Fare Structures

This measure was fully updated by THE ASSOCIATION FOR URBAN TRANSITION - ATU in 2014 under the CH4LLENGE project, financed by the European Commission.


A fare structure comprises the full range of fare policy measures short of a blanket fare rise or reduction. These elements include:

  • differentiation of price by geographical criteria, time of day, regularity of use, and journey purpose;
  • through-ticketing;
  • concessions; and
  • smartcard technology.

Price elasticities are an important consideration in the design of fare structures because they determine the change in demand that will occur as a result of a change in the fare level. If demand is price elastic then it will change significantly as a result of a given change in fare; if demand is price inelastic then all other things being equal it will not change as much. Price elasticities vary across different segments of a market. Factors that affect price elasticities include income levels, service quality, competition from other modes, age and sex, and journey purpose, to name but a few.

A fare structure whose primary design motive is profit maximisation will look different from one which has been designed with welfare maximisation in mind. A public sector operator is likely to operate a fare structure that is closer to the welfare maximising model, whilst a private sector operator would be primarily interested in maximising profits. The characteristics of the profit maximising and welfare maximising models are described along with their likely impacts on key objectives and problems. However, since these are to a large extent opposites, the option generator assumes use of the welfare maximising approach, which is more likely to contribute to public policy objectives.

A variety of case studies are examined from continental Europe, the UK, Asia and the US. The impacts of each case study on key problems and objectives are considered.  Generally those structures which aim to improve welfare are effective in improving the efficiency of the public transport and also, by reducing car use, in reducing congestion and environmental impact.  In particular they are effective in improving accessibility for disadvantaged sectors of society.  However, they may add significantly to costs and requirements for subsidy.  Profit maximising structures tend to have the opposite effect.

Introduction

Fares are a direct and flexible instrument to influence passenger behaviour and cost recovery of a public transport system. Setting fares is therefore an essential task for any PT company or authority.

With the introduction of new ticketing systems and technologies of different levels of complexity, fares have become a very important tool in managing the demand for Public Transport.

Fares became an increasingly important tool to trigger certain behavioural change, such as:

  • Choice among various public transport modes: rail, bus, etc.;
  • Choice of ticketing type;
  • Time of travel choice (within the day);
  • Route choice, etc.

A well-managed system of fare strategies leads to a more effective use of the public transport network.

Terminology

In public transport, the objective of a pricing policy is “to determine a tariff structure that reconciles the user’s need for an affordable public service with the commercial interests of the operators while at the same time pursuing the authority’s social objectives” (Mezghani, 2008).

The Fare Structure can be seen as the sum of the full range of fare policy measures that can be applied short of a blanket fare rise or reduction. Policy elements that fall under this category include:

  • Simple fare structures: relating to geographical criteria – same base throughout the system
    • zonal system (e.g. London Underground): In a zonal system, the network is divided into zones with a flat fare whilst travelling within each zone. The price to be paid by the passenger will depend on the number of zones crossed. There are different types of zoning: concentric zones or “ring zones”, where  distance for orbital trips is not considered and the centre of the zone is usually the city centre. There are also cell zones in which the area services is divided into polygonal zones of similar size and the price for both radial and orbital movements depends on the number of zones crossed.
    • graduated distance based system In a distance based fare system, in which a given price per km is usually applied. The price is calculated on the real distance travelled, which requires information on the distance between each pair of stations. For rail services, the fare system might enable station to station fares to be set that are distance dependent. For bus services, the concept of fare stages is used. A fare stage may be a single bus stop or a group of bus stops (where density of the network is high).
    • flat fare (e.g. Paris metro, London buses): Flat fare systems imply that a flat fare is charged for every trip made regardless of distance travelled, or type of passenger. It may be suitable in situations where a majority of passengers travel approximately the same distance e.g. shuttle buses to airports from the city centre.
  • Time differentiated fares: these generally involve higher fares for peak periods. Time-based fares are used when the work-related demand during peak periods tends to be heavier and less elastic to fare than the more discretionary demand during off-peak periods.
  • Differentiation by journey purpose e.g. lower prices for leisure travel via weekend tickets or tickets including free entry to leisure venues. (E.g. Zürich Verbund)
  • Differentiation by regularity of use through a day/week/month/annual pass. (e.g. Paris' Carte Orange (Orange card),
  • Relative prices of singles and returns.
  • Through ticketing arrangements between operators and modes e.g. London Oyster card, Washington Metropolitan Area Transit Authority's SmarTrip card.
  • Concessions for particular passenger groups.
    In the whole range of fares considered, concessions are usually available and may be provided to some or all of the following groups:
    • senior citizens
    • full time students or students within certain age groups
    • military personnel
    • travelers who are registered as disabled
    • family groups.
  • New technologies such as smart cards are also relevant here inasmuch as they allow a complex and refined fare structure and can also facilitate through ticketing arrangements. They also provide for pre-purchase, and can be promoted by offering lower fares to smart card users. (e.g. Maryland Transit Administration's integrated smartcard programme, London’s Oyster card, Octopus card)

Note that concessions and new technologies are not covered in detail under this policy instrument because they are covered elsewhere in KonSULT under Concessionary Fares and Intelligent Transport Systems respectively. 

Elements of a Fare Structure

The two primary motivations in the design of a fare structure are profit maximisation and welfare maximisation. A public sector operator, with public sector objectives, will tend to focus on welfare maximisation, whilst a private sector operator's priority will be the maximisation of profits. A public sector operator will nonetheless need to consider the financial implications of every decision that it makes, and conversely the private sector operator may not have complete freedom to pursue the
maximisation of profits with no regard for overall welfare.

The various elements of a fare structure are detailed in Table 1 below, along with the likelihood of each element being used when the aim is to profit maximise and also when the aim is to welfare maximise.
Table 1: Elements of a fare structure and suitability for profit maximising and welfare maximising fare structures

Policy element

Purpose and impacts

Appropriateness for profit maximising fare structure

Appropriateness for welfare maximising fare structure

Flat fares

Provide simplicity but may encourage longer journeys/ dispersed development patterns and can distort transport and property markets at the edge of the flat fare area. Also can be seen as unfair, inequitable and penalizing to short-distance or off-peak users.
It is easy to collect fare and to control. It is also extremely easy for passengers to understand the fare.

Zonal-based system

Provides simplicity whilst avoiding the pitfalls of encouraging longer journeys/ dispersed development but can distort transport and property markets at the edge of zones. Also can be seen as unfair. It has a lower level of inequity. Good revenue collection.

Graduated distance-based system

Allocates capacity efficiently because fare reflects distance travelled. Avoids market distortions of zonal and flat fare systems. Perceived as fair by passengers. Difficult to collect and control. Very good in passenger attraction.

Time differentiated fares

In order to encourage off-peak travel by those that have the option, so as to increase overall capacity - reducing off-peak fares may increase overall ridership and minimize potential revenue loss. Shift of passengers from peak hours, reducing the operating costs.


(more likely if capacity is limited)

Differentiation by journey purpose

In order to be able to offer lower prices for price elastic trips such as leisure travel, whilst still maximising yield from other passengers.

Concessions for particular passenger groups

To improve accessibility for those groups whilst making use of spare capacity.


(if the group in question has a price elastic demand)

Differentiation by regularity of use

To encourage greater use and because regular users are more price sensitive.

Through ticketing arrangements between operators and modes

To improve convenience for passengers.


(Unlikely voluntarily because reduces competitive advantage of dominant operator)

Smartcard ticketing

Improved convenience for passenger and operator with reduced boarding time and allows more sophisticated pricing structure.


(Providing operator has large enough market share to justify investment)

Description

Fare policies in Public Transport have evolved greatly during the last years. Setting fares in the past was just a matter of defining one flat rate level for each mode of PT.

