Post by Steven Dale
Map of the Hong Kong Tramway system. Creative Commons image via Wikimedia.
Last week the New York Times ran an interesting piece on Hong Kong’s historic street-level trams.
These double-decker, non-air-conditioned relics are apparently quite the workhorses.
According to the Times the trams move 200,000 (220,000 according to Wikipedia) people per day along the 13 km route with 1.5 minute headways between vehicles—and,despite zero government subsidies, they do so profitably.
Hong Kong tram image by flickr user DavidSandoz.
French company Veolia Transportation owns the trams 100% and is able to eke out a profit from the system, despite fare prices being only approximately $0.30 USD per trip.
All this seems lovely enough, but something just doesn’t add up to me.
How can a privately-run transport system possibly be profitable given these numbers?
Even with ancillary revenues from billboard advertising and “private party” rentals, it is hard for me to understand the economics here.
Let’s assume an average fare price of $0.25—once one factors into the equation pass, child and seniors discounts that number seems reasonable (if not a little bit high). That yields ticket revenue in the $20 million USD range.
Yes, I’m sure that advertising revenue is significant and the cost of drivers in China minimal, but the economics still seem highly dubious.
I’m not saying the system isn’t profitable—it most likely is, or else why would a private company continue to own it? The question I have is how is it profitable?
Any guesses?
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