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Secrets behind Hong Kong’s $2 billion profit MTR subway

Secrets behind Hong Kong's $2 billion profit MTR subway

Dear Professor Savings fans,

We started our company in San Francisco and now we are in Hong Kong.

While we ride the MTR (Mass Transit Railway Corporation) daily as our choice of commute, few get a glimpse behind the business and mechanics of the state of the art transportation system.

Boasting a 99% on time rate, the Hong Kong MTR transports around 5 million people daily in the work-centric city.

On the business front, the MTR is a publicly traded company that generated $5.2 billion in revenue last year in a city that has around seven million people.

I have lived in New York City and have something to say about its subway system.

NYC’s subway is plagued with funding issues and needs to inject almost $2.5 billion in 2015 to help its debt issue according to CNN. So what are the secrets behind running such an efficient and profitable transportation system in Hong Kong?

1. First, the MTR serves 5 million commuters daily and attracts commuters by being cost sensitive. Fares range from $.50 to $3, which makes up about 175% of the operating costs.

2. Second, the MTR has another, less known profit pipeline. They are property developers. Fifty major properties in Hong Kong are developed, managed, or owned by the MTR, including two of Hong Kong’s tallest skyscrapers.

3.While most transportation systems in the world struggle to execute and get projects completed due to politics, there is less political friction in the MTR system since the Hong Kong government is a majority shareholder.

The Hong Kong government provides land at no cost to the train operator. In addition, the MTR is allowed to develop the area above or around its stations.

So it makes sense that the MTR often builds shopping malls on top of its stations. They own thirteen shopping malls. Last year rental revenue at the malls went up by an average of 14%.

Naturally, each subway station has commuters flowing into the malls.

So it is a triple win situation. The commuters journey out of the MTR and are conveniently greeted with shopping outlets from groceries and other retail outlets.

The retail outlets either have profit sharing agreements with the MTR or pay rent to the MTR.

In central station aka the downtown of Hong Kong, you can find a Michelin starred dim sum restaurant called Tim Ho Wan aka world’s cheapest Michelin starred restaurant.

Make sure you try their famous pork buns.

Some may ask what is their next venture?

The MTR currently is attempting to export this business model globally to China, United Kingdom, and Australia.

Thanks for reading + please share.

For those who have share, big thanks we have reached 1500 shares and have seen a big traffic increase.

Professor Savings aka Rayfil Wong

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Source:  How Hong Kong’s subway turns a $2 billion annual profit




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