Transport operator SMRT Corp expects an imminent change to an operating framework to turn its loss-incurring bus business around.
Managers told shareholders at its 14th annual general meeting yesterday that the way public bus services are financed and run are facing profound changes.
Chief executive Desmond Kuek said he expects a "shift in the operating model" to one based on "cost plus margin".
The City Direct service - a new route, tendered out recently, between Jurong West and the city - is the first sign of such a shift.
ComfortDelGro Bus clinched the two-year contract to run the service for $1.06 million. The Government will keep the fare revenue collected from commuters.
This model, adopted widely in Europe and Australia, is deemed more commercially viable by operators as they are exposed to less revenue risk. Mr Kuek described the new model as "more sustainable". He expects it to be adopted before SMRT's operating licence expires in 2016.
The new CEO, just over nine months into the job, outlined the strategy in response to several shareholders' demands that the firm jettison the bus division.
Last year, SMRT's bus losses - excluding advertising revenue - more than doubled to $30.8 million on the back of rising costs and stagnating fare revenue.
Under the new operating model, the Government is also expected to fund concessions and subsidies.
Chairman Koh Yong Guan, who has long defended SMRT's bus business, said: "If the model doesn't change, then the board will have to seriously consider exiting the bus business."
Mr Kuek also said SMRT should be able to move to a new rail financing framework "fairly quickly". In this new model, the Government assumes ownership of more operating assets, while the operator is granted shorter operating tenures.
However, Mr Koh does not expect this change to completely transform SMRT into an asset- light company.