Fares are a direct and flexible instrument to influence passenger behaviour and cost recovery of a public transport system. Setting fares is therefore a fundamental task for any mass transit company or authority. The importance of this task is further increased by technological progress such as the introduction of electronic ticketing systems, which offer opportunities to implement versatile fare structures in the future.

Why introduce a fare structure?

Any review of fares should acknowledge the many external factors that impact on patronage. These include the economic cost of private vehicles, roads, petrol, parking as well as issues related to the efficiency of using private vehicles relative to the efficiency of using public transport. Patronage can also be impacted by government Investment in infrastructure that supports the use of public transport.

The rapid increase in fares could act as a disincentive to PT users. There are a number of different demographic groups who are significantly or disproportionately impacted by the current public transport fare structure. Older people, jobseekers, people on low-incomes, young people and newly arrived refugees and asylum seekers have high need for, use of and dependence on public transport.

While many people have access to a private vehicle and choose to use pubic transport as an alternative, there are many people who rely on public transport because they have no other means of transportation.

It is critical therefore that the government reviews the current fare structures to determine fares to ensure that encourage people to use public transport.

Fare structures are important policy instruments because of their potential impact upon:

  • Efficiency: if a fare structure encourages transfers from car then it will impact on traffic congestion, possibly increase efficiency of labour markets due to increased access to jobs, and possibly reduce unproductive travel time.
  • Liveable streets: through reduced levels of traffic.
  • Protection of the environment: through reduced levels of traffic local air and noise pollution may be reduced, as well as reduced pressure on natural resources such as oil and green space and reduced greenhouse gas emissions.
  • Equity and social inclusion: fare structures can impact upon the affordability of public transport and so access to key goods and services by the socially excluded and less well off citizens.
  • Safety: travelling by public transport is safer than travelling by car for the individual that has transferred and also reduces the number of accidents to vulnerable road users such as walkers and cyclists.
  • Economic growth: if a fare structure encourages transfers from car then reduced traffic congestion may stimulate economic growth. Improved access to jobs may also stimulate growth.
  • Finance: fare structures can have a significant impact on revenues and also on costs because they can influence the level of capacity required.

Price elasticities

Prices affect consumers’ purchase decisions. A price increase may motivate consumers to use a product less or shift to another mode of transport.

Such decisions are said to be “marginal,” that is, the decision is at the margin between different alternatives and can therefore be affected by even small price changes. Although individually such decisions may be quite variable and difficult to predict (a consumer might succumb to a sale one day but ignore the same offer the next), in aggregate they tend to follow a predictable pattern: when prices decline consumption increases, and when prices increase consumption declines, all else being equal. This is called “the law of demand”.

Fare elasticity measures the response of PT ridership to fare changes. In a simple mathematical sense, it is defined as the ratio of percentage change in ridership to the percentage change in fare. Demand that is sensitive to price is known as price elastic whilst demand that is less sensitive to price changes is known as price inelastic. If a 10% increase in price leads to a 10% reduction in demand then price elasticity is -1.0. If a 10% price increase reduces demand by say 3% then price elasticity is -0.3, and is inelestic.

In many previous studies, elasticities are estimated separately for peak travel and off-peak travel or for the short-run and the long-run since they are very dynamic, varying over time for a considerable period following fare changes.
Fares elasticity is not simply a theoretical concept: it is an important tool in planning and management of public transport. Its principal use is in estimating changes in patronage and revenue that are likely to result from a proposed fare change.

The concept of price elasticity is summarised in Table 2 below:

Table 2: Price Elasticities

Price change

Demand response

Elasticity

10% increase

20% reduction

-2.0 (price elastic)

10% increase

10% reduction

-1.0 (unit elastic)

10% increase

3% reduction

-0.3 (price inelastic)

Demand impacts depend very much on the design of the particular fare structure. A fare structure that is designed to maximise operator revenue will look very different from one which aims to minimise peak road traffic congestion.

A more detailed treatment of elasticities can be found in the Fare Levels Instrument, First principles assessment.

The importance of price elasticities

Figure 1 below illustrates the dilemma that a profit maximising transport operator faces when setting fares. The demand curve (labelled demand) slopes downward from left to right indicating the diminishing fare that each subsequent passenger is prepared to pay and so the reduction in fare that is needed in order to increase patronage.

If the operator sets a fare of "c" then it misses out on the revenue represented by triangle abc because those passengers would have been prepared to pay more. On the other hand the operator also misses out on those passengers that could afford to pay a fare that would deliver a profit (above marginal cost) but were unwilling to pay a fare of "c", this lost profit is represented by the triangle byz.

If a means could be found of obliging those passengers represented by the ab section of the demand curve to pay a very high fare (covering their marginal cost and also contributing to capital costs) whilst allowing those passengers represented by the section bz to pay a far lower fare, then both profits and welfare would be increased. The welfare increase would result from the increased level of public transport supply that could be supported combined with the fact that even those who can pay only a small fare would still have access to the system (and therefore important goods and services).

Distinguishing between different sections of the market in this way is a crucial function of a fare structure. An obvious example of this is advance purchase tickets that oblige the passenger to travel on pre-specified trains. These stipulations ensure that business users are unlikely to find such tickets sufficiently flexible and so encourage them to purchase the far more expensive flexible tickets. With the increasing use of smart cards it is likely that similar distinctions will begin to appear in an urban context with fully flexible tickets/season tickets and those which are only valid between pre-specified times.

Figure 1: Supply and Demand of Public Transport
Figure 1

Factors affecting price elasticity

There are a number of factors that will influence the level of the fare elasticity, listed  and described below.

Fare elasticities for different trip purposes

Peak and off-peak demand
Trips made in the peak tend to be for work and education purposes, and so tend to be relatively fixed in time and space. Off-peak trips tend to include leisure, shopping and personal business trips for which there is often bigger flexibility in terms of destination and time. Hence one would expect off-peak elasticities to be higher.

Trip purpose
People travelling to work or to school generally have little choice of trip ends or timing of journeys. Such trips are largely the cause of the peak, which is when congestion tends to be at its greatest, making car journeys slower. Hence one would expect trips to work and education to have lower elasticity values than other trip purposes.

Fare elasticities for different types of traveller

User with access to a car
Travellers with access to cars have an alternative mode of transport and are more responsive to fare changes than others. In the long run the public transport elasticity of those with a car available is substantially greater for those without a car. Similarly the public transport elasticity of driving licence holders is much higher than for non-license holders.

Gender
Evidence suggests that males are more likely than females to have access to a car and are therefore more sensitive to public transport fares.

Age
Evidence on the dependence of elasticities with age is not clear-cut. Many of the trips by the elderly and disabled will be discretionary, and so one would expect high elasticity values for these types of trips. On the other hand, many of them have low incomes and low car ownership, and some may have difficulty walking, so that for necessary trips, public transport may be the only option, and low elasticity values would be expected. Variations in the mix of these factors may explain the differences between the elasticity values for the elderly and disabled relative to the whole adult population.

Income
Travellers with higher incomes are more likely to have cars available as an alternative to public transport. Hence under some circumstances they are more likely to be sensitive to fare changes. On the other hand they have more money available to absorb the effects of a fare increase.

Those on low incomes may be more prepared to walk than those with high incomes and higher values of time. Thus, one might expect low-income travellers to have higher elasticities for short trips, and high-income travellers to be more sensitive for longer trips. Where the values are not differentiated by trip length, one would expect the greater the mean trip length the greater the likelihood of high-income travellers having a higher elasticity value.

Cross-elasticities and Diversion Rates

Whilst a profit maximising transport operator is likely to have limited interest in the effect that its fare policies are having on other modes, a welfare maximising operator will wish to know the source of new patronage. New trips could have transferred from other public transport modes, walking and cycling or alternatively represent entirely new travel i.e. generated trips.

