Legislative Council Panel on Transport
The "Star" Ferry Company Limited
Application for Fare Increase

BACKGROUND

In view of rising operating costs and a decline in patronage, the "Star" Ferry Company Limited (SF) has applied for a fare increase averaging 44.1%. SF’s fares were last revised on 8 March 1996 by a weighted average of 18.9%.

Forecast of Patronage and Revenue

2. Total patronage in l997 and l998 is expected to remain at its existing level. Patronage on the Edinburgh Place - Kowloon Point service is forecast to decrease in 1997 and 1998 due to the opening of the Western Harbour Crossing and the MTR Lantau Line respectively. On the other hand, patronage on the Wan Chai - Kowloon Point service is expected to grow steadily upon completion of more office buildings in north Wan Chai. No significant change in patronage is expected on the Edinburgh Place - Hung Hom service.

3. As a result, fare receipts are expected to remain at existing levels in the next two years. Non fare-box income (e.g. shop rentals and advertising) would, however, grow steadily in 1997 and 1998.

Expenditure Forecast

4. A breakdown of the operating costs of SF in 1996 is annexed for Members’ information. Total operating costs are projected to increase in 1997 and 1998. In addition to price inflation, the major factor contributing to the rise in operating costs is the planned improvement to its vessels in order to maintain a safe and efficient ferry service, including replacement of crankshafts of old vessels, and refurbishment of deck planking on vessels.

5. In view of the financial difficulties franchised ferry operators are facing, the Government has recently conducted a review of the division of pier maintenance responsibilities between Government and the ferry operators. As a result of the review, Government will reimburse the

franchised ferry operators for the cost of maintaining the structure of ferry piers starting from the financial year 1997/98. Under the scheme, SF would be able to obtain a reimbursement of about $6.0 million in 1997 and $12.3 million in 1998. The actual amount of reimbursement will be determined by the Administration after scrutinizing SF’s application.

JUSTIFICATION

6. In recommending a fare increase of 7.52%, the Administration has taken the following factors into account -

  1. The recommended rate of increase is in line with the forecast rate of inflation of 7.6% between March 1996 (date of the last fare increase) and June 1997 (timing of the proposed fare increase);
  2. SF is forecast to incur a loss in 1997 if fares remain unchanged. Even with the recommended fares, it is projected that SF would earn only a small profit in 1997;
  3. 31% of SF’s passengers would not be affected by the fare increase, 1% would have to pay 10 cents more and 67% 20 cents more;
  4. SF provides a good service, in terms of both adequacy and quality; and
  5. SF’s services would remain the cheapest cross-harbour public transport service even after the fare increase.

IMPLEMENTATION

7. The Administration intends to seek the Governor in Council’s approval for the proposed fare increase shortly. If approved, the relevant new fare orders will be tabled at the Legislative Council with a view to implementation in June 1997.

Transport Branch
Government Secretariat
March 1997

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