SMRT Corporation and SBS Transit are expected to suffer revenue loss of S$36.1 million next year, following a cut in bus and train fares two days after Christmas, with SMRT bearing the bigger hit of the two.
Bus and train fares will come down by 1.9 per cent due to lower oil prices, the annual fare review by the Public Transport Council (PTC) showed on Friday.
This means adult fares will fall by between one and four cents from Dec 27 - the same day Downtown Line 2 opens - with the deliberate timing so fares are changed at one go. Fare adjustments are ordinarily done in April the next year.
The fare reduction had been somewhat pre-empted by former transport minister Lui Tuck Yew in August, who added then that he had encouraged the PTC to pass on the 1.9 per cent reduction fully to commuters.
And the 1.9 per cent reduction is the maximum that can be cut, according to the fare formula, and as decided by PTC. It has discretionary power to adjust the fare, once the ceiling or floor is determined by the formula.
Subsidised fares for lower-wage workers and the disabled will also come down, while the price of certain concession passes will remain. PTC said transport is affordable for the average household, with the cost representing about 2 per cent of the household's income.
The cut in fares - the first since 2010 - will lower SBS Transit's revenue by S$15.7 million, and that of SMRT by S$20.4 million. PTC chairman Richard Magnus revealed that one operator fully accepted the cut in fares, and the other asked for it to consider a smaller reduction.
But he said the fare reduction strikes a fair balance. Otherwise, there must be evidence that the operators' business model would be less sustainable as a result of this adjustment.
Tammy Tan, SBS Transit senior vice-president, corporate communications, said that the company was guided by PTC's decisions.
Patrick Nathan, SMRT vice-president, corporate information & communications, said: "SMRT has noted the Public Transport Council's decision to reduce fares for commuters."
The operators will not have to contribute to the Public Transport Fund, which helps needy families cope with higher fares. The fund's balance will be about S$8 million as at March 2016, a Ministry of Transport spokesman said.
The formula accounts for inflation, wage growth, and energy costs a year ago. Inflation and wages each make up 40 per cent of the weightage. The final 20 per cent factors in the change in the Energy Index, a composite of cost changes in electricity and diesel. The weightage explains partly why the fare reduction does not fully reflect the drastic fall in oil prices. It also tracks the typically lagging prices of electricity and processed crude oil, not crude oil directly. Even so, the fall on the energy index more than offsets gains in inflation and wages.
The final figure then deducts 0.5 per cent that reflects the transport operators' expected gain in productivity.
Earlier this year, fares were raised by 2.8 per cent, meaning most adults have been paying four or five cents more per ride.
While the 2014 fare calculations - which are implemented in 2015 - reflected a 0.6 per cent fall in fares, it also had to account for a 3.4 per cent increase carried over from 2013.
Mr Magnus also said PTC will review fares to account for the contracting model for buses, which comes into effect next year. Under this model, the authorities pay an operator to run certain bus routes, and earns revenue from bus fares in return.
The fare formula is officially due for review after 2017.