A cross-elasticity represents the impact that a change in a service characteristic of one mode will have upon demand for other modes. For example, if a 20% rail fare increase in a given area leads to a 1% increase in car traffic then the fare cross-elasticity at that particular time between car and rail would be +0.05.

A diversion rate represents the percentage of new patronage for a given mode that has come from a specific mode. For example, if a fare reduction attracts a given number of new passengers, 20% of which are from car, then it could be said that the diversion rate from car is 20%.
A more complete description and evidence on cross- elasticities is presented in KonSULT Fare Levels Instrument: first principles assessment.

Whilst a change in fare structure is by no means comparable with a change in the overall level of fares in terms of impact on other modes, in the absence of direct evidence on the impact of fare structures, fare cross-elasticities (or indeed service level elasticities) may provide some indication of likely diversion rates as a result of fare structure changes.

Profit maximising fare structure

Table 3 below lists the likely policy elements in a profit maximising fare structure and also provide an explanation for their inclusion.

Table 3: Likely Policy Elements for a Profit Maximising Fare Structure

Policy element

Purpose and wider effects

Generally high fares especially during the peak

Maximise revenues and possibly reduce costs by avoiding the need to invest in the increased capacity. Services less likely to be operating at capacity because the profit maximising fare level may stifle demand.

Very low fares for off-peak leisure travel

Induce price elastic leisure trips from other modes and generate entirely new trips. Possibly using off-peak day tickets. Shift of passengers from peak hours, thus reducing the operating costs.

High-priced flexible tickets

To maximise yield from business travellers that need flexibility.

Time period passes for regular users

Regular travellers are more price sensitive and need to be offered lower fares than one off users.

Increasing fares for passengers with no alternative

Passengers with no car available are captive and are therefore price inelastic, increased fares would therefore increase revenue. High level of inequity, though.

Concessionary fares

If the group has a price elastic demand - such as children.

Why is profitability important?

In an ideal scenario where the governments are flexible enough to allocate quick funds in order to meet the growing transport demands, profitability of local transport might be under question. But that scenario is utopian. Governments have limited funds to allocate to a host of public service providers. A transport system that cannot generate funds on its own languishes in expansion and improvement of services. It becomes dependent on the political masters even for minor improvements.

Profitability is also a good proxy for demand. Travelling safely and predictably on arterial roads in the city is a scarce possibility. A service that does so commendably should be charged appropriately. Thus, profitability and resulting financial freedom is very important for public transport systems. Raising fares to generate revenue is just one of the many ways that transport systems can use.

Profit Maximising Fare Structure: Demand Responses

Responses and situations (impact on vehicle trips/mileage)
Response Reduction in road traffic Expected in situations
Change to different time of day to avoid high Peak fares. May increase car use marginally in the peak.
No impact on car use but may occur within PT to avoid high fares on premium routes.
As a result of transfer to car (or walking/cycling).
Possible reduction in overall number of public transport trips.
Possible transfer to car.

Increased fares are likely to encourage car ownership.

Unlikely in the short run - although more likely if in rented accommodation.
= Weakest possible response = Strongest possible positive response
= Weakest possible negative response = Strongest possible negative response
= No response

Profit maximising fare structure: Short and long run demand responses

Responses and situations (impact on vehicle trips/mileage)
Response - 1st year 2-4 years 5 years 10+ years
-
  -
  -
  -
  To car
  -
  -
= Weakest possible response = Strongest possible positive response
= Weakest possible negative response = Strongest possible negative response
= No response

Profit maximising fare structure: Supply impacts

A profit maximising fare structure will aim to make maximum use of existing capacity whilst avoiding the need to invest in new capacity unless that can be justified in business terms.

Profit maximising fare structure: Financing requirements

As noted above, the profit maximising fare structure is effective at maximising revenue whilst minimising costs and so a movement to such a structure would reduce required subsidies.

Profit maximising fare structure: Expected impact on key policy objectives

Contribution to objectives

Objective

Scale of contribution

Comment

  In prioritising the fare yield some capacity may be unused with some PT users switching to car in the peak in particular.
  Increased road traffic may reduce amenity and increase community severance.
  By increasing air and noise pollution, and pressures on green space and environmentally sensitive sites.
  Low income PT users with no car available may be hit by high fares because they are a captive market with inelastic demand.
  Due to increased traffic levels.
 
Increased road traffic congestion may hinder economic growth, but on the other hand reduced subsidy requirements may reduce the tax burden and so stimulate growth.
  A profit maximising fare structure can significantly improve an operator's financial position.
= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Profit maximising fare structure: Expected impact on problems

Promotion of cycling through implementation of a comprehensive strategy, including provision of a Cycle Network, is predicted to have a beneficial effect with respect to all the key problems listed.

Contribution to alleviation of key problems

Problem

Scale of contribution

Comment

Congestion

Delay and unreliability due to transfer from Car to PT.

Community impacts

Severance and visual intrusion due to transfer from Car to PT. Lack of amenities could also impact the community.

Environmental damage

Increase of traffic-related CO2 emissions and emissions of NOx, particulates and other local pollutants leads to local air pollution, global warming, reduce of green space, damage to sensitive sites.

Poor accessibility

Passengers without access to a car and passengers with mobility impairments tend to have a price inelastic demand which may encourage a profit maximising operator to increase fares for that group. Without regulation operators may not wish to encourage increased patronage from the mobility-impaired because of the potential cost/difficulties in accommodating their needs.

Social and geographical disadvantage

Passengers without access to a car tend to have a price inelastic demand, which may encourage a profit maximising operator to increase fares for that group. Also the removal of cross subsidies between profit-making and non-profit making routes may reduce services and increase fares in rural areas.

Accidents

By increasing traffic volumes the severity and the number of accidents increase.
Economic growth
The efficiency of the local road network would be reduced due to increased congestion. On the other hand the reduced subsidy necessary may leave authorities in a position to reduce taxes or possibly stimulate growth by some other means.
= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Profit maximising fare structure: Expected winners and losers

Winners and losers

Group

Winners/Losers

Comment

Large scale freight and commercial traffic

High value journeys – more time spent in congestion the greater the vehicle utilization – although relatively small proportion of journey distance in urban conditions.

Small businesses

Where these are local, increased car use discourages use of local amenities. On a wider scale they are likely to also disbenefit from increased congestion.

High income car-users

High income associated with high value of time and thus continued car use for high value journeys. These journeys will disbenefit from increased traffic congestion.
Low income car-users with poor access to public transport Their accessibility may be reduced due to higher fares. Removal of cross subsidies whereby high-volume routes subsidise low-volume routes to ensure maximum network coverage may mean that those in rural areas are less well served and/or pay higher fares.

All existing public transport users

Reduced crowding may benefit some customers that value comfort highly but for most users this benefit will be outweighed by the fare increases.

People living adjacent to the area targeted

They may disbenefit from increased congestion and more expensive public transport supply.

Cyclists including children

They may disbenefit from increased congestion and more expensive public transport supply.

People at higher risk of health problems exacerbated by poor air quality

Increased road traffic congestion leads to poor air quality and exacerbate the problems of this category of citizens.
People making high value, important journeys Increased road traffic congestion may bring a disbenefit here.
The average car user Will face a disbenefit from increased congestion.
= Weakest possible benefit = Strongest possible positive benefit
= Weakest possible negative benefit = Strongest possible negative benefit
= Neither wins nor loses

Profit maximising fare structure: Barriers to implementation

Scale of barriers
Barrier Scale Comment
Legal This will depend on the national context. Legislation will typically specify whether fares are determined by the public sector (as in London and the Verbund systems in Munich, Zürich, Frankfurt) or by the private sector (as in the UK outside London).  Private operators may also be limited by national legislation on Environmental Justice and competition.
Finance The profit maximising fare structure improves on operator's financial position so there is no financial barrier.
Governance A private operator with direct control over services will have little need to consult with others before implementing a given fare structure.
Political acceptability This will vary enormously. A publicly owned operator or private company that is dependent on government subsidy will be subject to far more constraints than a wholly commercial operation.
Public and stakeholder acceptability Mainly, public transport users will have a low level of acceptability of such a profit oriented fare structure. Also car users will complain of the traffic congestion due to PT to car shift of some passengers.
Technical feasibility The only technical barriers relate to the use of new technology for ticketing.
= Minimal barrier = Most significant barrier


Welfare maximising fare structure

Table 10 below details the fare policy elements that are likely to form part of a welfare maximising fare structure and also explains the rationale for their use in order to maximise welfare.

Table 10: Components of a Welfare Maximising Fare Structure and Explanation

Policy element

Purpose and wider effects

Generally lower fares especially during the peak when compared to a profit maximising structure.

Maximise patronage so as to reduce externalities associated with road traffic and also improve accessibility for low income groups.

Concessionary fares or even free travel during the interpeak for particular groups such as the elderly.

Encourage use by groups that may not be able to afford a full fare whilst using up spare capacity during the interpeak periods.

Simplified fare structure.

To maximise patronage and particularly transfer by car users.

Time period passes for regular users.

Regular travellers tend to be more price sensitive and are therefore offered lower fares than one off users, this would also maximise patronage. This may also include day passes.

Lower fares for low income passengers with no alternative.

The operator would be unlikely to take advantage of the price inelasticity of passengers with no car available.

Through ticketing arrangements between operators likely.

In order to maximise passenger convenience and overall patronage across all operators.

Welfare Maximising Fare Structure: Demand Responses

Responses and situations
Response   Expected in situations
Transfer from car to PT may affect departure time.
No impact on car routes but some changes may occur within PT due to changes in fare levels.
Some destinations may become more attractive due to accessibility of PT.  
Slight increase in trips due to PT trip generation.
Transfer from car to public transport.
Reduced fares are likely to discourage car ownership.
Unlikely in the short run, but more likely if rented.
= Weakest possible response = Strongest possible positive response
= Weakest possible negative response = Strongest possible negative response
= No response

Welfare Maximising Fare Structure: Short and long run demand responses

Short and long run demand responses
Response - 1st year 2-4 years 5 years 10+ years
-
  -
  -
  -
  Considering shift from car to PT, not from other sustainable modes to PT
  -
  -
= Weakest possible response = Strongest possible positive response
= Weakest possible negative response = Strongest possible negative response
= No response

Welfare Maximising Fare Structure: Supply impacts

Changes in fare structure will not directly affect the supply of public transport services, though they may lead to pressure to change service levels.

Welfare Maximising Fare Structure:: Financing requirements

A welfare maximising fare structure will lead to a reduction in fare yield per passenger. Demand will be increased, but with price elasticities even in the longer term rarely exceeding 1, there will be an overall drop in revenue. Increased demand, particularly in the peak, may necessitate increased investment which will put further strain on finances. In order for a fare reduction to be financially neutral, long-term elasticity must be greater than 1, as to cover the loss that would be incurred as demand increased to its new equilibrium.

Welfare Maximising Fare Structures: Expected impact on key policy objectives

Contribution to objectives

Objective

Scale of contribution

Comment

  In prioritising welfare, road congestion will be reduced.
  Reduced road traffic may increase amenity and reduce community severance.
  Reduced road traffic will reduce air and noise pollution, and pressures on green space and environmentally sensitive sites.
  Low income PT users will benefit from lower fares.
  Due to reduced traffic levels.
 
Reduced road traffic congestion may improve economic growth, but on the other hand increased subsidy requirements may increase the tax burden and so stifle growth.
  A welfare maximising fare structure can significantly worsen an operator's financial position and add to the requirements for subsidy.
= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Welfare Maximising Fare Structure: Expected impact on problems

Contribution to alleviation of key problems

Problem

Scale of contribution

Comment

Congestion

Due to Transfer from Car to PT.

Community impacts

Due to Transfer from Car to PT.

Environmental damage

By reducing emissions of NOx, particulates, CO2 emissions and other local pollutants as a result  the traffic volumes are reduced.

Poor accessibility

Passengers without access to a car tend to have a price inelastic demand. A welfare maximising operator will be unlikely to take advantage of this by increasing fares for that group. A welfare maximising operator would also be likely to encourage increased patronage from the mobility-impaired in recognition of their possible dependence on public transport.

Social and geographical disadvantage

Passengers without access to a car tend to have a price inelastic demand but a welfare maximising operator would be unlikely to take advantage of this by increasing fares for that group.

Accidents

By reducing traffic volumes.
Economic growth
The efficiency of the local road network would be increased due to reduced traffic flows. On the other hand the increased subsidies required may require increased taxes which may stifle growth.
= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Welfare Maximising Fare Structure: Expected winners and losers

Winners and losers

Group

Winners/Losers

Comment

Large scale freight and commercial traffic

High value journeys due to less time spent in congestion. Lower vehicle utilization – although relatively small proportion of journey distance in urban conditions.

Small businesses

Where these are local and reduced car use encourages use of local amenities. More generally they are likely to benefit from reduced congestion.

High income car-users

These journeys will benefit from increased traffic congestion.
Low income car-users with poor access to public transport Their accessibility may be increased due to lower fares.

All existing public transport users

Increased crowding may adversely affect some customers but for most users this will be outweighed by the fare reductions.

People living adjacent to the area targeted

They may benefit from reduced congestion and cheaper public transport supply.

Cyclists including children

Benefit from lower traffic flows.

People at higher risk of health problems exacerbated by poor air quality

Better air quality due to reduced traffic congestion.
People making high value, important journeys Reduced road traffic congestion may bring a benefit here to those travelling by car whilst reduced fares will benefit those travelling by public transport.
The average car user Will face a benefit from reduced traffic congestion.
= Weakest possible benefit = Strongest possible positive benefit
= Weakest possible negative benefit = Strongest possible negative benefit
= Neither wins nor loses

Welfare Maximising Fare Structure: Barriers to implementation

Scale of barriers
Barrier Scale Comment
Legal This will depend very much on the local or national regulatory framework. Legislation will typically specify whether fares are determined by the public sector (as in London and the Verbund systems in Munich, Zürich, Frankfurt) or by the private sector (as in the UK outside London). 
Finance The welfare maximising fare structure reduces profitability significantly and so significant subsidy may well be required.
Governance This will depend on who operates the services and, if the private sector, what regulatory model applies.  Welfare-maximising fare structures can be difficult to implement where local authorities have no direct control over the operator.
Political acceptability The fare policy itself is likely to be popular, but the taxes required to support it far less so.
Public and stakeholder acceptability The fare policy itself is likely to be popular, but the taxes required to support it far less so.
Technical feasibility Provided the subsidies are in place there are no significant constraints on feasibility unless a smart card system is opted for.
= Minimal barrier = Most significant barrier

 

Case study 1 - Verkehrsverbund: regional public transport in Germany, Austria and Switzerland
Case study 2 - Connecticut Transit (evidence taken from TCRP report 94)
Case study 3 - Maryland Mass Transit Administration (MTA) (evidence taken from TCRP report 94)
Case study 4 - Brighton and Hove bus company flat fare scheme
Case study 5 - The Octopus card (Hong Kong)
Case study 6 - Introduction of London Travelcards
Case study 7 - The Oyster card (London)

Whilst a clear distinction between welfare maximising structure and one that is intended to maximise revenue is not always possible it should be noted that the case studies given here are primarily welfare maximising. Having said that, one or two of the examples appear to have succeeded in increasing revenue.

