Korail hit hard by competition
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Korail CEO Hong Soon-man
By Lee Hyo-sik
Korail, the state-run railway operator, has been losing money since a separate entity began running KTX bullet trains that connect southern Seoul with Busan and Gwangju last December.
The company said the SRT, which operates from Suseo Station in southern Seoul, has stolen a significant number of KTX passengers over the past seven months, chipping away at its bottom line.
Korail, which holds a 41 percent stake in SR, the SRT operator, wants the government to consolidate the country’s high-speed train operations to make them more efficient and less costly.
The remaining 59 percent is held by the Teachers’ Pension, the Industrial Bank of Korea and the Korea Development Bank.
However, SR has rejected Korail’s claims, saying the latter did not lose money because of competition. It argues that Korail has been grappling with rising labor costs and falling profitability due to a more extensive discount program.
The government set up SR to introduce competition to Korea’s monopolistic railway market, and increase operating efficiency and bring down costs.
Korail said Thursday it posted a 47.8 billion won ($41.6 million) operating loss in the first quarter of this year. The loss is projected to reach 200 billion won for the whole year.
From 2014 to 2016, the firm was in the black. Last year, its operating profit reached 153.9 billion won, up from 114.4 billion won in 2015 and 103.4 billion won in 2014.
But it began losing money because customer numbers fell by about 30,000 people daily after the SRT went into operation.
“We expect our 2017 sales will decline by 300 billion won as many people residing in southern Seoul and the southeastern parts of Gyeonggi Province take the SRT,” a Korail official said.
Previously, all KTX users had to go to Seoul Station or Yongsan Station, both north of the Han River, to catch the KTX high-speed train operated by Korail.
The SRT train runs on a new 61-kilometer line mostly built underground between Suseo Station and Pyeongtaek, Gyeonggi Province. After passing Pyeongtaek, the train shares the KTX rail network, which runs to Busan in the southeast and Mokpo in the southwest.
“Many had initially expected that the establishment of the SRT would save costs and bolster sales for Korail,” the official said. “But it brought about the opposite effect. We believe that it would be better for the government, railway operators and consumers if Korail and SR merge into one entity.”
“The consolidation will increase the number of KTX seats as the operator can run trains more efficiently. It will also reduce the number of controllers and other management personnel, and increase revenue,” he said.
However, SR dismissed Korail’s arguments, saying that the latter is losing money because it operates inefficiently.
“From 2014 to 2016, Korail posted a profit because its labor costs declined drastically amid its labor union’s extended strike,” an SR official said. “The firm also scrapped a range of discount programs for passengers, which helped boost its bottom line.”
“Our estimate suggests that Korail’s sales will decrease by 159.1 billion won this year because of the SRT. But SR will give Korail 110 billion won for using its controller system and maintenance facilities. It will offer an additional 71 billion won for leasing trains,” the official said. “So it doesn’t make sense to argue that Korail is losing money because of the SRT.”