Follow us on Twitter

Are the fares too damn high?

For most of the last year we have found ourselves somewhat puzzled by the stalling and even declines experienced by rail patronage in particular – but more recently general public transport patronage. This can be seen in the dip in 12 month rolling patronage totals up to November last year:
Auckland Transport have provided a multitude of excuses for the patronage dip over the past few months – some more plausible than others (they blamed the World Cup for some of the declines in August and November, even though the World Cup was only in September & October 2011). Some of the decline may be due to higher rail fare evasion than we think (anecdotal evidence on this is pretty strong) but I wonder whether public transport fares are really starting to hurt some people and put them off catching the bus, train or ferry. With inflation at near-zero, wage growth stagnant seemingly forever and petrol prices still below the peaks of a few years back the fare increases for rail in particular over the past few years may be starting to bite.

A benchmarking study of public transport in Auckland and a number of comparator cities prepared a couple of years ago highlighted that Auckland’s PT fares – on a per kilometre basis – were higher than all other cities analysed:Yes, the graph does show that Auckland’s fares are on average around twice those of the Australian cities and much higher than Wellington’s. This is despite (or perhaps a cause of) Auckland generally having one of the poorest and least used systems when compared to these other cities.

There are lots of ways that we can improve our fare system, like the introduction of free transfers, zone-based fares, greater incentives for people to use the Hop Card, pricing differentials between peak and off-peak, better deals for monthly pass holders and so forth. Those are all great, but I wonder whether they miss the fundamental point of still assuming the same general level of contribution by users to the cost of public transport provision. Certainly Auckland’s farebox recovery rate (which has increased to about 43% from what’s shown below which was in the benchmarking study referred to above) is certainly higher than a lot of Australian cities:Fortunately a lot of work has gone into creating a more efficient PT network over the last while, with the new bus network likely to generate a lot more patronage without extra service requirements. Hopefully the PTOM contracting system will also generate cost efficiencies. This work should hopefully mean that the public money spent on public transport is being utilised far more efficiently than in the past – effectively we are getting more bang for our buck.

But the next question is around how to use those savings – to reinvest in extra service, to bank the savings or perhaps to lower some fares? I’ve wondered for a while whether the strategic lowering of certain fares would generate a big patronage gain and the benefits which arise from more patronage would easily outweigh the revenue foregone in the lower fares. There are a number of ways this could happen:

  • The lower fares could end up with more passengers paying and theoretically this could mean more revenue overall. Generally patronage is seen to be relatively inelastic to price (though this varies hugely for different trips) so ending up with more overall revenue is relatively unlikely.
  • The patronage gain could generate significant external benefits, such as in the form of decongestion benefits – which for rail are particularly significant at around $17 per peak time passenger.
  • Lower fares could mean that some people end up ditching their family’s second car and shifting to the bus or train as it’s now clear that catching PT makes financial sense to them. As many of the costs of car ownership are relatively hidden (e.g. depreciation) they may end up in a much better financial position in the longer run.

There are lots of messy details to work through around the most effective way to target fares to maximise benefits created and that’s not really the intention of my post. I guess I’m just interested in understanding whether we’d be better off if PT fares were a bit lower generally – certainly a lot of other cities seem to think so.

71 comments to Are the fares too damn high?

  • Yes I think fares are to high but first we would need the NZTA to remove or change its farebox recovery policy and there is little chance of that happening, in fact I would say there is probably more chance of the opposite happening as AT tries to find ways to meet their targets. Putting that aside, there are two ways that AT could reduce fares, first is by actively dropping them to encourage patroange while the second is that they could leave them as they are in spite of inflation which would over time lower them but that obviously wouldn’t have an immediate impact.

    Also I might add petrol price graphs to our stats pages. I have the weekly average prices and the Annual and Quartely average prices in both nominal and real values.

    • Mr Anderson

      There’s nothing stopping a new govt in 2014 abolishing the idiotic farebox recovery policy.

