algorithms for determining the amount of funds that we put aside each year for the 10% Same-Day Second-Trip Discount. The next review of the FAM is expected to take place in 2018.
The FAM is based on an objective, transparent and direct drive formula that allows us to set fares with a measure of predictability and to balance our financial obligations to shareholders with social responsibilities to the community. It takes into consideration the Composite Consumer Price Index (CCPI) and Wage Index, which are published by the Government’s Census and Statistics Department, as well as a Productivity Factor that is agreed with Government. This means that passengers will enjoy a share of productivity gains in our business.
Fare Adjustment in 2014
The latest fare adjustment came into effect in June 2014 with an Overall Fare Adjustment Rate of +3.6 per cent, reflecting
- a year-on-year increase in the Nominal Wage Index of 4.1 per cent,
- an increase in the Composite Consumer Price Index of 4.3 per cent; and,
- a Productivity Factor of 0.6 per cent.
As agreed with the Government during the review of the FAM in 2013, the Productivity Factor for five years between 2013 and 2017 will be 0.6 per cent instead of 0.1 per cent, as originally specified before the FAM review. This means that fare increases during this period will be lower each year than they would have been under the original formula.