Case study 1 - Verkehrsverbund: regional public transport in Germany, Austria and Switzerland

Context

The Verbund system is a means by which public transport is integrated at a regional and local level. Fares and services for all routes and modes are carefully coordinated throughout the whole of the region. The system of planning has succeeded in greatly improving the quality of public transport as a mode able to compete with private car. More attractive fares have played an important part in achieving their success. (Pucher and Kurth, 1996).

The Verbund systems' fare policies are characterised by the following features:

  • Uniform, integrated fare structure across all operators and modes;
  • complete through-ticketing meaning that one ticket is sufficient for any journey using various modes and operators;
  • very attractive monthly and yearly tickets with very large discounts compared to one trip tickets;
  • weekly, four-day, three-day and one-day tickets are available so that one of the alternatives will suit most users;
  • a simplified zonal fare structure (in every system except Munich's );
  • fare reductions were combined with service expansion and marketing with the fare structure forming an important part of the marketing campaign with monthly and yearly tickets branded as environmental tickets to emphasise the environmental benefits of public transport; and
  • most Verbunden offer tickets which include public transport tickets in the entrance fees for concerts, sports events, conventions and festivals.

Impacts on demand

It is reported that the combination of lower fares, a wide variety of tickets, and a simplified zonal system providing predictability have all contributed to patronage increases in the Verbund regions. Service expansion and marketing have also played an important part with mode share either stabilising or increasing, in sharp contrast to the trends elsewhere and in those regions before the Verbund system was introduced. Because these policies were implemented simultaneously it is generally not possible to separate out the effects of each factor (Pucher and Kurth, 1996). In the case of Zurich however Hensher (Hensher 2004) does cite a study which suggests that the combination of the co-ordination of services and the development of a single zonal fare system led to an increase in overall public transport patronage of 12%, with increases of 53% and 30% for feeder buses and heavy-rail respectively (Laube 1995). Hensher is however of the view that the conclusions should be treated with caution. None of the studies presented evidence on the level of patronage that had transferred from car. It is almost certain that there will have been some transfer from car but the exact level cannot be estimated.

Impacts on Supply

The success of the Verbund systems has been at significant financial cost with the operating deficits growing steadily and the percentage of operating costs covered by passenger fare revenues falling. Despite increasing patronage, there has also been an increase in subsidy per passenger trip. As a result, in more recent years several of the Verbunden have responded by implementing cost-cutting measures with frequency cuts on underutilised routes.

Contribution to objectives

Contribution to objectives
Objective Scale of contribution Comment
  There will have been a reduction in car use, but the size of this reduction and therefore any associated efficiency gain, is uncertain. On the other hand, public transport use whose costs are not being met does represent an inefficiency.
  Any reductions in car use are likely to have contributed to a liveability improvement.
  Any reductions in car use will have contributed to a reduction in environmental impacts.
  The reduction in prices for regular users will have benefited less well-off existing users and those that have transferred from car.
  Any reduction in car use is likely to have helped improve safety.
 
Efficiency improvements due to reduced traffic will support economic growth and there may also be economic benefits from improved public transport accessibility. However, the increased tax burden necessary to fund the fare structure (and service improvements) may stifle economic growth.
  The cost of implementing the current fare structure is substantial.
= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Case study 2 - Connecticut Transit (evidence taken from TCRP report 94)

Context

Connecticut Transit (CT Transit) operates three state-owned transit systems serving Hartford, New Haven, and Stamford with a total fleet of 341 buses. Total system patronage in 1999 was approximately 27 million.

This case study examines the impacts of the "New Fare Deal" that was introduced in June 1998 and consisted of the following elements:

  • elimination of local fare zones;
  • introduction of an electronic one-day pass that could be issued on board buses;
  • introduction of a seven-day rolling pass (electronic activation on first use);
  • replacement of the monthly pass with a 31 day rolling pass activated at any time on first use;
  • introduction of an electronic 10 ride farecard; and
  • uniform fare structure for the three CT Transit operations as well as several other state contracted local services in nearby towns.

The payment options were (and at the time of writing still are) based on GFI's TRiM magnetic read/write technology.

Elimination of Local Fare Zones

The local fare structure was eliminated to increase the convenience and simplicity for passengers. Also, market research had shown that "downtown" was no longer the destination for a majority of trips with increasing numbers of trips from one suburb to another. This introduced inequities in trip costs because a passenger travelling along a radial route and crossing zone boundaries would pay far more than one making a suburb to suburb journey that did not cross zone boundaries. This distortion may be seen as particularly undesirable because it would encourage suburb to suburb trips which are generally more expensive to cater for with public transport than those to the city centre. The objectives of eliminating the local zone system can be summarised as follows:

  • Improve passenger ease of understanding and payment of fares, so increasing patronage;
  • improve the efficiency of fare collection for the operator and make the system fairer;
  • support welfare to work/reverse commute initiatives (commuting from deprived inner-city areas to jobs in the suburb); and
  • reduce administration costs associated with zone based passes.

Introduction of new passes and multiple trip tickets

As well as eliminating the local fare zone structure, CT Transit decided to exploit the electronic processing capabilities of its GFI TRiM units and introduced various electronic payment options:

  • one day pass ($2.5) for purchase on board buses or at any sales outlet;
  • seven day rolling, activate on first use pass ($12)
  • 31 day rolling pass ($38) replacing the monthly pass that was valid for a specified calendar month; and
  • multiple trip tickets for 10 trip ($9, representing one free trip).

Upass Programme

In 2000, CT Transit began a pass programme with two colleges in Hartford, Trinity College and capital community college totalling just under 5000 students. The UPAS is magnetically encoded allowing the number of trips to be tracked each time it is inserted into the on-board TRiM unit. The colleges are charged $0.65 per trip up to a ceiling of $20 per student per semester, after which no additional charge is made to the college for subsequent journeys.

Impacts on demand and supply

The table below gives a detailed breakdown of the impacts of the New Fare Deal on patronage and revenues.

Fare/Revenue Category

Annual Total (Percent Change from Previous Year)

FY 1998

FY 1999

FY 2000

FY 2001

FY 2002

System Total

27,422,144

26,875,449
(2.0%)

27,341,448
(1.7%)

27,342,985
(0.0%)

26,832,700
(1.9%)

Local Cash

12,562,281

11,842,086
(5.7%)

11,847,596
(0.0%)

11,748,858
(0.8%)

11,392,780
(3.0%)

Local Tokens

850,900

438,780
(48.4%)

418,191
(4.7%)

472,516
(13.0%)

448,060
(5.2%)

Local 10-Ride Tokens

83,064

505,451
(508.5%)

456,383
(9.7%)

424,397
(7.0%)

422,000
(0.1%)

Local 1-Day Pass

0

1,222,813
(new)

1,628,306
(33.1%)

1,810,642
(11.2%)

1,982,150
(9.5%)

Local 7-Day Pass

0

184,197
(new)

244,338
(32.7%)

280,200
(14.7%)

321,945
(15.1%)

Local 31-Day Pass

4,452,720

3,976,301
(10.7%)

3,779,498
(4.9%)

3,967,506
(5.0%)

3,652,830
(7.9%)

Other Fare Categories*

9,473,179

8,704,821
(8.1%)

8,967,136
(3.0%)

8,638,867
(3.7%)

8,612,935
(0.0%)

Total Fare Revenue

$20,567,663

$20,405,803
(0.8%)

$20,025,189
(1.9%)

$20,037,459
(0.1%)

$19,195,730
(4.2%)

Revenue per Mile

£1.85

$1.80
(2.7%)

$1.71
(5.0%)

$1.72
(0.6%)

$1.67
(2.9%)

Avg. Fare per Rider

$0.75

$0.76
(1.3%)

$0.73
(3.9%)

$0.73
(0.0%)

$0.72
(1.4%)

Fare Recovery

37%

36%
(2.7%)

35%
(2.8%)

33%
(5.7%)

30%
(9.1%)

Source: CT TRANSIT Ridership and Financial Statistics
* Other Fare Categories include Commuter, Student, Sr./Disabled and Transfers

The impacts over the four-year period can be summarised as follows:

  • a 4% drop in revenue;
  • a 2% drop in patronage (although the trend is not clear);
  • a 9% drop in the use of cash;
  • a 48% drop in the use of tokens since the introduction of multiple journey tickets;
  • steady growth in the use of one-day and seven-day passes;
  • an overall increase in pass use of 34% but within that an 18% decline in 31 day passes ;
  • an overall slight drop in the average fare per trip.

Contribution to objectives

Contribution to objectives
Objective Scale of contribution Comment
  Impact on car use and therefore congestion unclear. The high take-up of new ticket options suggests that they are valued by customers. Reduced administration costs for the operators and reduced fraud.
  No obvious change.
  No obvious change.
  Removal of zonal system benefited reverse commuters from the deprived inner cities to jobs in the suburbs.
  No obvious change.
 
There are apparent benefits to passengers but these do not seem to have translated into patronage growth. There may also have been an increase in the subsidy requirement, potentially increasing the tax burden.
  There has been a small drop in revenue but this may have been compensated for by reduced administration and enforcement costs.
= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Case study 3 - Maryland Mass Transit Administration (MTA) (evidence taken from TCRP report 94)

This case study describes and presents the results of a fare simplification initiative through the elimination of zones and transfers and the introduction of the day pass.

Also described is a regional fare integration programme using smartcard technology, but as this is in the recess of implementation, no results are yet available.

Context

The Maryland Mass Transit Administration (MTA) operates transit services throughout the state of Maryland, with most of its service concentrated in the Baltimore metropolitan area. MTA's core services include bus (71 million trips), Metro (14 million trips), light rail (9 million trips) and commuter rail (6 million trips) giving a total system patronage of approximately 100 million per annum.

In the years prior to 1996, MTA's patronage and revenue had decreased. Its fare structure had evolved over the course of more than 100 years in response to various pressures and constraints. The resulting fare structure was very complex making it difficult for passengers to understand and for employees to enforce. A market research exercise was conducted involving both passengers and staff to develop an understanding of the best and worst aspects of the fare structure.

Elements that were liked included:

  • Weekly and monthly passes;
  • fare payment options;
  • the fare payment locations; and
  • flat fare on light rail.

Elements that were disliked included:

  • zone fares (complex, too many);
  • transfers confusing;
  • no integration between commuter rail and light rail; and
  • evasion perceived to be high.

MTA needed to achieve its patronage and revenue goals including the requirement to recoup 50% of operating costs through fares. After considering various options with respect to these goals the following changes were made in March 1996:

  • The five zones in the core service area were eliminated;
  • transfers were eliminated;
  • the day pass was implemented;
  • also some minor fare changes such as the reduction of the monthly pass discount, an increase in commuter bus and commuter rail fares, and an increase in the discount for senior and disabled passengers; and
  • services were also reduced by 4%.

Strategies were required to deal with the issue of how the newly introduced day pass could be issued and used on bus, Metro and light rail. The strategies adopted for each mode were as follows:

  • Bus: The initial plan was for operators to be given books of day passes for on-board sale but operators were concerned with the risk of robbery associated with handling a valuable commodity. MTA resolved the problem by installing Almex machines onto the on-board fare boxes; these consist of a control panel connected to a thermal printer. A passenger wishing to purchase a day pass would insert cash into the fare box and the operator would then issue a pass using the Almex machine. On subsequent trips that day, the pass holder simply shows the pass on boarding.
  • Metro: The Almex machines (and fare boxes) were also installed at the station attendants' booths at each metro station. The system was the same as on the buses but the station attendant would also issue a pre-encoded magnetic "exit ticket" for use at the barriers of the destination station. This was necessary because the day passes have no magnetic strip.
  • Light rail: Ticket Vending Machines (TVM's) were easily reconfigured to issue day passes that would be used in the same way as those issued on buses and at metro stations.

Impacts on demand

Monthly Patronage October 1995 and 1996


Mode

October 1995

October 1996

Percent Change

Bus

6,634,891

6,957,215

4.9%

Metro

1,013,774

1,176,864

16.1%

Light Rail

516,653

549,687

6.4%

Total

8,165,318

8,683,766

6.3%

Source: MTA Finance Division, Monthly Revenue and Passenger Statistics.

Impacts on Supply

Average fare paid per trip


Old Zone

Previous Fare ($)

New Fare ($)

Percent Change

1

1.25

1.35

8.0

2

1.35

1.35

0.0

3

1.55

1.35

-12.9

4

1.85

1.35

-27.0

5

2.25

1.35

-40.0

Monthly revenue October 1995 and October 1996


Category

October 1995 ($)

October 1996 ($)

Percent Change

Bus

4,960,873

5,533,654

11.5

Metro

789,447

936,058

18.6

Light Rail

385,299

437,212

13.2

Total

6,136,619

6,906,924

12.6

Source: MTA Finance Division, Monthly Revenue and Passenger Statistics.

Summary of impacts

The Fare simplification scheme appears to have led to the following benefits:

  • an increase in patronage in the first year (as shown by Table 20 above) and then continued growth between FY 1997 and FY 2000, with an 11% increase from 98 to 109 million passengers.
  • a significant increase in revenues in the first year with a subsequent stabilisation over following years (revenues have not increased in line with patronage because the increasing use of day passes has led to a fall in average fare paid)
  • less confusion and so fewer disputes regarding fare payment through the elimination of fare zones and transfers;
  • more convenient fare payment due to the day pass;
  • reduction in the cost of travel for many customers through the elimination of fare zones and introduction of the day pass;
  • greater flexibility in transferring between vehicles and modes;
  • faster boarding times in the p.m. peak because most day passes have already been bought and also because of a more even distribution of passengers throughout the day;

Contribution to objectives

Contribution to objectives
Objective Scale of contribution Comment
  Although no evidence is presented on diversion rates, some of the increased patronage is likely to have transferred from car so reducing traffic congestion. Reduced boarding times and increased fare payment convenience also represent efficiency gains. Increased revenue and patronage despite the service level reduction also implies greater efficiency.
  Any reduced car traffic will provide a benefit here in terms of reduced local air pollution, noise and severance.
  Any reduced car traffic will provide a benefit here in terms of reduced air and noise pollution and less pressure on natural resources.
  Reduced cost of travel will benefit less wealthy passengers.
  Any reduction in road traffic is likely to lead to a reduction in accidents.
  Any reduced traffic congestion is likely to be economically beneficial as is the reduced subsidy requirement of the public transport system.
  The significant increase in revenue combined with reduced operating costs has dramatically improved the financial position of the operator.
= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Case study 4 - Brighton and Hove bus company flat fare scheme

Context

In the Brighton-Hove conurbation the local bus company, part of the go-ahead group, switched from a distance based graduated fare scale to a widely advertised single flat fare of £1. This meant that there was an overall increase in fare levels which could be expected to reduce patronage. The scheme was introduced on a trial basis but was continued because of its popularity. The certainty of knowing how much it will cost to board the bus appears to have led to rising revenues and a year-on-year patronage growth of 8.5%.

Bus drivers also like the flat fare because it simplifies their job and improves boarding times, increasing bus reliability. The scheme is to be continued for the foreseeable future but it is likely that some of the benefits will be lost when the benefit of a round figure fare is lost when fares increase. (Transit 2002) No evidence is presented on levels of transfer from car.