      • Stu Donovan

        I don’t think the farebox recovery policy is as bad as we first thought. It’s very hard to increase farebox recovery through higher fares, because the elasticity of demand essentially wipes out the additional revenue you gain (as suggested by this post. This in turn will have two likely implications about how one might achieve the farebox recovery target:
        1. Grow patronage; or
        2. Reduce gross costs.

        I think #2 is important, because that PT benchmarking study mentioned in this post, to which I contributed, also found that gross costs in Auckland were considerably higher than other places. And assuming the overall PT budget remains the same then the long term effect of the farebox recovery policy should be a shift in funding from operations to infrastructure, which I think is probably a good thing.

    • The Auckland fare of $0.24/km is a bargain. The Fullers Waiheke ferry fare is $1.00/km, more than 4 times that cost. But then we have 105% fare box recovery (5% goes to the wharf tax). Aucklanders don’t know how lucky they are with their subsidies.

  • Off peak and group price incentives would be a good place to start, especially if timed with the up coming improvement to off peak services; certainly a marketing opportunity there. New options New deal….

    • Chris Randal

      Just don’t tell Geoff (or Nick) you said that!

      • Nick R

        I think off peak (and group) discounts are a great idea, especially if they structured in a way that benefits more than a few percent of the traveling public.

        • Chris Randal

          Day pass and family pass?

          • Harvey Specter

            Yes to day pass (with Hop card). The hop card should charge you per ride upto a maximum daily fare (ie. always works out the best option for you). Oyster card does this.

            Group and family discounts are more complicated as not 1 fare per person.

            Offpeak fares worth considering but unless they drive up patronage, they wil just make the farebox recovery worse.

          • Yes, day pass within a zone or set of zones, preferably as an automatically calculated cap. The thing I don’t like is a single day flat rate pass for the whole region which is a massive windfall for those that make long commutes but is irrelevant for those doing a series of short trips across a day. I’m 100% in favour of day passes that anyone can benefit from if they need to travel more than twice in one day.

            Family pass is interesting, I think it would be easier to simply have children travel free with an adult after 9am or something like that. We already have that for infants, so just extend it to child age at appropriate times.

          • Bryce P

            Rather than a day pass, just have a capped rate as per Canberra. Should be easier to implement?

          • Stu Donovan

            Other posts have considered the issue of a family pass in more detail. As stated there, I personally think a group discount on individual tickets is better than a family pass, mainly because the latter:
            1) usually ends up defining “family in ways that will tend to price out the types of families that need discounts (e.g. 2 adults + 2 children rather than 1 adult + 5 children); and
            2) family “relationships” are subjective and difficult to verify, i.e. who’s to say that my niece is not part of my family when I’m taking her to the movies with my kids?

            How would a group discount work? Well, you get an increasing % discount for buying in bulk. One way would be to offer a 5-10% discount on the total price for every ticket purchased over 3. E.g. 3 people = 5% discount, 4 people = 10% discount, 5 people = 15% discount etc. That would also have the added benefit of reducing queues at ticket machines and ensuring that everyone travels on an individual ticket, which is good for overall system management. Rant over – I should do a post on this issue sometime.

          • Bryce P

            Families, under 5′s free (as per current?) and student / tertiary passes to cover the rest with a different peak rate compared to a lower off peak rate? Capped low? So, off peak, 2 adults at $5 each for the day (capped) and 2 children at $2.50 for the day (capped again). That’s $15 for a family of 4 over a weekend or public holiday. Affordable and a good alternative to using the car?

    • Bryce P

      Off peak – yes. And weekend rates. All day for the price of a single zone. When are zones coming? Between $12.40 and $15.80 to get to Manukau from Te Atatu. The same again to return. The price to transfer services is pushing up prices as well. In Canberra that would be (AU)$2.52 capped at $7.60 per day capped (multiple trips). In Vancouver that would be CDN$9.75 for a day pass. We’ve priced PT out of the market.

