
How Hong Kong's subway turns a $2B annual profit - kungfudoi
http://money.cnn.com/2015/03/30/news/hong-kong-mtr-subway-property/
======
chestnut-tree
It's interesting to read this from a UK perspective. National rail services in
the UK have been privatised for many years and all national rail services are
run by private companies. Most of the UK rail franchises are European owned
(Deutsche Bahn, Nederlandse Spoorwegen, Abellio, SNCF). MTR own 50% of of the
London Overground rail franchise - one of the better run rail services.

Overall, privatisation has been a disaster for the UK rail industry (in my
opinion). Despite the fact that we have some of the highest rail passenger
numbers in Europe, we also have the highest fares in all of Europe and poor to
mediocre services.

Our rail services are incompetently (and greedily) run and the political will
to change this is depressingly weak (across all political parties).

~~~
m_mueller
I've had the same realisation in Japan: rail and postal services have been
privatised there as well and they work supremely well. It made me think that
good/bad service stems from culture more than from government vs. corporate
organisation structures.

~~~
makeitsuckless
There are two ways to privatise: to create a competitive market
(liberalisation) or simply to outsource the execution of what is essentially
still public policy (to provide quality public transport).

Japan is an example of the latter, the UK is a strongly ideologically
(Thatcherite) driven attempt at the former. And those almost almost fail when
it comes to infrastructure.

Not so much a matter of culture but ideology.

The whole private versus public debate is a red herring: in the end, these
services depend completely on a functioning government taking full
responsibility for the outcome, regardless of how the outcome is achieved.

~~~
mavhc
You can't have real competition with networks, be they road, rail, telephone,
internet

~~~
DennisP
Internet? Then why is Google driving down prices wherever it rolls out fiber?

~~~
hackerboos
Because they cherry pick densely populated areas. They're not providing a
universal service.

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Duhck
As a New Yorker visiting HK for the first time this week, it's hard not to
walk away impressed.

The NYC Subways are so completely inferior it's no wonder they operate at a
loss.

I ride the A/C trains daily and my commute varies from 30-90 minutes depending
on an unknown set of variables. At least 2 days a week I find myself cursing
the subway for being late, running with delays, or getting me stuck
underground somewhere without any notice or announcements.

Perhaps even more inferior than the actual train experience is the wayfinding
experience.

The MTR's letter/number exits (which google maps supports wonderfully) makes
leaving the subway as great as riding it.

Even as a 7-year veteran NY'er I sometimes find myself trying to figure out
which is the right exit to take at each station to get above ground. I usually
say "ok I want to go south east, find the most south east exit I can" but as a
tourist this must be so confusing.

It almost seems like a catch-22. If the MTA got their shit together and fixed
up the subway lines to make them more reliable, maybe they'd be closer to
breaking even, but since they are in a deficit (or are they? [1]) they can't
actually fix things on time or properly at all.

I have to say the NYC subway is mostly pitiful (especially outside of
Manhattan) and the MTR is nothing short of impressive.

[1] [http://newyork.cbslocal.com/2013/09/28/mta-audit-reveals-
una...](http://newyork.cbslocal.com/2013/09/28/mta-audit-reveals-
unanticipated-surplus-of-nearly-2-billion/)

~~~
damon_c
Well... keep in mind that the NYC subway opened 110 years ago while the MTR
started in 1979. It's brand new!

But yeah, the signage is terrible. Paris's system is even older and even if
you don't speak much French it's still easier to find the right exit than it
is in NYC.

Why can't we have nice things?

~~~
hackerboos
French subway exits are mostly in...French.

Look for the "sortie".

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chii
So it's really only viable because it gets rent free land from the tax payers.

It seems like it's just some magic accounting trick to not count the revenue
that the tax payer would have received for the land currently being given tent
free.

In other words, public transport is just not a profitable business.

~~~
api
Cars are only viable because they get roads from the tax payers.

~~~
cpursley
Exactly. In the United States, most people don't realize the impact the
interstate highway system had on market pricing. It effectively subsidized
cheap land and road travel.

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prawn
I have fond memories of the MTR from the first time I visited Hong Kong in
1991 as a teenager. We stayed in a hotel that was above a shopping centre and
either near or above an MTR station too and it was very convenient. I remember
being amazed as a 14 year old that you could catch an elevator down from your
room, down past the lobby and walk out into a supermarket, a food court, a
department store, etc.

I've wondered here in Australia why suburban supermarkets don't run bus
services from their doorstep (rather than the main road on the other side of
the carpark) and let commuters park-and-ride from their carpark which would
otherwise be somewhat empty during a weekday. Get transport back to your car,
but drop in to pick up groceries before driving home.

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greggyb
>Fares are notoriously cheap ($.50 to $3), but cover roughly 175% of the
system's operating costs.

>Here's how it works: MTR enjoys a special relationship with the Hong Kong
government, which is also its majority shareholder. The government provides
land -- at no cost -- for use by the train operator....

So fares cover 175% of operating costs - but the firm does not face any real
estate costs.

In an expensive place like Hong Kong, I would imagine that real estate dwarfs
all other operating costs for most businesses. Is it realistic to not count
real estate as an operating cost? It's obviously being paid for, and I'd be
surprised if subway fares would cover market price for this firm's land.

