Is the 9% increase in public transport fares…fair?

Fare revenue per passenger kilometre for selected cities ($)

Many people are outraged that the Government has dared to increase public transport fares in real terms. From 1 January, fares in Melbourne will rise by around 9%, well in excess of the rate of inflation (3.6% for the 12 months to the September Quarter).

From what I can make out, I don’t think anyone is questioning the need to increase revenue for public transport. For all its virtues, the system needs billions spent on things like improved signalling, track upgrades and duplications, more train sets, new rail lines, improved security, and much more. Patronage has grown at around 5% p.a. and that increases costs. Indeed, spending more to improve the system is the key to sustaining increasing patronage.

So the issue is not about the need for more money, but rather about where it should come from i.e. who should pay. Additional revenue for higher capital and operating purposes can only come from a limited range of sources. The main possibilities are:

  • From passengers via fares;
  • From taxpayers generally (by foregoing expenditure elsewhere in the Transport portfolio or beyond);
  • From efficiency improvements e.g. reduced fare evasion, less restrictive work practices;
  • From the beneficiaries of the public transport system e.g. land value capture, levies on city centre businesses;
  • From other transport activities with undesirable side-effects e.g. congestion pricing; levy on car registration.

Each of these sources might be able to contribute something, but the revenue task is huge and there are practical and political limits to how much each can put in.

Fares are an important tool because they directly link supply and demand and they have history. Paying for service is a well established principle in public transport – there are very few public transport systems around the world that don’t charge fares.

Melbourne public transport users already get a pretty good deal – their fares recover none of the capital costs and only 44% of operating costs. Moreover, judged against some other cities, Melbourne’s fares aren’t especially high compared to the cost of providing the service (see exhibit).

The key market for the system is CBD workers who on average are reasonably well paid relative to their counterparts in other parts of the city. Further, a significant proportion of public transport users already benefit from concessional fares.

Those who argue that funding should come from general revenue rather than from passengers don’t always think about what would have to be foregone. They often implicitly imagine it would be at the expense of something they personally see as valueless or negative (new freeway construction is a common target).

But there’s nil guarantee of that. Any such decision would be made by the Government of the day according to its priorities and values. It might come at the expense of a very worthy transport project or it might come at the expense of another portfolio, perhaps a highly emotive one like education, health or community services. This attitude just shifts the problem to somewhere else where it might possibly impact others with less capacity than CBD workers.

In the short term – and this increase will take effect within four weeks – there are really only two choices: raise fares or fund the increase from elsewhere in the budget. In the longer term however there are possible alternatives to future fare increases. Read the rest of this entry »

Do Melbourne’s trams need conductors?

Multi-section Siemens Combino tram - could one conductor handle all this in peak hour?

On the face of it, The Green’s case for the reintroduction of tram conductors looks pretty convincing. They say that for a net cost of just $6-9 million p.a., 1,000 conductors could be placed on all of Melbourne’s 500 odd trams from the first service to the last.

The Green’s proposal rests firmly on the assumption that the presence of conductors would effectively eliminate fare evasion. While it would cost $50 million p.a. to employ the conductors, they would claw back virtually all the estimated $40 million currently stolen by fare evaders.

Fewer ticket inspectors would therefore be needed and there’d be further savings in reduced vandalism and injuries to passengers. The Greens have called on the Government to introduce a two year trial with 100 conductors, targeted at heavily patronised routes like the No. 96.

Given we’ve (theoretically) got an automated ticketing system, my default position is we shouldn’t need the expense of conductors anymore than we still need elevator operators, ushers at the movies, bank tellers, or someone to fill our petrol tanks.

Yet The Green’s proposal is what I call a “what the heck” argument. The logic goes like this: the $40 million is dead money, so we might as well get some value out of it by bringing conductors back. It’s not necessarily the optimum way you’d spend an unencumbered $40 million, but what the heck, our options are limited.

That doesn’t mean it’s necessarily a bad idea. Restoring conductors could potentially provide a range of benefits. As well as checking validations, they could issue short-trip tickets, advise tourists, assist the disabled and provide at least a limited disincentive to vandalism and anti-social behaviour. In my view conductors could also provide an important intangible benefit – they would eliminate the ‘regularisation’ of evasion that is arguably inherent in the existing system.

Indeed, if the net cost really is less than $10 million p.a. as The Greens claim, restoring conductors sounds like a pretty attractive proposition. The idea could be very attractive politically to a Government that wants to demonstrate its bona fides on public transport.

But there’s the inevitable catch. The Greens assume 1,000 conductors because that was the staffing level when the conductor role was abolished in the early 90s and it seems to fit with the size of the current fleet (just under 500 trams) and the need for two shifts per day. However while the number of trams hasn’t increased significantly since the days of conductors, the size of trams has.

It’s doubtful that a lone conductor could make much headway through a crowded five-section Siemens Combino tram carrying 200 passengers in peak hour, while checking mykis, helping passengers and selling tickets. Either larger trams require multiple conductors in the peak – at greater cost – or it has to be accepted that conductors wouldn’t make as big a dent in foregone revenue as The Greens assume.

In any event, even if The Green’s number is accepted, it still under-estimates the number of conductors that would be needed. Due allowance hasn’t been made for conductors getting sick, going on holidays, attending training, and so on. Also, on-costs need to be factored in, as well as administrative support and the cost of equipment like mobile myki readers.

If I assume 1,300 conductors are required at $50,000 p.a., plus 50% on-costs, the aggregate cost is $97 million p.a. (I’ll follow The Greens in also assuming a saving of $10 million p.a. because 100 ticket inspectors would no longer be required, but I’ll add back $10 million p.a. for ancillary costs). That looks pretty expensive compared to the amount of evaded revenue conductors could realistically bring in.

But we don’t necessarily have to adopt the “what the heck” strategy. There might be other ways to recover all or part of the lost $40 million, thereby enabling any recovered funds to be applied to their optimal use. A failing of The Green’s proposal is that it doesn’t assess the alternatives. Read the rest of this entry »