  • Jon Reeves

    Remove Veolia from from the rail operating costs – pass the savings onto commuters through lower fares! If Wellington can run their network without Veolia, so can Auckland Transport.

    Lower costs of operation, lower prices to the public, more reasons for the public to travel on PT.

    • Do you realise if AT removes Veolia from the equation, they will still need to replace Veolia with some other entity to operate the services who will still need to be paid for services provided. Trains don’t run themselves, not even in Wellington where Kiwirail does the same job as Veolia up here and they presumely also bill GWRC for services provided.

      • James is right. Nothing basically changes (up until the medium term anyhow) is Veolia is replaced by who or whatever else. The only thing that would change straight away dumping Veolia out the door is the Managing Director going back to Australia – for everything else it stays EXACTLY the same until AT could get the changes through which takes time

        • Jon Reeves

          James Pole, except at present we pay AT, KR and Veolia to operate and run services. Veolia gets a nice big management fee on top of employing the staff. If AT takes over the staff, out goes the management fee. Savings come in for ratepayers.

          • Except you pointed to Wellington as an example but there the management fee is just paid to Kiwirail. The GWRC don’t run the trains themselves but do so exactly the same as what is done in Auckland except it is Kiwirail running it instead of Veolia. For AT to run things themselves it would likely require legislation changes as currently I don’t think they are allowed to run services themselves thanks to changes made in the 90s

          • {If AT takes over the staff, out goes the management fee. Savings come in for ratepayers.}

            You just might get what you asked for ;)

  • Duncan

    Catching the train only works out being $1 saving each day for me, but is more inconvenient, and if I took the bus to Britomart instead of Skateboarding/BMX’ing it’d cost me $3 more a day than driving and it’s quicker. I would say that is a big reason, being that the time saved is next to null, compared to sitting in traffic, and the price, even at todays gas prices.

  • Harvey Specter

    To encourage use of the Hop card, the discount should be at least 20% rather than the pittance (10%) that it currently is. From memory, I think London even got the discount upto 50% for buses while I was there.

    The fair box recovery policy also has to change. I don’t believe you can increase patronage at the same time as increasing the recovery. The priority, in the short term at least has to be increasing patronage.

    • The Fare Guide from AT http://www.scribd.com/doc/111504560/At-Sv-Fares0001 where the discounts are at a MINIMUM of 10% and move all the way to 16% for adults and further for children and tertiary

      [I remember that particular “battle” with AT to ensure the old 10-Trip discounts remained and transfer to the AT-HOP cards rather than the flat 10% which would of been a technical fare increase for all adults except 3 and 4 stages)

      • Harvey Specter

        16% still not enough. The goal should be to get irregular travellers to get a HOP card as once they have it, the barrier for them to use it again goes down.

        • I agree there – dont get me wrong and the discounts should move to a better ratio. And we shall have that opportunity to push for this when the RPTP hearings come up next month.

          But as I alluded to earlier, I’ll take the 16% for now knowing the struggle it was to hold it there. One step at a time – one step at a time :)

          • Bryce P

            Maybe a better way of looking at it would be for the HOP fares to be the standard fare and a surcharge added to that for single tickets?

          • Harvey Specter

            Surcharges will discourage patronage
            Discounts will encourage patronage

            Yes I know they are the same, its in the mindset though!

    • Stu Donovan

      Yes I agree – the benefits of getting people onto HOP are so high they’d be silly not to increase the differential. AT gets the interest on the float, passengers board faster thereby reducing dwell times and increasing operating speeds, while operators cash-handling costs reduce. Win-win-win. Brisbane’s Go Card has a 30% discount by comparison.

      The only small issue with a higher HOP discount is that there’s a small percentage of low-income passengers for whom travelling by cash is the norm – because they generally only have enough money for the next trip. I’d like to see some thought go into improving access to HOP cards for these people, e.g. making them free for anyone under a certain age (linking to school IDs would be a good start) or has a community services card etc.

