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South Auckland Bus Contracts: More service, Lower Cost

Auckland Transport yesterday announced the results of their tender for the new bus network in South Auckland and it appears they’ve achieved a very good outcome by both increasing service and reducing costs. The winners of the of the contracts are

  • Go Bus (owned by Ngai Tahu and Tainui) have picked up just over 50% of the services.
  • A joint venture between Ritchies Transport Holdings and Murphy’s got another 40%
  • Howick and Eastern got 5%

*I assume rounding accounts for the missing 5%.

Go Bus is new to operating in Auckland – other than running rail replacement buses some years ago. They say they’re investing $40 million their bid through new buses, equipment and depot facilities. They’ll be using 89 buses most of which will be brand new and built in New Zealand. Ritchies and Howick & Eastern haven’t said if new buses will be used for these routes.

It comes after the incumbent in the area, NZ Bus, announced a few weeks ago that it hadn’t been selected as the preferred tenderer for any of the South Auckland routes.

The new network is of course a big step forward with more frequent and direct routes. With it AT say there is “a 21 percent increase in hours of operation and a 15 percent increase in kilometres covered by the services” Despite this the net cost to AT of running the services will decrease by $3.1m per year, or 15%. That’s obviously quite a significant saving and pleasing to see. Some rough calculations suggest they could be saving up around 20% per service km. AT’s explanation for the better outcomes is

Dr David Warburton, CEO of Auckland Transport, says the cost savings were achieved through a mix of economies of scale, greater efficiencies in the way routes are organised and a modern fleet that is fuel efficient and maximises the number of passengers per trip.

On the other side of the ledger, he says, a modern, comfortable, fleet getting people where they want to go faster and more conveniently, will all contribute to attracting more passengers. This has the double advantage of increasing revenue share opportunity for the operators and reducing the cost in subsidies.

Interestingly this result puts it in the realm a benchmarking study done by Ian Wallis & Associates in association with MRC suggested was needed some years ago. It said:

Without the benefit of a detailed benchmarking appraisal, our judgement is that the AKL unit costs would need to reduce by around 20%-30% to achieve good/best practice levels.

Below are some figures on just what the buses will cost to operate.

The current public subsidy is $20.3 million each year. From October, when the new contracts come into effect, the contracts will cost $36.3 million resulting in $17.2 million public subsidy with about $19 million in passenger fare revenue being paid to Auckland Transport thereby reducing the overall net cost by more than $3 million.

 

New Network - South Auckland

 

It’s also a good win for the new Public Transport Operating Model (PTOM) contracts now being introduced and which have long promised to improve PT costs and outcomes – and which many operators opposed. You may also recall this post from last year looking at the quality level of buses operators will be required to use.

Getting better outcomes from contracting has recognised as an issue for a considerable amount of time and it’s taken possibly a decade or more to get to this point. With PTOM the contracting is done using “units” which contain one or more routes with a full timetable – unlike in the past where operators could cherry pick the best individual services to run commercially leaving the rest to be subsidised. You can see the units for south Auckland and which routes are in them on this AT document.

Under the old contracting scheme, the operators would collect the revenue and Auckland Transport would pay the operator the net cost of running the service. Now with PTOM all fare revenue goes to AT who will then distribute it based on the contracts with bus operators with bonuses or penalties depending on performance. This is much closer to the gross contracting used successfully in many other cities (and on the Northern Express) but which the government opposed.

 

If savings like achieved in South Auckland can be replicated across the rest of the city that could have some profoundly positive effects for our PT network. It will see farebox recovery go well above the 50% target the NZTA have set and that could give AT a greater ability to further improve PT in Auckland. Some examples of what it could allow are

  • Further increase services, perhaps raising more routes to frequent status
  • Spend some of the savings in infrastructure like bus lanes or perhaps light rail.
  • Lower fares
  • Not do anything and reduce the level of subsidies required.

Of those I would favour the first two options as they can help to make PT in Auckland even better and attract more usage.

Overall this seems like positive news and well done to AT for the result.

24 comments to South Auckland Bus Contracts: More service, Lower Cost

  • Matthew W

    “Spend some of the savings in infrastructure like bus lanes or perhaps light rail.”

    I would have thought most bus lanes would pay for themselves given the relatively low cost to implement and the efficiency obtained.

    • Ben W

      In terms of savings to the economy they would (via travel time savings), but probably not in terms of cashflow directly to AT.

  • Chris R

    >>Dr David Warburton, CEO of Auckland Transport, says the cost savings were achieved through a mix of economies of scale, greater efficiencies in the way routes are organised and a modern fleet that is fuel efficient and maximises the number of passengers per trip.

    He forgot to mention lower pay for drivers. I’m glad we’re moving to a better contract system, but the tender process should have provided for drivers to be able to transfer to the new operators while keeping their pay and conditions.

    • Adam W

      I agree with this sentiment

    • donna

      Me too. I’m looking forward to an improved bus service (OK, any sort of bus service) but hope the drivers don’t have to pick up the tab.

