After years of losing ground to highway transportation and Taiwan High Speed Rail, state-run Taiwan Railways Administration is staging a comeback with a raft of business ideas that capitalize on the company’s unique assets and rich history.
Established in 1887, the TRA had enjoyed a monopoly on long-distance transportation before the country’s first highway system became operational in 1978, when it started incurring losses. The business was further impacted after Highway No. 5 between Taipei City and northeastern Yilan County and the THSR opened to traffic in 2006 and 2007, respectively. “We had a very tough time back then,” TRA Director-General Frank C.K. Fan told Taiwan Today in an interview Nov. 24.
Under Fan’s leadership, TRA is now back on track, with average daily traffic for the first 10 months of 2011 increasing 9 percent over last year to a record high of 563,000 passengers. Average daily ticket sales gained 7 percent to reach NT$42.96 million (US$1.42 million), surpassing the levels seen before 2006.
Fan, who took office at the TRA’s lowest point, attributed the encouraging results to the administration’s measures to boost public usage of TRA services over the past four years, especially for commuting in the northern part of Taiwan.
“The introduction of smartcards into our fare collection system in 2008 played a key role in attracting commuters in metropolitan areas,” Fan said. “We have also added several stops along major travel routes and revised schedules to offer more services.” These efforts have seen the average number of commuters double from 80,000 passengers per day to nearly 160,000.
While the THSR has eroded the TRA’s share in long-distance transportation, Fan believes the two can develop a new model of cooperation that leverages their respective strengths. “Although the TRA cannot compete with the THSR in terms of speed and service quality, we have an edge with our extensive railway network covering all four corners of the island.”
According to Fan, the TRA can complement the THSR with transfer services to areas not covered by the high speed rail and make travel around the island more convenient. “This approach will be especially promising in developing domestic vacation packages.”
But to make the arrangement work, Fan said, a top priority is to integrate the two railway operators’ hardware and software facilities and rearrange train schedules, so that travelers can change trains in a seamless manner. “We are exploring the possibilities to create new joint business opportunities.”
The TRA is employing its extensive railway network in eastern Taiwan to capitalize on the booming tourism in Hualien and Taitung counties. (Photo courtesy of TRA) The TRA’s monopoly in the eastern part of Taiwan also puts the firm in the best position to capitalize on booming domestic tourism. “Our travel packages to Hualien and Taitung counties are in such high demand that tickets are often sold out in a matter of minutes.” The TRA has implemented plans to purchase additional trains and recruit more train drivers in the next decade to meet the surging demand, Fan said.
Better asset management is also high on the TRA’s agenda. Official records show that the company possesses properties covering 5,257 hectares of land with a declared value of NT$552.7 billion, Fan said. “Most TRA stations are located in downtown areas, and are frequented by hundreds of thousands of travelers every day. In the past they were simply transportation facilities, but the huge volume of traffic can easily be translated into business,” the TRA head said.
A prime example is the two-phase renovations of the Taipei Main Station into a shopping center that houses more than 150 stores and restaurants. According to Fan, the TRA entered into a reconstruct-operate-transfer contract with Taipei-based Breeze Center in 2006 that allowed the department store operator to convert the station, at its own expense, into a multifunctional facility catering to travelers’ needs.
This has proven to be a winning strategy for both parties, Fan pointed out. “The station is the largest transportation hub in Taiwan, visited by more than 100,000 passengers a day. And where there is people flow, there is money to be made,” he said, adding that not only is the facility fast becoming a new landmark and the city’s latest shopping attraction, the additional patrons attracted by the station have also revitalized the neighboring district.
The recently renovated Taipei Main Station has become the capital city’s latest shopping attraction. The TRA benefits from the deal with an estimated NT$800 million in total rent income, plus a certain percentage of the shopping center’s revenues if they exceed a predetermined level, according to Fan. “More importantly, the project will serve as a successful example and allow the TRA to engage in similar deals for its other facilities.”
Given the many restrictions regulating the railway company’s operations, Fan said it will be a great challenge to sustain the TRA solely with ticket sales. “We are incurring losses over NT$10 billion a year, 60 percent of which are pension benefits to TRA retirees, with another 10 percent or more going to interest payments. Accumulated losses amount to nearly NT$100 billion so far.”
The TRA plans to tackle the problem with a two-pronged strategy, Fan pointed out. For its core business, the official said, the TRA will continue to upgrade its facilities and equipment, and modernize its operations and services. “These efforts will increase transportation safety and convenience, at the same time helping reduce our overhead.”
Given the TRA’s 124-year history, sideline business opportunities abound, according to Fan. “To the middle-aged population who grew up with the local economy, riding the train on vacation is one of their most memorable childhood experiences,” he said. This explains the high popularity of TRA memorabilia, especially TRA lunch boxes that continue to sell like hotcakes in a crowded convenience food market.
The TRA plans to make good use of this collective memory to design products and services to generate additional earnings. “Nonoperating income now accounts for 18 percent of our annual revenues. We will keep brainstorming to raise the share to a higher level.”
Asset management will be a major solution to TRA’s financial restructuring, Fan said. “We have several urban renewal projects in the pipeline that involve six train stations located in the heart of municipalities throughout Taiwan,” he said. The TRA is eyeing ROT and build-operate-transfer contracts with the private sector, because such projects will bring in huge lump sum payments and steady income flows to greatly reduce the firm’s financial burdens.
Fan said regulatory easing will also help the railway company increase its operating efficiency and flexibility. “We will keep mapping out plans to make the TRA an essential part of daily life, to ensure the sustainable development of this important state asset.” (THN)
Write to Meg Chang at meg.chang@mail.gio.gov.tw