~~~
nwah1
Exactly. That is why public transit needs to be funded by Value Capture.
[https://vimeo.com/32548658](https://vimeo.com/32548658)

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carsongross
Reading about them makes me think of Vanderbilt, who I have heard (but cannot
find the source) made some of his domestic ferry services free, in hopes that
you would buy food on the trip.

As an aside, Vanderbilt was (possibly) responsible for one of the more
memorable business quotes I've come across:

 _You have undertaken to cheat me. I won 't sue you, for law is too slow. I'll
ruin you.

Yours truly,

Cornelius Vanderbilt_

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ianlee
I love the MTR in HK. In addition to creating an awesome public transportation
system, I think that MTR also has the potential to be the government's vessel
in balancing the HK real estate market.

    
    
      "Some 50 major properties across Hong Kong are owned, developed or managed by MTR,including two of the city's tallest skyscrapers."
    

Companies like Sun Hung Kai, Cheung Kong, Henderson, New World etc are getting
ridiculously rich off soaring property prices while the lower/middle classes
suffer in overpriced, tiny cramped living spaces. Perhaps the government can
use MTR as an opportunity to create affordable housing - maximize welfare
beyond a cheap public transportation system.

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CaseFlatline
Slightly misleading on the source of the profits. It's important to read this
section of the article:

"But the company's real profits are derived from a lesser-known side of the
business: property development."

and

"Here's how it works: MTR enjoys a special relationship with the Hong Kong
government, which is also its majority shareholder. The government provides
land -- at no cost -- for use by the train operator, and MTR is then allowed
to develop the areas above and around its stations."

So the government loans out land (which is crazy expensive in hong kong) for
free and the MTR gets to keep the profits for leasing out that land via malls,
etc.

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cpwright
This reminds me of the US where the railroads would get copious amount of land
near the tracks, in relation to how many miles of tracks that they built.

[http://en.wikipedia.org/wiki/Pacific_Railroad_Acts](http://en.wikipedia.org/wiki/Pacific_Railroad_Acts)

Also, the MTA in NY has air rights in some places. Not that they are
necessarily using them verify efficiently:
[http://en.wikipedia.org/wiki/Hudson_Yards_Redevelopment_Proj...](http://en.wikipedia.org/wiki/Hudson_Yards_Redevelopment_Project)

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netheril96
As a mainland Chinese who frequents Hong Kong I have very bad impression of
their subway. It is so expensive and with old technology. Guess that is how
they make such profit.

~~~
matthewrudy
China has the benefit of building all it's metro systems in the past decade.
Hong Kong's is a bit older. But if you visit London you'll be shocked by the
price, and the lack of good technology.

It's a true legacy system, that will take decades to modernise.

There is no mobile coverage on the London Underground. In Hong Kong 4g is
continuous and uninterrupted all the way from the Shenzhen border to Central.

~~~
Symbiote
The lack of mobile coverage on the London Underground is because the phone
companies refused to pay the rent demanded. (I don't know if the demand was
fair.)

Fares in London cover 91% of operating expense:
[http://en.wikipedia.org/wiki/Farebox_recovery_ratio](http://en.wikipedia.org/wiki/Farebox_recovery_ratio)

London's system is OK for it's age. Trains very in age from under 1 year to
approaching 40 (with replacements on order, or planned), some lines have new
signalling systems, others don't -- yet. That's not much different to Hong
Kong.

~~~
matthewrudy
Another thing Hong Kong does that's awesome, is interchanges.

Typically two adjacent lines will share two stops in common. The first will be
designated to transfer in one direction, and the second for the opposing
direction.

They arrange these transfers so that your next train is waiting on the
opposite side of the platform.

London is never going to be able to do that.

~~~
phatfish
Does interchange really matter when there is a train every 3 mins?

I always laugh at the idiots getting stuck in the doors after a mad dash. Can
they really afford not to wait?

~~~
Symbiote
Interchange means changing from one line to another.

    
    
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Cross-platform interchange means the tracks are aligned so (for example) the
more-or-less northbound tracks of both lines are close together, rather than
the opposite track being the same line but in the opposite direction.

They exist in London where it was possible to install them, but it's very
difficult to retrofit (if underground) so many of the old lines are stuck the
way they are -- with an underground walkway between lines.

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calbear81
This makes a lot of sense. I was living in Seattle during the big debate over
how to replace the seismically unsafe viaduct (tunnel vs. roadway). The
viaduct runs one block from the waterfront and is prime real estate and I
don't know why they couldn't allow real estate development above the tunnel to
fund the tunnel and bring additional state revenues. There's enough room in
that space to build dozens of new skyscrapers.

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rhia
Sooooo... government favouritism and sketchy business practices. Who would
have thought?

~~~
ianlee
The goal of the government is to maximize welfare.

I would say that in this case, your so-called _" government favouritism"_ and
_" sketchy business practices"_ benefits citizens immensely.

    
    
      "MTR trains boast a 99.9% on-time arrival rate. Fares are notoriously cheap ($.50 to $3)"
    

Moreover, a lot of systems that maximize public welfare are often monopolized
and subsidized by the government. Do you think having myriad companies running
various train tracks in a city would be beneficial? Or would one unified
system make more sense? I think the evidence points to an unmistakable answer.

