PUBLIC transport commuters whose journeys include transfers will enjoy lower fares from the fourth quarter.

This is because the Government is phasing in a new system that calculates fares according to distance, regardless of the number of transfers.

Commuters now have to pay base fares each time they switch from bus to bus, bus to rail or rail to bus, resulting in journeys costing as much as 50 per cent more than those on direct service for the same distance.

The new fare system, announced by the Public Transport Council (PTC) on Thursday, is expected to benefit 40 per cent of passengers who make transfers today.

The restructuring should be largely revenue-neutral to the transport operators, but a Transport Ministry spokesman said they may have to bear 'a portion' of the cost 'as they will also benefit through fares in the long run'.

'So there is a good chance that the public transport operators' bottomline will be impacted by the restructuring,' he added.

At the same time, the new revision may see the other 60 per cent of commuters - those whose journeys don't require transfers - paying slightly higher fares.

In fact, some may see their fares going above the three per cent ceiling the Public Transport Council has set for this year's fare increase.

Although the three per cent cap is higher than the 1.8 and 1.7 per cent ceilings set for the 2007 and 2006 fare rises, the council will only decide on actual fare adjustments after receiving applications from the transport companies.

Public transport operators SBS Transit and SMRT Corp are expected to submit their applications by August.

The PTC will make its decision by September and the new fares will kick in from Oct 1.

The council said it will take into consideration growing ridership trends - which are expected to boost revenue far more significantly than fare increases - when considering the fare hike applications.

The new fare adjustment formula allows commuters to share a bigger slice of productivity gains declared by the operators.

And the new formula will be valid for five years until the next review - up from three years previously.

Commenting on the new fare formula, SBS Transit spokesman Ms Tammy Tan said: 'PTC has reviewed the fare formula and made its decision. We, as an operator, will work within the new guidelines.'

The distance-based restructure will be rolled out in stages to minimise the financial impact on the operators, a ministry spokesman said.

The transfer penalty will be removed partially this year, and completely by the next fare review in Oct 2009.