This article first appeared in The Edge Financial Daily, on December 31, 2015.

KUALA LUMPUR: Konsortium Transnasional Bhd (KTB), which expects to slip into a loss in financial year 2016 (FY16) if there is no increase in bus fares, is calling on the government to raise fares to cushion increasing operational costs experienced by the company and other bus operators.

KTB chairman and managing director Tan Sri Mohd Nadzmi Mohd Salleh said yesterday the company’s profit margin is currently under pressure due to higher operational costs resulting from the implementation of the goods and services tax (GST) and the weaker ringgit.

He said an increase in bus fares would help the public transport company offset operational costs related to the purchase of spare parts and replacement of old buses.

“The government approved a 22.6% hike in bus fares to be implemented in May this year but pulled it back due to the increase in cost of living,” he said on the sidelines of a signing ceremony between Nadicorp Holdings Sdn Bhd and the Malaysian Rubber Board for the trial use of environment-friendly rubber tyres.

“We think it is not fair because the government does not allow us to increase bus fares but our costs of operation have increased with the implementation of the GST and weak ringgit, which have impacted the costs of tyres, spare parts, services and consultancy.

“And we are unable to pass these costs to the consumers,” he added.

He also said bus fares have not been increased over the past seven years, but operational costs have increased 30% over the years.

“As a business entity, we cannot continue to incur more costs without recovering them from the consumers,” he said.

“It is difficult for companies like us to cope with the current situation. If the government increases the bus fares, then we may record better results, but without it, maybe we will be in a loss situation,” he added.

Mohd Nadzmi, however, said the hike in bus fares needs to be sustainable, adding that a sudden significant increase in bus fares will only create a contraction in demand.

“We also do not want huge increases. We prefer small, gradual increases over a short period of time that will create a more stable sector and will not burden all parties involved,” he added.

He said although the company, which currently holds a 30% market share, is planning to purchase 100 buses over the next six months, it is also continuing efforts to pare down operational costs through cost-cutting and innovation.

School bus operators feeling the pinch of the GST and weaker ringgit are reportedly contemplating increasing bus fares from next month.

According to KTB’s filing with Bursa Malaysia, its net profit declined 24% to RM633,000 in the third quarter ended Sept 30, 2015 (3QFY15) from RM833,000 in the previous corresponding period.

Revenue decreased 11.41% to RM46.62 million in 3QFY15 from RM52.6 million in 3QFY14.

For the first nine months of FY15 (9MFY15), net profit slumped 52.14% to RM1.79 million from RM3.74 million a year ago.

Revenue declined 24.69% to RM129.69 million in 9MFY15 from RM163.36 million in 9MFY14.

KTB (fundamental: 0.2; valuation: 1.1) shares closed 8.33% or two sen lower at 22 sen, with a market capitalisation of RM96.7 million.