Consider the effect of fares changes since fares increases are likely to reduce passenger numbers and possibly, in the long-term, revenue, unless accompanied by a fares restructuring.
Explanation:
The fare level affects both the passengers’ and companies’ finances. A fare reduction will generally result in a small increase in the number of passengers but at a somewhat lower level of revenue. If the fare increases, the revenue will increase as well (in the short-term) but at a somewhat lower level of patronage. In the long-term there may even be a reduction of revenue if passenger numbers continue to decline.
The concept of fare elasticity is a means of calculating the price sensitivity of public transport passengers. If the fare elasticity of public transport demand is estimated to be –0.4, and all fares were to increase by 10%, a decrease of passengers by 4% can be expected. The elasticity of public transport patronage is usually in the –0.2 to –0.5 range in the short run (first year), and increases to –0.6 to –0.9 over the long run (five to ten years). It is observed that long-run elasticities could approach -1.0. Also, elasticity for interregional trips may tend to exceed -1.0. Various factors affect price sensitivities including type of user (e.g. income, car ownership) and trip, geographic conditions, and time period. The following factors are influential:
Travel frequency: lower elasticities for public transport-dependent than for discretionary (choice) patrons
Trip type: elasticities are about twice as high for off-peak and leisure travel
Car in the household: large reductions are needed to attract car drivers, who are more responsive to service quality (speed, frequency, and comfort)
The communication of fare level changes is a crucial issue, since increases in fares are often subject to political discussions in the city council or by the general public (e.g. in newspapers). One approach to absorb negative side-effects is to combine fare changes with service improvements or general changes in ticket types. Some cities (with the public transport authority responsible for the fares) connect fare level changes to a price-index to determine the increase in ticket fares. This limits the risk of crucial periodic discussions on particular increases in fares.
While higher fares may lead to a decrease in demand (but also to a higher revenue in a certain range), lowering the fares does not generally mean an incremental increase of new passengers. Public transport demand is sometimes inelastic and reducing the fares by means of public financing will not generally make it grow. Preferably, the profile of present and possible transport users in the area (such as pupils, students, and unemployed) should be analysed before introducing a fare modification. Also, for low income groups the fares can be crucial for their mobility.
The increase in the number of passengers resulting from fare reductions and service improvements is mainly due to a transfer of people walking, cycling, or making rideshare trips. A smaller, but important, share of the increase in the number of passengers consists of car users changing travel mode (in different surveys a figure of about 20% has been measured). The increase may also be a result of an increase in total personal mobility.
Euskirchen (Germany): Due to a cut-back by national and regional governments from 2004 of adjustment payments for school transport and disabled passengers, the public transport operators were faced with a serious gap in financing the current service level. In order to avoid a downsizing of public transport service levels a fare change took place to compensate the reduced funds by an increase in farebox revenues. At the same time fuel prices went up, and regional commuting, e.g. to Cologne, was still increasing. Consequently, this fare level strategy succeeded because of passengers’ increased willingness-to-pay, and a general cut in services was averted through an increased user contribution to public transport financing.
Graz (Austria): The increase of the fare level in Graz is connected to a price-index to determine the increase in ticket fares.
Kaunas (Lithuania): Generally, the fare level is low. But increasing living standards increase passengers’ expectations of the quality of the services so this low fare level might lose its importance.
Monaco: The flat fare on the city’s bus network was reduced from €1.50 to €1 in 2008 and patronage has increased by 15%. The reduction was largely a political decision to increase public transport use to reduce traffic congestion, and also to align the tariff structure to neighbouring Nice in France.
Pula (Croatia): A favourable pricing policy (including smartcards, lowering of fares, discounts, new information system for tickets) led to an increase in passenger numbers.
ITS (2008) KonSULT, the Knowledgebase on Sustainable Urban Land use and Transport – Policy Instruments. Fare Levels and Fare Structure. Leeds (UK), 2008. Download: http://www.konsult.leeds.ac.uk/
Litman, Todd (2004) Transit Price Elasticities and Cross Elasticities. Journal of Public Transportation 2004, 7(2), 37-58.
Critical issues: