Correction: A calculation error was made in the initial post. These errors have been corrected (original figures shown struckout). The graphs have also been corrected. While these figures still support bus plus train fare integration, given the similar cost per passenger km for those 2 modes, it does make achieving this appear more difficult given that there is no longer a small gap in the fare charged per passenger km for those same modes. Therefore, doing so remains the most likely outcome, but would now require a large (circa 50%) increase in train fares relative to bus fares.
A post published here last week about fare setting resulted in a fair amount of interesting discussion, enough to warrant a follow up, starting with a recap.
When setting fares, one of two approaches can be taken: a cost based approach and a distance based approach.
The first approach is to require fares to represent the cost of providing the service. The more expensive it is to provide that form of transport, the more expensive the fares should be. This uses price signals to encourage passengers to travel on the mode of transport which costs the least to provide. The average cost of transporting a passengers a single km on each of the different modes works out to:
$1.27 $0.96 on a ferry, $0.79 on a train, and $0.59 $0.79 on a bus. This suggests that, given a similar length journey, fares for buses and trains should be equal, while ferries should be about 115% 22% higher than for buses and trains , and fares for trains should be 34% higher than for buses. However, the average fare for a passenger traveling a single km on each of the different modes works out to: $0.41 $0.31 on a ferry, $0.17 $0.23 on a bus, and $0.13 $0.15 on a train. Thus, ferry fares are 141% 35% higher than buses (too high: they should only be 115% 22% higher), while train fares are actually 24% 35% lower than buses (too low: they should be 34% higher the same). Thus, in order to properly represent operating costs, ferry fares would need to be cut by 11% 9% and train fares would need to be raised by 57% 53%, with bus fares remaining steady.
The second approach requires fares to represent the distance traveled by passengers, effectively integrated fares. Two people traveling 1km on public transport should be charged the same, regardless of which or how many modes of transport are used. This ensures that passengers use the most efficient and effective route to reach their final destination, rather than prioritise one that minimises transfers. As previously mentioned, the average fare for a passenger traveling a single km on each of the different modes works out to:
$0.41 $0.31 on a ferry, $0.17 $0.23 on a bus, and $0.13 $0.15 on a train. Thus, in order for fares to be the same for traveling the same distance, ferry fares would need to be cut 59% 35% and trains would need to be raised 31% 53%, with bus fares again remaining steady.
The previous post concluded that if integrated fares was the goal, then it would be easier to achieve fare parity for trains and buses, given the
smaller disparity in fares similar operating cost per passenger km than compared to that between ferries and buses/trains.
Update: The following paragraph was added at 3:03PM, 15 January 2014
However, doing so would require a 50% increase in train fares relative to bus fares. This does not necessarily mean a change in the base fare. For example, much of this is possible via the removal of heavily discounted periodical fares for trains, which account for 45% of train users, that appears to be occurring with the rollout of Opal.
This conclusion is based on certain assumptions which do not always hold up well, some of which have been pointed out in comments to the earlier post.
The post assumes that the fare per km and cost per passenger km are constant within each mode. In reality, these vary wildly based on things like total distance (short trips have higher fares per km than long distance ones), availability of concessions (children/pensioners/students pay a lower fare than working adults), geographic location (highly patronised inner city services cost less per passenger km than sparsely patronised outer suburban services due to costs being divided among a greater number of passengers), etc. As a result, claiming that fares cannot be integrated because one mode costs more than another overlooks the fact that each mode is made up of a number of routes, some of which will have higher costs and some of which will have lower costs.[tweet 421381662245543936 align=’center’]
The figures used also only consider operating costs, and not any capital costs. This is most significant for trains, which require a large up front investment in the form of railways, often underground, whereas for buses and ferries these costs are often small or nil. It could be argued that these are sunk costs: they have already been made and cannot be reversed, so should not be considered in decision making. It is also the case that rail operating costs (2013: $4.0bn) are many times the size of its capital costs (2013: $1.6bn) according to Railcorp (p. 8) But given the billions being spent on expanding and maintaining the rail network, it remains difficult to eliminate capital costs entirely from consideration.
David Caldwell made a strong case in favour of including ferries in any multi-modal fare integration in one of the comments to a post he wrote about Opal back in 2012. It’s too long to replicate in its entirety here, and the post itself is even longer, but both are definitely worth a read.
Finally, there is also the possibility that different modes of transport may retain their differing fares, but with only a single flag fall per journey. The dual standard currently applied by Opal is worth noting here as currently two trips made one after another are considered a single journey for the purposes of reaching the 8 journey per week level after which all travel is free, yet each trip within that journey has a separate fare. Each of those fares has a flag fall component (akin to the $2.50 flag fall paid to a taxi driver for merely boarding the taxi) and a distance component (which increases roughly in proportion to the distance traveled). It would be quite achievable to remove the flag fall, but retain separate fares for different modes.
The argument here that Treasury would be opposed due to the loss of fare revenue is valid. But Treasury has already appeared to have lost that fight on single mode fare integration, given that the fare for two bus trips is now calculated as though only one was used. However, this was likely achieved because the distance component of bus fares is the same for all buses, and so it would be difficult to extend this to other modes until two or more modes have similar fare calculation methods.
That is why the previous post recommended that buses and trains adopt similar fare bands. This is easiest for buses and trains because the disparity in fares between them (24%) is much lower than that for ferries and buses (59%).