Originally posted by Gazelle:
Maven2,
I am afraid that by simply calling yourself a businessmen or
directors in this forum is not going to make your argument any more
credible or superior than any tom dick and harry. If you are as
capable as what you claim and that you have good understanding of
cost structure, lets talk FACTS and lets do it point by point, and
dont simply label my argument as bullcrap, because this is the
usually stunts used by whiners and empty vessel in this forum when
they couldnt back up their statements.
[b]This is what you wrote :
1) If I increased my fleet from
10,000 to 20,000, I'd employ more heads of departments and
overseers and of course more drivers. I'd also have to build
additional depots and interchanges. And because my CEO is managing
more and has more on his plate, I'll increase his pay as well. I'm
not sure about the amount, but I'll increase his pay nonetheless...
substantially.
2) When you have higher ridership, because the current fleet of
trains are insufficient, I have to once again buy more trains and
build more depots. And perhaps more lines to reach more places
because the demand for it is there. I also might have to extend
work hours, some of which wont be packed but have moderate amount
of people. As it is the trains are already almost 100% utilised.
When we have more people and more trains.. it still will be 100%
utilised. There wont be a difference in the percentage utilisation.
So costs wont go down. But I built more facilities and
lines?
This is my response to what you wrote :
1) What you are talking about are
direct and variable cost. What you dont need to increase is the
fixed overhead. CEO are not operation people they can run a company
with a million trains, and if the same business model is being
duplicated, the cost of duplicating be is lower. CEO get paid more
if the company makes more money and the share price goes up, not
because the company is buying more trains.
Maybe you should read up more on economy of scales to get a better
understanding of what I am talking about.
2) The train line in Singapore are build by our government, not the
train operators, if you have more ridership, your utilisation of
asset and manpower employed will be higher which mean cost will go
down, not up.
[/b]
And the rebuttal to that is
1. If you think the CEO is only paid as a result of the share
prices and the company making money, you are being very simple. The
KPI is but only a small part of the CEO's salary package. Secondly,
you fail to address the issues of the need to hire more sub-heads
and heads of departments to micromanage a greater amount of fleet
and staff. This is, in economic terms, one of the Diseconomies of
Scale factors which makes Economies of Scale not so simple.
2. My bad. The train lines are built by LTA. But the maintenance of
more trains and having to buy more trains will see no change in the
percentage of ridership. It already is operating at near maximum
capacity. Hence there will still be a need for increase in
costs.
To add on in the arguments, assuming Economies of Scales were
enjoyed. This would only mean that SMRT would be able to make more
profit. Thus it is in the interest that SMRT works towards it. But
in no way does this translate as lower costs to the consumer.
Naturally, with a greater number of trains there will be as i quote
"Higher Operational and Maintenance Costs" and "Staffing Costs".
These are just but two of the reasons cited by SMRT to justify its
price increases.
Finally, you completely sidestepped the topic on Monopoly, and
Diseconomies of scale which if you wiki it up, or read in economics
books, will tell you makes Economies of Scale a topic not so simple
as what you have portrayed.
You also failed to address the issue, that as a privatised company,
the SMRT corp is required as a duty to its shareholders to increase
the price of its shares.
