Recent developments in the pricing of local public transport services
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Transport Reviews: A TransnationalTransdisciplinary JournalPublication details, including instructions for authors andsubscription information:http://www.tandfonline.com/loi/ttrv20
Recent developments in the pricingof local public transport servicesPeter R. White aa Polytechnic of Central London , London, NW1 5LS, U.K.Published online: 13 Mar 2007.
To cite this article: Peter R. White (1981) Recent developments in the pricing of localpublic transport services, Transport Reviews: A Transnational Transdisciplinary Journal, 1:2,127-150, DOI: 10.1080/01441648108716455
To link to this article: http://dx.doi.org/10.1080/01441648108716455
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Transpor t Reviews, 1981, Vol. 1, No. 2, 127-150
Recent developments in the pricing of localpublic transport services
By Peter R. Whi te
Polytechnic of Central London, London NW1 5LS, U.K.
AbstractThis review examines the pricing of public transport services, taking as its
starting point urban and short-distance bus services. Simple forms of average costpricing are discussed, and the implications of recent developments in costingtechniques (especially those related to peak capacity) are illustrated. An equitableand efficient approach will generally require charging different fares at differentperiods. Evidence of user elasticity of demand by price is then considered, relatedto journey length, and other factors. It is argued that the concept of user responseand perception is more meaningful than 'elasticity' as such, and that the case forsystems involving different methods of payment, such as flat fare and travelcard,may be stronger than generally assumed.
1. In t roduc t ionThis article is intended to provide a general review of public transport pricing for
local and short-distance servicesessentially those in and around urban areas, asdistinct from inter-city travel. After establishing definitions for terms used,objectives of operators are considered: their vagueness in many cases is itself anobstacle to rational pricing. Taking the situation in which an operator has to covercosts, factors affecting this total are discussed, and simple applications of flat andgraduated fares described. Time, rather than distance as such, emerges as a betterbasis for averaging. The importance of peak costs is then stressed, leading toarguments favouring peak/off-peak price differentials.
Having considered how prices may relate to costs, price elasticity (whichdetermines total revenue and patronage resulting from policy selected) is thendiscussed, taking degrees of substitutability as the starting point. Evidence is thenquoted to show that off-peak trips may be generally more elastic, as may beexceptionally short and longer-than-average trips. Patronage is maximized bycharging lower fares for the more elastic trips.
Some related 'background' issues are then raised. These include national farespolicies and structures, fare levels in relation to user incomes, concessionary fares,and aspects in which urban rail differs from bus pricing principles.
The final section of the paper takes a somewhat different view, reflecting somecurrent changes of opinion in Britain, whereby the need for simplicity is stressed,and scope for flat fares, travelcards, etc., outlined. User response to price increasesappears to be affected by the form of pricing, as well as the actual average fare level.Operators may take advantage of this by introducing simplified systems which giveoperational benefits, yet which, after an introductory period at low price, can bepriced at a higher level to give revenue comparable with that from more complexsystems.
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128 P. R. White
2. SOME BASIC CONCEPTS
The fare is the sum charged for a specific passenger journey, as determined bylength, time of day, passenger type, etc.
The average revenue yield is the sum received by the operator per passenger trip(or passenger-kilometre), being a function of fares charged and the 'mix' of traffic bytype (proportion of child to adult trips, trip lengths, etc.). It may thus vary without achange in the standard fare scale (for example, by the tendency of average trip lengthto rise over time, raising revenue per trip). Some operators refer to total revenue as'revenue yield' when considering fare increases (the revenue that would be gainedwere no traffic lost at a fare increase being termed 'gross', and that after allowing forpassenger 'resistance' (see 5.1), 'net'). This terminology is not used in this paper.
Revenue is that sum regarded as payment from passengers by the operator. Aswell as money actually paid by passengers, it may include compensatory paymentsfrom public funds (e.g. to make up the value of concessionary fares to normal levels),and thus exaggerate the sums actually perceived by passengers.
The total cost of service provision is that perceived by the operator, notnecessarily equal to resource costs, due to grants, taxes, etc. (see 4.1).
A passenger trip is usually taken to commence each time1 a passenger buys a ticket.For bus operators, this implies that each transfer between buses commences a newtrip, even though the passenger may be making only one 'journey', in the sense ofgoing from one activity to another (e.g. home to work). Conversely, on rail systems, athrough ticket is usually issued, even where interchange is involved (see theappendix).
A passenger-kilometre is a distance of one kilometre travelled (or paid for) by apassenger.
A concessionary fare is one charged at less than the standard rate, such as a child'sor pensioner's. In some respects the term is a misnomer (see 6.4).
Fare (or price) elasticity is the extent to which the number of trips (or passenger-km) changes in response to real changes in fares. For a more detailed description ofthe definitions of elasticity, see Grey (1975). Note that the definition will be affectedby the definition of 'trip' employed (see above), and that many studies actually assesschange in average revenue yield (above) rather than fares as such.
A flat fare is one charged irrespective of distance travelled, although usuallydifferentiated by person type.
A graduatedfare is one related to distance, the latter divided into fare stages. It isnot usually proportional to distance, but. tapered (i.e., falling rate per kilometre aslength rises).
3. OBJECTIVES OF THE OPERATOR
The objectives set for and by the operator will determine the optimal fares policy.A financial objective alone is not a sufficient guide: the same objective could be metwith a variety of fares and service levels. In many cases, an 'equity' objective may beset, i.e. that each passenger make a 'fair' (no pun) contribution to costs.Unfortunately, this is often associated with crude average cost concepts, leading toeither flat fares or graduated fares undifferentiated by time or person type. As arguedin 4 below, an equitable solution involves differentiating fares, and possibly usingtime instead of distance as a basis for averaging of costs.
Beyond this point, objectives become very, confused, operators working to-ageneral goal of providing an 'adequate service' within a financial constraint (e.g.
Pricing of local public transport 129
break even, or require not more than a budgeted amount of revenue support).However, little attention is paid to the effects of fares increases other than those ontotal revenue, irrespective of loss of trips.
A formalized objective aimed at maximizing passenger benefit