    • He forgot to mention lower pay for drivers.
      Thats the Kicker,
      AT need to come out and say that their tender required comparible levels of staff remuneration, or all that is going to happen is that staff costs will become the meat in the sandwich…..

    • Yeah, this. I was not crying for NZ Bus at the news they’d not been successful, but the reporting that Go Bus pays its drivers less and does not pay them over-time makes it a very, very mixed satisfaction.

      It’s the absolute worst kind of single-bottom-line thinking to look only at the tenderers’ service cost without considering what happens to the existing drivers who get paid more and have better conditions. Public entities are meant to look at a wider set of facts than are penny-pinching private sector outfits.

    • aucklanderinaus

      It could simply be that new bus companies are being less greedy than their predecessors (ie lower performance bonuses to senior management and/or lower sharehold returns/profit margin) or have managed to trim operating costs elsewhere. They may still be offering similar pay as what the drivers used to be getting.

  • This is fantastic news and can only be the result of many years of hard work in trying circumstances by many people. Bravo. This will almost certainly lead to more virtuous circles in AKL PT: better services run more efficiently on newer vehicles will mean more riders which will lead to yet more higher quality services operating even more efficiently. This will deliver more riders to the newly improved core rail network which is also undergoing its own virtuous circle of efficiency: better services, more riders, at lower cost per journey.

    This is how we liberate people from traffic congestion; the careful brick by brick unlocking of potential all across the city. It is very heartening to see AT persevering through this process.

    It is a little ironic that it takes hard work by dedicated public servants to get the privatised part of the PT system to finally deliver its promises: twas ever thus, of course. Competition is always great in theory but often quite hard to ‘discover’ in practice.

  • zer0

    Is there any indication yet as to which routes each company will operate?

  • PeterF

    From the map It looks like the airport service has been downgraded to a connector service from a frequent service. In fact the services in mangere bridge and west of mangere town centre will not improve to any great degree it seems.

  • alan j

    Good results, when is the new eastern network due ?

  • George D

    Lower pay for drivers is going to mean a lot of problems for service delivery.

    • Chris Randal

      One can only hope that those made redundant from the incumbents do not decide to leave the industry and that the successful tenderers can find enough staff

    • aucklanderinaus

      Well it’s all supply and demand. If there’s not enough of them, then their pay rates will need to rise as a result.

  • David Lupton

    The calculation of the net subsidy appears to assume that the same revenue yield will be achieved under the new gross contracting model (where the bus company is paid for running buses) as is achieved with the current net contracts (where the bus company’s revenue comes from carrying passengers). It will be interesting to see if this is the case.

    In the days of municipal bus companies and monopoly route licenses, a large part of the subsidy was “captured” by the unions. Deregulation and contracting did see wages reduce but mainly through more flexible labour terms and conditions.. Requiring new operators to hire the existing staff would re-establish a driver union monopoly at the expense of customers and ratepayers.

    • Chris R

      >>Requiring new operators to hire the existing staff would re-establish a driver union monopoly at the expense of customers and ratepayers.

      Not exacty. If every driver were rehired on the same terms, it would result in exactly the same rate of union membership that we have now.

      Also, I don’t see how it’s a bad thing for drivers to have decent pay and conditions, nor why AT should do the bus companies’ union-busting for them.

  • Tee-Jay M

    Route 30 Manukau – Onehunga via Airport (AT Airporter) was scaled back to a connector route of every 30mins due to funding constraints at this time, it was put to tender as a connector route, however remains will remain in the plan of becoming a Frequent network (15mins or less) when funding allows.

    Similar thing is happening for the East Auckland network, Route 35 Manukau to Botany via Ormiston will be a connector route but when funding allows increased to a Frequent to compliment the route 31 Mangere to Botany via Papatoetoe Stn and East Tamaki which will be a frequent service right from the start.

    Just a run down

    Frequent Routes are

    Single and Double route numbers will be/planned as frequent

    Connector/Local Routes
    are 3 numbers.

    • Bevan

      “when funding allows”. They’ve just saved themselves $3.1 million, so they should use a little bit of that to upgrade the Onehunga-Airport-Manukau route to the every 15 minutes or less Frequent status. Public transport to the airport is not great. The skybus works fine if you’re near it’s catchment, but only links into the train system at Britomart and Mt Eden and it’s expensive compared to normal PT fares. The Route 30 links into Onehunga, Papatoetoe and Manukau stations and would really broaden the ability to PT your trip to the airport.

      It’s funny that we are looking at how to spend a billion or so getting rail to the airport (which I wish was here already), but we aren’t investing in frequent bus connections.

  • “More service” for some but Red Hill is a great example of less service, the route has the same frequency; however now services end at 9:30pm on weekdays and 8:30pm on weekends, despite being running to midnight previously. Dozens of feedback from locals went ignored by AT about the service being to infrequent, and the hours of operation were released post-consultation so nobody could complain about it.

    Another thing that bothers me is that AT still haven’t released the proposed hours of operation for West Auckland, despite my requests and despite every other consultation which ran before or after West Auckland’s consultation already having this provided.

  • Good results, when is the new eastern network due ?