The Public Transport Council has done what operators SMRT and SBS Transit have been waiting for: they’ve give the green light to fare hikes. However, this is no pitched battle between greedy transportation companies hammering an unsuspecting public for more money. This debate is so finely balanced because of its political implications that investors in these two stocks need to look carefully at what they’re getting themselves into.

The whole debate has its roots in traffic congestion. As you probably know, car owners pay significantly more to buy, own and run a car in Singapore than in other parts of the world, although they do see a significant refund when they sell or scrap their vehicles. The aim of these higher costs is to reduce car ownership and, by extension, traffic congestion. Let’s leave aside the debate about how effective or fair this is. My focus here is on the investment merits of the public transport operators.

As a result of the government disincentivising (ie, making it expensive) to own and run a car in Singapore, many people have little choice but to rely on public transport. Heartlanders, which form the core voting constituency, are particularly price sensitive because many of them earn low wages, if any at all. So, putting car ownership out of their reach while raising public transport fares is understandably a dicey proposition.

But from an investor’s point-of-view, it is no less dicey. SMRT operates the north-south and east-west MRT and the Bukit Panjang LRT lines. SBS Transit operates the north-east MRT line and the red-white-and-purple buses. These operators have to maintain, upgrade and replace buses and trains, not to mention the increasing running costs brought about by higher fuel prices. From an investor’s point-of-view, this latest public transport hike is not just overdue but also not enough. SBS disclosed it will earn S$8.7 mln extra revenue but that it will hand back S$4.4 mln through increased concessions to low income groups, such as needy families, the elderly and so on. Taking with one hand and giving with the other is a noble cause which, in the words of SBS Transit Executive Director Ong Boon Leong, “is our social responsibility”. In the Singapore context, this may be acceptable, but let us look at how this is done in other parts of the world.

First – and I don’t care what anyone says – Singapore’s public transport system is excellent.

In which other country:

1. do the trains arrive every 2-5 minutes during peak times, and every 5-7 minutes in off-peak times?
2. are the trains free from graffiti or smell?
3. are the seats usable because they have not been vandalised?
4. do the the buses follow a regular rhythm negating the need for bus timetables
5. are the buses free from graffiti (even though they smell sometimes, and they still haven’t been able to eradicate the cockroaches on some buses)?
6. are the seats usable because they have not been vandalised?
7. do the bus and train tickets cost – at most – the same as a loaf of bread?

Moreover, from an investor’s point-of-view, in which other country:

1. does the public transport system make a profit…
2. …without subsidies…
3. …and pays a comparatively high dividend yield?

I know there are lots of people who whinge and complain about the Singapore public transport system but face it, folks: it is fantastic. Go and ask anyone from so-called global cities such as London or Sydney about their public transport system! They really have something to complain about.

So my advice to the whingers: lay off SMRT and SBS Transit. They are doing a fantastic job.

Which begs the question: shouldn’t they be allowed to charge more for their amazing, cheap and profitable service? Frankly, if other global cities had Singapore’s public transport system commuters there would be paying five to ten times the amount per fare. It seems ridiculous that SMRT and SBS Transit should have to apologise for 1, 2 or 3 cent per ride increases in public transport fares given the service they provide and the increased costs they face.

Moreover, in my opinion as an investor it is equally ridiculous that they should have to subsidise low income families. It is noble indeed of SMRT and SBS Transit for having a social conscience but why should investors in these firms foot the bill for that?! This sort of assistance should come from other sources, such as the government. I am not in favour of the government subsidising the companies directly – that only leads to laziness and wastage. But if increasing public transport fares is a hot potato politically then it is the politicians (ie, taxpayers) who should bear the burden of subsidising low income families, not investors in these companies.