      • Also add in there that AT probably gets much better patronage data with HOP than they would with paper tickets

      • In Brisbane, the 30% discount for go card came later – after the go card was a known quantity. The original price levels were the same as cash for the first 6 journeys per week. Fools rush in. I say get it working across the bus fleet before thinking about raising the differential.

        • Stu Donovan

          Implementing HOP on buses first is a no brainer; any changes to pricing being proposed here would have to happen after the bus roll-out (which I think is timed for April?). And be part of a wider fare review …

  • Stu Donovan

    I think the dynamic price effects are more important than the absolute prices of fares.

    What I mean by that I think prices for PT have generally risen slightly faster than the primary alternative: driving. At the same time, the last few years have seen incomes being squeezed. In this environment it’s not surprising that people have been pushed from PT to driving.

    On the other hand, Auckland is set to achieve the farebox recovery total fairly soon, as well as equalisation between rail and bus fares, which in turn lead to a few years where fares increase at a slightly slower rate.

    I’m not particularly fussed about the farebox recovery policy – the silver lining to it is that it encourages efficiencies on the delivery side (contracting and operations) that were absent and/or ignored during Labour’s last term in government. That has generally lead to a bit of a blow-out in PT operating costs.

    I should also say that one of the most damaging aspects of the ongoing PTMA/PTOM saga has been the rolling over of short term contracts in the interim, whereby operators charge the full cost of vehicles to AT over a period of only 3-4 years. That should soon stop and bring costs down somewhat.

  • I think that the poor level of service is a factor (while not dismissing any of the other reasons mentioned) in the declining patronage of the trains.The timetable changes made when Manukau station opened were a disaster for the Eastern line and I’m sure this turned people off. At Meadowbank it was not uncommon to find the train full and have to wait for the next one. A side-effect of this was of course the fares weren’t collected from passengers boarding a virtually full train at Meadowbank or Orakei. With the changes made in late-2012 we now have good even intervals between trains.

    Another example – yesterday the train was 6 minutes late, points failure on the Eastern line during off-peak, and the destination board was not working for the trains home.

  • Patrick S

    Why is this a surprise? A monthly A zone pass in 2000 cost $69. It has now risen to an astounding $140, $55 per month MORE than if the price had been kept in line with transport-sector inflation (see the Reserve Bank online caluclator) and can only be used on a calendar month basis and can only be purchased in a very few locations.

    Meanwhile the daytripper passes were standardised at $10.50 across all of Auckland, whereas it was $7 for A Zone. Throw in the pittance of a discount provided for Hop card users and you have a recipe for the public giving up on public transport. And rightly so.

  • Agree with others that the discount for HOP needs to be significantly higher than 10% of standard cash fare for adults, for all the reasons given.

    Generally, though, fares are so high that even people travelling from Henderson to town by rail are looking at about parity between driving and parking or taking the train, and the train doesn’t have the flexibility of the private automobile. That’s accounting for petrol, too, and an older car so near-zero effective depreciation. The only thing that tips it in favour of the train is the recovered personal time to snooze on the way. PT should be compellingly cost-effective over such a long distance but it’s not even close, and that’s with a monthly pass, too.

  • The other thing that can’t happen soon enough is HOP on buses. I wanted to top up my H&E card the other day, and discovered that there’s not a single outlet between Panmure and University of Auckland. Not even in Newmarket. What a bloody joke.

    • Tian He Loong

      Sorry to potentially de-rail the discussion, but yes, does anyone have any information as to when AT Hop is coming to the buses? Thanks.

    • There isn’t a place to top up hop cards at the university any more, which is ludicrous. There isn’t anywhere in a number of satellite-CBDs, such as Takapuna to top up hop cards at all either.

      • I can understand Takapuna not having anywhere, given that they’re not (AFAIK) accepted on any buses that originate from there, but the situation with U.Auckland is very puzzling. The cards are still valid, still usable, and can still be topped up at Britomart. The densest clustering of users is the two universities (UoA and AUTU) so it would make sense to have at least one outlet between them that can do the top-ups.

