Study shows KTM running out of steam

A major reason for KTM’s dismal financial performance is the company’s inability to control costs.

KUALA LUMPUR: The only bright spot in Keretapi Tanah Melayu’s (KTM) service is its Electric Train Service, or ETS. All its other services show a continuing decline in passengers and revenue.

And the future looks even bleaker for KTM, says a report by the Penang Institute in Kuala Lumpur.

Ong made several suggestions on improving KTM’s services and revenue to put it back on track.

Its head, Dr Ong Kian Ming, said the situation would continue to deteriorate unless both KTM Berhad and the government, which is largely keeping it afloat, come up with sound ideas.

In a statement today, Ong made several suggestions on improving KTM’s services and revenue to put it back on track.

The report by Penang Institute in KL examines in detail the current performance of KTM, the challenges faced, and the future prospects of the rail operator.

Based on figures from KTM’s annual report, accumulated losses from 2000 to 2015 totalled RM1.87 billion. Only in 2016 did KTMB manage to achieve a profit of RM63.22 million, largely due to a one-off asset disposal in a property joint venture. Without this disposal, KTM would have made a loss of RM189.2 million in 2016, Ong said.

A major reason for KTM’s dismal financial performance, he added, was the company’s inability to control costs.

“Even though KTM’s revenue had increased by 44% from 2010 to 2016, in every year from 2010 to 2015, the cost of services exceeded revenue. Only in 2016 did revenue exceed the cost of services largely due to the ETS.

He noted that KTM would have incurred even larger losses if not for the non-repayment of soft loans totalling RM880 million provided by the government. KTM has asked for the start of repayment of these loans to be postponed to 2021, but the cabinet has yet to make a decision on this.

“Without the government’s support and backing, there is growing concern that KTM would not be able to survive, and this has been acknowledged in its most recent audited accounts.”

Daily ridership for the KTM Komuter peaked in quarter one (Q1) 2015 at 137,500 passengers but by Q3 2017, it had fallen to 99,033 passengers, translating to a 27.8% decline in a period of 2.5 years.

The reasons for the fall in daily ridership include, according to Ong: the fare hike in December 2015, the decrease in train frequency due to the Klang Valley Double Track upgrading work, an increase in train derailments and accidents, and the increase in competition from MRT Line 1.

At the same time, he said, yearly ridership for the KTM Intercity services had been steadily decreasing from 2010 to 2016, going from 2.35 million passengers in 2010 to 618,000 passengers in 2016. This amounts to a 73% drop in ridership over a seven-year period.

The reasons for this drop in ridership include the ETS replacing the diesel KTM intercity services in 2015 and 2016, the floods in the East Coast in 2015, and the low frequency of intercity trains thereafter.

Total freight traffic for KTM Cargo peaked in 2014 with 7.83 million tonnes of carried cargo. Prior to that, the volume of cargo recorded a steady increase from 5.40 million tonnes in 2010 to 7.83 million tonnes in 2014, or a 45% growth rate.

Since 2014, however, the volume of freight traffic dropped significantly, from 7.83 million tonnes in 2014 to 5.99 million tonnes in 2016, a fall of 23.5%.

One possible reason for the decline in demand for KTM’s cargo services, Ong suggested, might be the increase in the cargo fare in 2015, which likely diverted customers to other modes of freight transportation.

However, ETS ridership increased by nearly tenfold, from 215,000 in 2010 to 2.06 million passengers in 2015, with a further increase to 3.57 million passengers in 2016, the same year that ETS services were extended to Padang Besar via Butterworth in the north and to Gemas via Seremban in the south.

“The rising popularity of the ETS is explained by its reputation for being safe and relatively reliable, as well as affordability of service and the better connectivity of KL Sentral as an integrated public transportation hub. Ridership on the ETS should experience another significant jump after the completion of the electrification and double tracking project from Gemas to Johor Bahru in 2022, assuming that there are no delays.

“Unfortunately, the prospects for KTM’s other services do not seem so bright.”

Ong said the Railway Network Access Agreement (RNAA), which will see the ownership of all of KTM’s physical assets such as the stations, the trains, the track and staff quarters being transferred to the Railway Asset Corporation (RAC), would introduce more competition for KTM, especially in the cargo sector which currently makes up 40% of KTM’s total revenue.

Ong noted that KTM’s Tebrau Shuttle which takes passengers from Johor Bahru Sentral to Woodlands in Singapore in only 5 minutes would cease operations within six months of the commencement of operations of the Singapore-JB Rapid Transit System (RTS). This means KTM will lose its revenue stream from this service.

Also, Ong said, KTM’s commuter services in the Klang Valley would experience greater competition when the LRT service was extended all the way to Klang as part of the LRT 3 line, and when the MRT Sungai Buloh-Serdang-Putrajaya line began its operations in 2022.

KTM’s intercity services from KL to JB will also face competition from the Kuala Lumpur-Singapore High-Speed Rail, scheduled for completion in 2026.

Ong said: “A serious rethink of the business model of KTM is needed if it is going to survive as a going concern moving forward. The government, led by the ministry of transportation and the ministry of finance, needs to rethink the entire basis of the separation between rail asset ownership by the RAC and rail operations by KTM.”

He said a similar model tested by the railway administration in the United Kingdom had produced poor outcomes.

“The possibility of recombining the asset ownership and operations should be studied and evaluated carefully so as to allow KTM to monetise some of the physical assets such as land and stations to cover for its debt and operational losses.

“KTM stations are one of the few train stations in the world where passenger foot traffic is not monetized via retail outlets and activities as well as via advertising opportunities. At the same time, KTM needs to undertake serious cost-cutting measures including eradicating corruption, improving transparency and minimizing bad business decisions such as the RM85 million project given to Hopetech Sdn Bhd to install an Automatic Fare Collection system that was later abandoned.”

KTM also needed to be better integrated with other forms of public transportation in the Klang Valley especially in terms of seamless single ticket usage with the LRT, MRT and Rapid KL buses, Ong said.

“Without such a serious rethink, it is likely that KTM will remain financially and operationally inefficient in years to come, and the amount of money which the government must pour into KTM will only continue to grow.”