Public transport: fare increases and the weight of expectation

In a story titled Public transport costs race past inflation for Melbourne commuters, The Herald Sun reported yesterday that “fares have risen twice as fast as inflation since public transport was privatised”.

The paper says that since 1999, the cost of commuting has increased by up to $1200 per year.

Yearly tickets have doubled in price. Monthly and weekly tickets have also risen by more than double the 41 per cent rise in inflation in this period. Rises for daily and two-hour tickets have been less steep but still outpaced inflation, jumping 52 to 80 per cent

As usual, I’m gob-smacked at how the mainstream media selectively mix up dollar and percentage figures; blithely show increases but not the starting or ending figures; and don’t show inflation over the period until near the end of the story (it was 48.5%).

I don’t believe for a moment that “fares have risen twice as fast as inflation” as the paper implies i.e. that the average fare has increased in real terms by 100% over the last 14 years (that’d be a 7% per year real increase on average!).

In these sorts of cases, the taboid approach is to identify one ticket type that’s increased significantly in price and then slyly infer the increase applies across the board.

Average fares were increased in real terms this year (6.8% nominal) but, according to this December 2011 report, train and tram fares have only previously risen faster than the rate of inflation on two occasions since privatisation back in 1999 – in 2004 and 2012.

The Public Transport Users Association took the numbers at face value. The President, Tony Morton, is reported in the Herald Sun saying:

Public transport users aren’t getting value for money….We’re now paying twice as much for a system that is by no means twice as good as it was in the 90s, and in some ways worse.

Putting aside the question of  the size of the increase, I haven’t seen any objective data that shows by how much the system is better or worse now than it was in the 90s. It would be an interesting exercise to devise a fair and balanced methodology for assessing the proposition.

Due regard would have to be given to the significant increase in patronage over recent years. The Transport Minister reckons patronage grew by 200 million trips to 536 million over the 14 years. He says many more routes now have more frequent services.

What interests me most, though, is the logic that travellers can’t reasonably be expected to pay higher fares unless they’re offered a proportionate increase in service.

This is a pretty common expectation. If you read the comments on this story, you’ll see there are even users who rely on this sort of argument to justify deliberately evading fares.

The key fact, though, is that public transport passengers in Melbourne (and in Australia generally) pay only a small proportion of the real cost of their journeys.

They pay none of the capital costs and, in the case of rail (the major public transport mode), only around one third of operating costs.

As the exhibit shows, Sydney’s CityRail recovers a similarly low proportion of its operating costs. Moreover, its level of cost recovery is very low compared to its international peer group (CoMET and Nova are groups of rail operators who share benchmarking information).

The NSW Auditor General reported last year that the average subsidy for each rail journey in the state is $10.01.

Revenue from fares is important for public transport but it’s modest compared to total capital and operating costs. An increase in fares obviously can’t lead to a proportional increase in service; not even close.

Even a relatively large one-off increase in fares, like the average 8.6% (about 5% in real terms) brought in at the start of last year by the Baillieu Government, will defray total system costs by only a small amount.

Rather than opposing fare increases, those with a commitment to improving public transport should be arguing for a higher level of cost recovery from beneficiaries.

As I’ve noted before, that would provide more revenue to build a better system, lower the disincentive (i.e. of ongoing subsidy) to governments of building more transit, and be less regressive.

And as I also wrote previously, the rail system alone 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.

Spending more to improve the system is vital. Experience shows system improvements are more likely to lead to increases in patronage than lower fares.

Although it’s difficult politically, increasing fares significantly in real terms on an ongoing and systematic basis must be a key part of any strategy for improving public transport.

Advocacy groups like the Public Transport Users Association should understand the nexus between revenue and better services. They should avoid playing politics and leave the populist stuff to the Opposition!

To genuinely serve the interests of public transport users, advocacy groups should promote a sustained strategy of real increases in transit revenue, including via fares, tied to long-term operating and capital improvement plans.