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KMB facing loss from fuel costs

South China Morning Post 21st May 2011

Kowloon Motor Bus (KMB) could soon apply for another fare increase. Its management is warning that, for the first time in a decade, it could make a loss.

Hong Kong’s largest bus operator – whose profit contribution to holding company Transport International Holdings (SEHK: 0062) has shrunk over the years – raised its fares by an average of 3.6 per cent on Sunday.

But the group’s managing director, Edmond Ho Tat-man, said the HK$200 million a year the fare increase would generate would not fully cover its fuel costs, which are expected to increase by HK$500 million this year.

“We are not making enough to cover our expenses. If oil prices don’t fall, we will be in the red this year,” Ho said.

KMB’s listed flagship Transport International, which makes money from leasing and selling property at its former depots and operating local coach services and public transport in Shenzhen and Beijing, reported a net profit of HK$866 million last year, nearly 30 per cent above that of 2009.

More than half the profit came from sales and interest earnings from property projects in Lai Chi Kok, including offices, shopping malls and luxury apartment block the Manhattan Hill. Excluding two one-off gains, its franchised bus operation accounted for just HK$243.3 million of its profits, down 38.4 per cent from 2009.

The company blamed that drop in profit on fuel costs, which were HK$1.14 billion last year and made up nearly a fifth of KMB’s expenses. The price of the near-zero-sulphur diesel the company uses jumped from US$86 per barrel in July – when KMB sparked a public outcry by proposing average fare rises of 8.6 per cent – to US$138 per barrel last month.

Ho said 60 per cent of KMB’s 380 routes were losing money – an all-time high. “Most of these routes overlap with rail lines and are seriously underused. Some trips, even at peak periods, carry less than 15 passengers but our proposals to trim or remove them are always opposed by district councillors.”

Route restructuring can only get tougher in the next two years, with elections being held for district councils and the legislature. Councillors will be particularly reluctant to agree to reduce public services. Last year councillors rejected seven of KMB’s 16 applications to trim routes; just nine of its 3,800-strong bus fleet were taken off the road as a result.

KMB hopes to import at least 10 supercapacitor buses – an electric model that recharges via an overhead cable at bus stops – by the end of next year. Deputy managing director Evan Auyang said it hopes the technology will be mature enough by then for KMB to adopt it rather than buying diesel-powered buses that meet the European Union’s new Euro IV emission standards.

The group’s shares closed up 0.87 per cent at HK$23.20. Auyang said the market was worried Euro VI buses could use more fuel than Euro V models since they will require extra power to reduce emissions of pollutants such as nitrogen oxide.

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