Expanded Corporate Footprint
Capturing Synergies
A World-class Enterprise

Expanded Corporate Footprint

Following the enactment of the Rail Merger Ordinance effective from 2 December 2007, the Kowloon-Canton Railway Corporation (KCRC) granted MTR Corporation the 50-year service concession to operate, manage and maintain the operational assets of the KCRC. Additionally, under the terms of agreement for the merger, MTR Corporation acquired the portfolio of investment properties and property development rights of the KCRC.

 

 

The merger consolidates Hong Kong's mass transit rail network into a single entity managed under MTR Corporation. This network includes nine domestic rail lines, cross-boundary services, a light rail system, the dedicated Airport Express and bus services, collectively capturing about 41% of the city's overall public transport market. The bulk of MTR Corporation's operations continues to be in Hong Kong, with home market contributions to revenues being over 95% of the total at 2007 year-end.

Capturing Synergies

To optimise business outcome of the merger, extensive reviews of both organisations' operations were conducted with the intention of identifying "best of both" in management and systems as the underlying basis for future operations. From this, the new organisational structure was shaped and, significantly, the social, economic and environmental risks to the merger and future operations as a single rail network were identified for further action. The process also identified potential synergies and other revenue enhancement opportunities that will support the long-term sustainability of the new organisation.

A set of drivers was established that dictated the new organisational footprint and necessarily evolved best practices:

• With the licence to operate the combined rail network, some 6,000 employees comprising mainly front-line staff and maintenance crews are added to the existing 6,500-strong MTR Corporation staff, a decision taken to ensure the continuity of quality rail services across the expanded network. A parallel programme to realise operational synergies including staff rationalisation optimises deployment and retraining opportunities for the some 1,300 new positions identified.
• Centralised control over future rail projects establishes better planning with Government and optimises the across-the-board efficiencies in how new rail lines will be built. This paves the way to facilitate the development of the four rail projects confirmed by Government in the 2007-08 Policy Address.
• The land bank acquisition, which gives rise to substantial revenue potential, extends the long-term stream of recurrent income from property sales and investments. Emphasis is given to green building so as to create sustainably built environments.
• The new Fare Adjustment Mechanism (FAM) using a direct-drive formula based on changes to the composite consumer price and wage indices creates a measure of certainty in respect of fares, which will fairly balance the interests of, and benefit, all stakeholders.
• Integration of the two rail networks introduces an expanded network with seamless connection and reduced fares across the board for commuters, in particular for lengthy journeys and network interchanges. This positions MTR to better compete with other transport providers and in time, with better planning and services delivery, become the preferred mode of public transport in Hong Kong.
  
  

A World-class Enterprise

Our long-term goal is to be a world-class enterprise, growing sustainably in Hong Kong and beyond while focusing on our core strengths in rail, property and related businesses.

Under the hybrid rail plus property business model, we have sustained ourselves for over 28 years as a commercially viable organisation through building and operating the mass transit network of Hong Kong. The development rights help us to ensure a commercial return is achieved that can support construction of future railway projects. This business model has facilitated competitive fare arrangements for passengers while maintaining our profitability and leading the way towards providing a "quality of life" environment for the broader community.

The merger enhances the opportunity to achieve more sustainable urban planning under this model. The rail network managed under a single entity allows for a more holistic view in urban transport development and consolidates our position in working with Government on sustainable transport policies. As satellite cities become the norm for Hong Kong, the principal mode of rail supported by a secondary road transport network is the long-term objective we collectively pursue.

With urban transport infrastructure set to move towards a clearer pathway, better opportunities for shaping the communities around our rail lines arise. Our evolving master plan in property development closely aligns to changes in social aspirations and directly influences how our partnering developers plan and build new communities. The LOHAS Park development demonstrates this strategy in progress. The additional development properties acquired through the merger give the potential to extend this strategy considerably.

Our reputation in sustainable rail development and operating expertise has bolstered our international presence, particularly in mainland China and recently, in Europe. Projects include a rail line development joint venture in Beijing, operating concession in the UK and a series of consultancies worldwide on rail design, building, operations and maintenance.