How Downtown Line's 'traffic cannibalization' will tear transport firms to pieces

It will open in three phases.

According to Maybank Kim Eng, the Downtown line (DTL) (to be operated by SBST) will open in three stages over the next four years (Stage 1: 2013, Stage 2: 2016, Stage 3: 2017).

They believe that traffic cannibalization would have a significant impact on the financials of SMRT once DTL Stage 2 is open for service in 2016.

Here's more from Maybank Kim Eng:

While the opening of an extension to the western leg of the NSEWL (Figure 7: red and green lines) in the same year could provide some respite, we still expect a net negative impact. We believe that the market have not factored this in and expect growing concern in the years ahead.

DTL Stage 2 would connect the north western part of Singapore to the central part of the island. This provides a bypass for SMRT’s legacy NSEWL rail network. Furthermore, SMRT’s existing bus operations are highly concentrated in the north western region as well.

According to data from the Census of Population 2010, there are a total of 128,000 households (c.11% of total) in the three major housing estates in the NW of Singapore (Bukit Batok + Bukit Panjang + Choa Chu Kang).

We estimate that the launch of DTL Stage 2 would put SGD139m or 17% of SMRT’s annual fare revenue base under threat. When compared against the depressed profit base of SMRT, this potential income loss will be material (SMRT FY3/13: Group EBIT of SGD127m) due to the effect of negative operating leverage. For details, please refer to Figure 8 for our detailed estimates.

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