        Are you sure that it’s not just that the outlet is closed during the holidays? Universities aren’t back for several more weeks.

  • Cabs

    Cheap cabs does $30 fixed fare from the City to the airport!
    If the dollar remains strong and labour doesnt undermine values with 100,000 new statehouses, Taxis will become even cheaper as oil drops..Also, TM cards give disability customers incentive to travel via taxi at costs relative to $0.70 a KM.

    Makes PT look like a joke at current costs. In-fact i bet you partonage with cabs has almost doubled/tripled since 2007.

  • jonno1

    Two questions based upon the ignorance of a non-expert in PT:

    1) What is “farebox recovery” or “farebox recovery policy”? This is jargon that I can’t decode, sorry.
    2) The third graph above shows around 40% working expenses recovery for Auckland. Does this mean there’s a 60% subsidy somewhere? If so, who is funding this? Me?

    Thanks!

    One other comment on costs – even a thirsty car like mine costs only about 25-30c/km for petrol around town, so hard to justify PT for casual trips, and other vehicle costs are largely fixed. A different issue for regular commuting perhaps, especially if parking costs are factored in (say $200/month), although I know several people who use a cheap hack as a second car for commuting so there’s no significant depreciation involved.

    • Farebox recovery refers to the amount of money collected from paying customers vs the costs incurred to run the services so yes if Auckland is at 40% it means 60% of the costs are paid for via a subsidy. The NZTA has put in place a policy that states that on average across the country there needs to be a 50% farebox recovery rate and they gave a 10 year timeframe for that to be worked through so that councils have a time to make necessary changes and is also where things like the new PT operating model come in to improve things like the contracting side of the equation. In the draft RPTP AT expects that we will exceed the 50% ratio in a few years due a couple of key changes.
      -The new bus network along with new and better bus contracts thanks to PTOM
      - New electric trains which will bring down rail operating costs substantially even with increased services.
      - Integrated ticketing (incl fares) making it easier and quicker to use PT plus speed up things like bus boarding times making them more efficient.
      - Patronage increasing due to these changes above the level of cost increase

      As for the question of why pay so much subsidy, having the subsidy in place helps prevent a hell of a lot more having to be spent on things like more roads (which are also subsided but no one comments on that part).

      • jonno1

        Thanks Matt. I suspected that farebox recovery probably simply meant revenue as a percentage of operating costs, but it just seems an odd way of putting it! So presumably the policy bit refers to the target percentage.

        As for subsidies, I have no problem with them in principle. Presumably the subsidy comes from rates so whether it’s applied to PT or to local road maintenance is more a matter of ideology than economics. One could argue that subsidising bus fares is double-dipping as you also have to maintain the roads to run them on, whereas trains use a different corridor. OTOH, maintaining multiple corridors is not very cost-effective either, and train routes are relatively inflexible…

        To be clear, I’m talking here about operating costs, not capital costs, which is a different discussion (although interest costs on borrowed capital is an operating cost of course).

        • Steve D

          “Flexibility” is not a good thing, though. A benefit of inflexible routes like trains or trams is that people have the confidence to build near them, since they are likely to keep operating.

          In Auckland’s case, buses aren’t actually much more flexible, since there are only a few long continuous arterials for them to run along, which in the older part of town are mostly former tram routes!

      • Has the Supergold card loot been included in the farebox recovery figures?

  • JeffT

    Myself taking the train from Ellerslie to Avondale is 4 stage. The $120 monthly pass works out the cheaper option for me but I’m not sure there is much in it between the train and driving in terms of cost.
    I think train fares are set at close to the highest price the market will bear. Any increases in fare prices in the medium term will, I think, see a further fall in patronage. I’m one that would head back to the car.