Contribution to objectives

Contribution to objectives
Objective Scale of contribution Comment
  Although no evidence on diversion rates is presented some of the increased patronage is likely to have transferred from car so reducing traffic congestion. Reduced boarding times and increased fare payment convenience also represent efficiency gains.
  Any reduced car traffic will provide a benefit here in terms of reduced local air pollution, noise and severance.
  Any reduced car traffic will provide a benefit here in terms of reduced air and noise pollution and less pressure on natural resources.
  The increase in fare will disadvantage less wealthy passengers.
  Any reduction in road traffic is likely to lead to a reduction in accidents.
 
Any reduced traffic congestion is likely to be economically beneficial as is the reduced subsidy requirement of the public transport system.
  The increase in revenue will have improved the financial position of the operator.
= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Case study 5 - The Octopus card (Hong Kong)

Context

The Octopus card was introduced in September 2007 in Hong Kong’s mass transit system. It is a stored value smart card that is contactless. It is used to transfer electronic payments in online or offline systems. The Octopus card system was the first contactless smart card system in the world and has since grown into a widely used payment system for almost all public transport in Hong Kong. The Octopus card can also be used for payment at convenience stores, supermarkets, fast-food restaurants, on-street parking meters, car parks, and other point-of-sale applications such as service stations and vending machines.

There are two main types of Octopus card (On-Loan and Sold) and two less common types (the Airport Express Tourist and the MTR Airport Staff):

  • On-Loan cards are issued for use in day-to-day occasions, mainly for fare payment in transport systems. They are further differentiated into Child, Adult, Elder, and Personalised categories, with the first three based on age and different amounts of fare concession. With the exception of the Personalised cards, On-Loan cards are anonymous as no personal information, bank account, or credit card details are stored on the card. A student on-loan Octopus Card was initially issued, but has been discontinued since 2005. The Personalised card is available on registration. The name and, if opted, a photo of the holder are imprinted on the cards. They can function automatically as a Child, Adult, or Elder card by recognising the cardholder's age stored on the card, hence accounting for different concessionary fares. In addition to all the functions of an ordinary card, this card can also be used as a key card for access to residential and office buildings.  All cards require payment of a HK$50 refundable deposit.

Types of On-Loan Octopus cards

Type

Picture/Colour

Cost and use

Child

 

Children aged between 3 and 11. This card is sold for HK$70 with an initial value of HK$20. Children's fares are deducted where applicable.

Student

 

For students attending secondary schools and universities. Discontinued in 2005 and replaced by Personalised Octopus Card.

Adult

 

The standard version of the Octopus card. This card is sold for HK$150 with an initial value of HK$100. This colour is also used for the logo of Octopus Cards Limited, the operator.

Elder

 

Eligibility varies between different public transport companies, and even between operating routes of the same type of service—for example, 60 years of age or above for Citybus, 65 for KMB. If no elder fares are available, adult fares are deducted. This card is sold for HK$70 with an initial value of HK$20.

Personalised

 

The rainbow-coloured Personalised card is available on registration. This card is sold for HK$100 with an initial value of HK$30 and a handling charge of HK$20. Students may also qualify for this card at HK$90 with their pictures and names.

 

  • Sold cards are sponsored and branded cards which are frequently issued by the card operator as souvenirs. These cards are sold at a premium, have limited or no initial stored value, and cannot be refunded, but they can otherwise be used as ordinary cards.
  • The Airport Express Tourist Octopus card is a special purpose card designed to target tourists in Hong Kong. Two versions of this card are offered: which allow one or two airport single journeys which are valid for 180 days from the date of purchase. Both versions allow three days of unlimited travel on the MTR and include a HK$50 refundable deposit. Usable value on these cards may be added if necessary. These tourist Octopus cards may be used only by tourists staying in Hong Kong for 14 or fewer days; users may be required to produce a passport showing their arrival date in Hong Kong.
  • The MTR Airport Staff Octopus is also a special purpose card but it is only available to the staff of Hong Kong International Airport and AsiaWorld-Expo, a convention centre close to the airport, for commuting at a reduced fare between the airport (reduction of up to 64%) and MTR stations via the Airport Express.

Impacts

There are over 19 million Octopus cards in circulation at the moment according to the card operator Octopus’ website. The cards are used by 95% of Hong Kong’s population aged 16 to 65, generating over 10 million daily transactions valued at HK$ 90 million. Over 2000 service providers accept the Octopus card and over 50,000 Octopus readers are deployed in Hong Kong.

Contribution to objectives

Contribution to objectives
Objective Scale of contribution Comment
  The cards allow discounted fares and period tickets to frequent travellers. Reduced boarding times and increased fare payment convenience also represent efficiency gains, especially as boarding a bus in Hong Kong without the card requires payment by exact change. The cards also allow payments at various retail outlets.
  Although no evidence is presented on reduced car traffic, assuming that the efficiency and convenience of the Octopus card has reduced car traffic through increased use of public transport, this will provide a benefit here in terms of reduced local air pollution, noise and severance.
  Any resulting reduction in car traffic will provide a benefit in terms of reduced air and noise pollution and less pressure on natural resources. The decline of paper tickets will be beneficial for the environment, as customers will be using a card they already own to top-up.
  Increased public transport patronage will help support improved services, with buses in particular being an important mode for providing accessibility to target groups.
  Any resulting reduction in road traffic is likely to lead to a reduction in accidents.
  Reduced traffic congestion is likely to be economically beneficial as is the reduced subsidy requirement of the public transport system.
  The increase in revenue will have improved the financial position of the operator.
= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Case study 6 - Introduction of London Travelcards

Context

The London Travelcard is a time period pass valid either for one-day, three-day, seven day, one month or one year. The card is valid on all TfL services including bus, underground, Docklands Light Railway and trams in London, but not the ferries) in the zone specified on the card. It has now been incorporated into the Oyster Card (see case study 7).

Research has indicated that the introduction of the Travelcard in London in 1983 increased the number of underground trips by 10% and bus trips by 16% (Gilbert and Jalilian, 1991). Travelcards replaced London Underground season tickets which meant that one card now gave access to unlimited travel on both London Underground and London buses. Bus revenues increased by 14% whilst underground revenue dropped by almost the same amount. This effect was partly because London Underground had previously kept 100% of the revenue from season tickets whereas with the travel card 30% went to London buses (Gilbert and Jalilian, 1991). Fowkes and Nash also studied the introduction of the London travel card also finding that the introduction of the travel card stimulated demand. Fairhurst (1993) found that passenger miles increased by 18% on buses and 28% on the Underground, with an overall increase of 24%. Whilst a direct comparison between figures in different studies should be treated with caution, it is interesting to note that mileage as measured by Fairhurst has increased significantly more than trips (as measured by Gilbert and Jalilian). This may suggest that the Travelcard is encouraging longer journeys, particularly on the Underground where journey time may be less of a barrier.

