December 04, 2014

MTR reaps the rewards of selective growth strategy

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Steady expansion of its activities abroad means that MTR now carries nearly as many passengers on networks it manages outside Hong Kong as it does at home. Jeremy Long, CEO of MTR's European Business based in London, explains MTR's growth strategy to David Briginshaw.

HONG Kong's private metro and railway company, MTR Corporation, has an excellent reputation for running a very busy rail network with very high levels of punctuality and reliability, and at a profit.

Last year MTR made a profit of $HK 13.2bn ($US 1.7bn) on a turnover of $HK 38.7bn. Revenue from MTR's metro operations in Beijing, Shenzhen and Hangzhou in mainland China, London Overground, the Stockhom metro, and the commuter rail network in Melbourne, Australia, increased by 3.2% to $HK 13.25bn.

Despite incurring a loss from its 49% stake in Hangzhou Metro Line 1, which opened in November 2012, MTR managed to increase its operating profit on its non-Hong Kong railway activities by 31.5% to $HK 768m. However, exchange rate fluctuations and a one-off profit incurred in Stockholm in the first half of 2013 caused 2014 first half profits to fall by 6% tLongo $HK 421m, highlighting the risks of operating abroad.

MTR has achieved a lot in a relatively short time, as Mr Jeremy Long, CEO of MTR Corporation's European Business, explains: "We were only operating in Hong Kong 10 years ago, but now we are carrying about 4.5 million passengers a day outside Hong Kong compared with more than 5 million in Hong Kong."

MTR is involved in a variety of business models and share holdings. It has 49% stakes in three metro PPP schemes in Beijing and Hangzhou, a 100% stake in a BOT metro project in Shenzhen, operation and maintenance concessions in Beijing (49%), London Overground (50% with Arriva), Melbourne (60%), and Stockholm (100%), and has set up MTR Express to start an open-access inter-city service next year linking Stockholm and Gothenburg.

"We always look to the medium and long term for business developments, and we are more likely to grow from a concession. When we won the Stockholm metro concession, we got our team to look at the Swedish market and decided there was a commercial opportunity," Long explains, referring to the decision to set up MTR Express in Sweden.

MTR has just celebrated five years of operating the 14-year Stockholm metro concession. "It is a very demanding contract, well ahead of what the business had been achieving," Long says. The contract sets standards for cleaning and graffiti removal, for example, and introduced permanent manning of all station entry gates for the first time. "The task has been to make the whole business aware of our obligations and how to achieve them," Long says. "At MTR we really focus on continuous improvement through training and recruitment. We can bring in expertise from other parts of MTR when needed, but it is not about deploying large numbers of staff."

Long is proud of what has been achieved since MTR and Arriva took over the operation of the London Overground, which was created by upgrading existing lines, reopening some disused lines and linking them together to form an orbital rail network. "We have more than doubled the number of services since we started, we have doubled the workforce, and we are now carrying about half a million passengers a day, which is way beyond what Transport for London (TfL) envisaged."

This year MTR has won the concession to operate the new Crossrail Line in London, the London Overground concession is being expanded to include more lines, and MRT is part of a consortium which has won the operations, trains and systems PPP contract for the new North West Rail Link automatic metro line in Sydney.

Long believes that it is important to involve the operator at the early stage of a project, which is being done with Crossrail and Sydney. "It is surprising how soon you can reap the benefits of having an operator on board early," he says. "You need to work closely with the supply chain to produce a reliable system and keep the whole life costs down."

For Crossrail, MTR will be responsible for driver training, which will start early next year. "There will be between 300 and 400 new drivers and a lot of them will be recruited from outside the industry," Long explains. "We will also work closely with Bombardier regarding train maintenance, and we are recruiting an engineering team for this.

"TfL wants Crossrail to deliver very high standards of service," Long continues. "We will bring some people in from outside the railway to achieve innovation in customer service. We must ensure the railway is as good as it can be from Day 1 and build up the service intensity and performance."

Crossrail is designed to increase London's rail capacity by 10%, but it will only do so if runs efficiently and reliably. While MTR has a lot of experience in opening new lines, it will be under close scrutiny and huge pressure to succeed.

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