    Just generally, I tend to think it’s a trend in New Zealand that prices are set at the highest price the consumer will bear. There’s often not a lot of consumer surplus or fat left in the deal for consumers. It’s no wonder we’re all so broke.

  • andrewo

    It couldn’t just be that public transport is not a very nice way of getting to work and given half a choice people will travel some other way?

    • JeffT

      Yeah, maybe. For me, I like travelling by train. I wouldn’t like to generalise about travel preferences on everybody else’s behalf. I think we’re looking more at fare prices on this particular post.

  • Nuts – seems the nation’s Number 1 Blog has picked up on this….

    Time for another G&T

  • andrewo

    Jeff are you by chance a bit of an ‘anorak’ or train spotter?

    • JeffT

      Neither. Just someone who uses trains as part of their travel ‘mix’. Just like people do in many countries around the world.

    • Mr Anderson

      Given the choice of spending an hour stuck in Auckland traffic vs an hour sleeping on the train or reading a book or commenting on blog posts I know what sounds like more fun.

    • harrymc

      Are you by any chance a bit of a petrolhead?

      • harrymc

        That’s for Andrew btw.

      • Bryce P

        I’m happy to admit I’m a petrolhead but driving in peak traffic does not interest me at all. In fact, gradually, I’m finding I am less inclined to want to drive around Auckland at all so now am buying more things locally (even though often it costs more) than leaving the area. Bring on fast, efficient, realistically priced PT (and a 3G equipped tablet :-)).

  • SlowJoe

    As a student in the early noughties, I remember paying $5.40 to get into the city from Howick and the same to get back home (there was also a good 4km walk from my house to the bus-stop, but that’s another story). And I wondered why people in the neighbourhood chose to drive…

    • JeffT

      I guess the further out we build, the more strained public transport services become. There will be some bus service but in the absence of political will for rail tracks, the more cars becime the main transport option.

  • George D

    Increasing off-peak usage across all modes – where almost all capacity is excess – seems to be the most sensible way to address the farebox issues without raising fares. But for now, there needs to be a moratorium on rises, for at least a couple of years. And even then they should be modest and incremental, not the large leaps we’re now quite used to seeing. All the evidence is they’ve exhausted our capacity to take more.

    As for me, Melbourne’s cheaper transport is a consideration when I’m thinking about cost of living issues and where to live. I love Auckland, but it isn’t cheap to live outside the central suburbs, not at all. It also harms our ability to enjoy what our city has to offer, its nightlife, culture, sport, and social fabric. That cost (loaded onto society as an externality) isn’t cheap. Nor is the cost of pollution, road accidents, noise, and reduced quality of life which traffic cause the city. At present, none of these are costed or considered in anything more than a token way.

  • I definitely agree about increasing off peak usage, even if it’s at the expense of the farebox. At least more people are getting the benefit of public transport and not risking life and limb out on the roads. I actually favour a 50% off peak discount. Having said that:

    Death to periodicals. Particularly ones which have to be loaded on. Even daily capping represents a form of farebox leakage.

  • Malcolm M

    Electric trains will certainly reduce operating costs of the rail network. Electrics typically cost half as much per carriage-km as diesels. In Auckland’s case the difference would be even greater, because the diesels are old and require at least a 2-person crew. AT should be planning on single-person operation to reduce operating costs to the levels of Perth and Melbourne, which have had driver-only operation of electrics for many years. This should then reduce the marginal cost per additional off-peak passenger down to extremely low levels. Sydney has a $2.50 fare for unlimited travel on Sundays, and Melbourne a $3.50 cap for weekend and public holidays. These lower fares help with security because there are plenty of “normal” people on the trains to discourage the ferals.

    For group travel, perhaps there could be a way of linking individual cards into a “family” or “group”, so the discount fare is calculated.

    • It’s a shame the system isn’t real-time and instead relies on overnight batch operations. If it were real-time it’d be straightforward to create ad hoc daily groups online or at ticketing machines.

Leave a Reply