Contribution to objectives

Contribution to objectives
Objective Scale of contribution Comment
  Although no evidence is presented on diversion rates, some of the increased patronage is likely to have transferred from car so reducing traffic congestion. Reduced boarding times and increased fare payment convenience also represent efficiency gains. If longer journeys are indeed being encouraged this can be seen as an inefficiency.
  Reduced car traffic will provide a benefit here in terms of reduced local air pollution, noise and severance.
  Reduced car traffic will provide a benefit here in terms of reduced air and noise pollution and less pressure on natural resources.
  Increased public transport patronage will help support improved services, with buses in particular being an important mode for providing accessibility to target groups.
  Reduction in road traffic is likely to lead to a reduction in accidents.
  Reduced traffic congestion is likely to be economically beneficial as is the reduced subsidy requirement of the public transport system.
  The increase in revenue will have improved the financial position of the operator.
= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Case study 7 - The Oyster Card (London)

Context

The Oyster card was first issued to the public in July 2003 by Transport for London and is used on public transport services in Greater London in the UK. This card also takes on the London Travelcard highlighted in the previous case study and integrates it amongst its various pricing structures. The card is valid on the London Underground and Overground, buses, trams, the Docklands Light Railway and some National Rail services. It was first issued with a limited range of features and there is continued phased implementation of further functions. It is a form of electronic ticketing being a stored value card which can hold single tickets, period tickets and travel permits which have to be added to the card before travel. It is also a contactless smart card with a claimed proximity range of about 8 cm (3 inches) that passengers have to pass over electronic readers when entering and leaving the transport system in order to validate it or deduct funds. The cards may be ‘recharged’ in person from various sales points, by recurring payment authority or by online purchase. The card decreases the number of cash transactions at ticket offices and the number of single paper tickets sold on the London transport network. Usage is encouraged by offering substantially cheaper fares on Oyster than payment with cash.

The card uses MIFARE technology and is operated by TranSys for Transport for London. The technology used for the Oyster card is known as radio-frequency identification (RFID), which is the same technology used in other electronic pass cards. The Oyster card acts as an aerial while the reader acts as a receiver. However this technology means that the cards transmit information whenever they come into range of a reader and it has been suggested that a good reader could read personal details from quite a distance. Aluminium shielding has been suggested to prevent any personal data from being read. Types of fare structures on the card:

  • Period travel cards: The Oyster card aims to replace the paper Travelcard (as highlighted in the previous case study) by storing period tickets electronically. An Oyster card can hold up to 3 season tickets at the same time. Season tickets are bus & tram passes or travel cards lasting 7 days, 1 month, or any duration up to one year (annual). These types of travel card holder do not need to "touch in" at the start of a journey or "touch out" again at the end unless they intend to travel outside the zones for which their travel card is valid. If they need to "touch in" or "touch out", as long as the travel card holder stays within their permitted zones no fare will be deducted from the pay as you go funds on the card. The Oyster system checks that the travel card is valid in the zones it is being used in. If the user travels outside the valid zones of their travel card, any remaining fare due may be deducted from their pay as you go funds.
  • Pay as you go: As well as travel cards and bus passes, Oyster cards can also be used as stored-value cards, holding electronic funds of money. Amounts are deducted from the card each time it is used, and the funds can be "recharged" when required. The maximum value that an Oyster card may hold is £90. This system is known as "pay as you go" (abbreviated to PAYG), because instead of holding a season ticket, the user only pays at the point of use.

The pricing system of the card is fairly complex, and changes from time to time. In order to encourage passengers to switch to Oyster, PAYG fares (including Bus and Tram fares) are generally much cheaper than cash fares: A cash bus or tram fare is £2.40, while the single Oyster fare is £1.45, but capped at £4.40 for any number of trips in a day. On the PAYG rail network, a single trip costs £2.30 (compared to £4 cash) within Zone 1.

A fare capping system was introduced in February 2005, which guarantees that an Oyster card user will be charged no more than the cheapest combinations of single tickets, travel cards and/or bus pass that cover all journeys made that day. A 50p discount is given where the price is capped at the travel card or bus pass rate. Unlike paper daily travel cards, Oyster cards capped at travel card rates are not valid on National Rail services other than those routes which accept Oyster pay as you go. A 34% discount is received by holders of Disabled Persons, HM Forces, Senior and 16-25 National Rail Railcards in the off-peak price cap; individual journeys are charged at normal Oyster pay as you go rates until the reduced cap is reached.

Oyster photocards, with an image of the authorised user on the card front, are issued to members of groups eligible for free or discounted travel. The cards are encoded to offer discounted fares and are currently available for students in full-time education (30% off season tickets), 16+ cards (child rates for single journeys, discounted period travelcards, free travel on buses and trams for students that live and attend full-time education in London) and for children under 16 years old (free travel on buses and trams and discounted single fares on the Underground, Overground and DLR). A Freedom Pass, with separate non-Oyster photocard, is issued to those over 60 or with disabilities for free travel by their local Borough.

Impacts

Over 10 million Oyster cards had been issued by March 2007, and over 80% of all journeys on services run by Transport for London are made using the Oyster card.

Since the card was introduced, there has been a dramatic decrease in the number of people paying cash fares on buses. This has led to a fall in the usage of station ticket offices to the extent that Transport for London closed a number of ticket offices and reduced opening hours of some others. It was suggested that the staff would be deployed elsewhere on the network.

Contribution to objectives

Contribution to objectives
Objective Scale of contribution Comment
  TfL believe the cards to be efficient as they reduce TfL costs by being easier for customers to self serve and less cash handling. It frees up staff for other roles. It is also said to sustain affordability giving discounted fares and period tickets to frequent travellers. Reduced boarding times and increased fare payment convenience also represent efficiency gains. The card usage data can also be used for planning purposes.
  Although no evidence is presented on reduced car traffic, assuming that the efficiency and convenience of the Oyster card has reduced car traffic through increased use of public transport, this will provide a benefit here in terms of reduced local air pollution, noise and severance.
  Any resulting reduction in car traffic will provide a benefit in terms of reduced air and noise pollution and less pressure on natural resources. The reduction of paper tickets will be beneficial for the environment, as customers will be using a card they already own to top-up.
  Increased public transport patronage will help support improved services, with buses in particular being an important mode for providing accessibility to target groups.
  Any resulting reduction in road traffic is likely to lead to a reduction in accidents.
 
Reduced traffic congestion is likely to be economically beneficial as is the reduced subsidy requirement of the public transport system.
  The increase in revenue will have improved the financial position of the operator. However the technology of the Oyster card was costly to implement in the initial years and the revenues will need to recoup the costs. As the card is continuously evolving, the additional costs will also need to be taken into account.
= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

 

Contribution to objectives by case study

Contribution to objectives and problems
Objective Verbund systems Connecticut Transit Maryland Transit
Association
Brighton and Hove
Bus Company
Octopus Card
 
 
 
 
 
 
 
Contribution to objectives and problems (continued)
Objective London Travel Card Oyster Card Other UK Examples
Travelwide,
Woking
Travelcard,
West Midlands
 
 
 
 
 
 
 
= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Contribution to alleviation of problems by case study

Contribution to alleviation of key problems
Objective Verbund systems Connecticut Transit Maryland Transit Association Brighton and Hove Bus Company Octopus Card
Congestion
Community impacts
Environmental damage
Poor accessibility
Social and geographical disadvantage
Accidents
Economic growth
Contribution to alleviation of key problems (continued)
Objective London Travel Card Oyster Card Travelwide,
Woking
Travelcard,
West Midlands
Congestion
Community impacts
Environmental damage
Poor accessibility
Social and geographical disadvantage
Accidents
Economic growth
= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Contribution to key objectives by policy element

Contribution to objectives
Objective Simplified fare structure Time Period Passes Through-ticketing across
modes and operators
Smart Cards
 
 
 
 
 
 
 
= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Contribution to alleviation of problems by policy element

Contribution to alleviation of key problems
Objective Simplified fare structure Time Period Passes Through-ticketing across
modes and operators
Smart Cards
Congestion
Community impacts
Environmental damage
Poor accessibility
Social and geographical disadvantage
Accidents
Economic growth
= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Appropriate contexts

Appropriate area-types
Area type Simplified fare structure Day, week, month
and annual passes
Through-ticketing across
modes and operators
Smart Cards
City centre
Dense inner suburb
Medium density outer suburb
Less dense outer suburb
District centre
Corridor
Small town
Tourist town
= Least suitable area type = Most suitable area type

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