Managing public transport: Commercial profitability and social service

Transpn. Rex-A Vol. 2lA. Printed in Great Britain.

No. 2. pp. W-125.

1987

0191-26n7/87 s3.00+ .lxl Per&mm Journals Ltd.

MANAGING PUBLIC TRANSPORT: COMMERCIAL PROFITABILITY AND SOCIAL SERVICE P. H. BLY Transport and Road Research Laboratory, Crowthorne,

Berkshire RGll

6AU, England

Abstract-In the past 20 years emphasis on the social role of public transport has grown as transit has become more subject to the direct intervention and financial support of external authorities. It is rare for the social objectives to be specified in a way which translates clearly into quantifiable targets, and the transit operator is left to tread an ill-defined path between commercial objectives and the wider social requirements. This paper examines the range of objectives of public transport policy, and the difficulties of ensuring maximum efficiency and effectiveness when much of the revenue comes from subsidies and when the goals are poorly specified. It discusses management information and operating strategies in relation both to commercial considerations and to satisfying social objectives. Particular reference is made to the changes which will follow deregulation of stage bus services in the UK.

1. INTRODUCTION Managers who have spent all their working lives in public transport might be forgiven for feeling that life used to be simpler in the old days. A rather

oblique indication of the complexities which have crept into the business is the growth of subsidies: a quarter century ago subsidies covered a negligibly small proportion of public transport costs in most cities, whereas today public subsidies are larger than fare box revenues in several countries (Fig. 1). This growth of subsidies is an indicator of the extent to which the operator now has to deal not only with his direct customers, the passengers, but also with various layers of government whose objectives go far beyond those of transporting people in the shortest time and at the cheapest price. Of course, public transport services have rarely operated wholly commercially in the sense of refusing to serve all unprofitable customers. Even those prime examples of speculation for gain, the nineteenth century railways of Britain were required by Act of Parliament as early as the 1860s to provide cheap workmen’s fares in return for their monopoly powers. In this century, almost all countries have found it necessary to regulate and control public transport operators, partly in the interests of safety and to avoid wasteful duplication of services, but also to ensure that, in return for monopoly privileges, the operator would provide services in unprofitable areas as well as profitable ones, cross-subsidising the former from the surpluses of the latter. How much unprofitable service an operator should provide was rarely made explicit, depending rather on informal understandings administered by regulating agencies with power to control fares and levels of service. Given the difficulties inherent in identifying the size of cross-subsidies, because of problems of joint costs, avoidable costs and lost or transferred revenues, vagueness in the requirements is hardly surprising. Acceptability of an operator’s performance rested on largely subjective judgements of whether,

given the revenues received, the operator might reasonably be expected to provide broader service coverage. Provision of direct subsidies by various levels of government has greatly emphasized the role of the operator in fulfilling social, as well as commercial, objectives. In principle this direct purchase of services for the social good might be expected to have resulted in a clarification and quantification of what was expected from the transit manager, but as we shall see the translation of these wider objectives into workable operating targets has all too rarely been achieved. This paper discusses the problems which this shift of emphasis has caused for transit management, and the difficulties the transport authority faces in converting social objectives into operational guidelines and in ensuring that transport services are produced as efficiently as possible. The examples given are concerned mostly with stage (local) bus operation, but many of the principles discussed apply equally to rail services. Section 2 reviews the objectives of public transport policy, and the evidence that subsidy may have encouraged inefficiency. The need for both transit management and external authorities to monitor costs and productivity is then discussed in terms of management information, objectives and strategies: in Section 3 these themes are related to matters internal to transit operation, and in Section 4 to societal goals. Section 5 considers mechanisms for subsidizing which avoid giving encouragement to inefficiency, and discusses the extent to which competition might reduce costs, with reference to the 1985 Transport Act in the UK.

2. SOCIAL OBJECTIVES AND PROBLEMS OF SUBSIDISATION

A study of subsidisation for the European Conference of Ministers of Transport (ECMT) circulated member countries and asked, amongst other things, 109

P. H. BLY

110

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Australia ---Belgium -------_--_.Canada -France *=O....O....O..Greece .-O--O--O-m--m--m,-z-

New Zealand NorwaY

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FInland (Athens Ireland Italy Netherlands

only)

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60

1975

1980

1982

Year

Fig. 1. Trends in public transport subsidies in a number of countries.

for the objectives of their urban transport policies. Of course, subsidy is not a necessary consequence of public transport policy, but the very wide range of reasons given, either explicitly or implicitly in their policy justification, probably encompassed all the aims of wider transport, policy found in nonsubsidy, regulatory policies. These aims, and the aims identified in a variety of other material examined in the study, were summarised in the following categories (Bly et al., 1980): 1. To create a better and safer environment in towns (less congestion, pollution and visual intrusion) by achieving a modal split which is more favourable to public transport. 2. To create a more efficient, less costly and energy-saving solution to urban transport. 3. To preserve the existing form of towns, either for aesthetic reasons or simply because people have grown used to them as they are. 4. To make the best use of existing public trans-

port infrastructure and the services already provided. To maintain a “viable” public transport service for the benefit of those who do not have an auto available to them, as a standby for existing auto users and as an insurance against the future. To satisfy specific transport “needs” (of the old, the young, the handicapped, people in remote areas, etc). To avoid a sense of “unfairness” felt by captive users as services become dearer and less convenient, through no fault of their own. Most transport authorities quoted more than one of these objectives as underlying their decision to subsidise. All of them except objective 7 require that subsidising the services will attract more riders. Reasons 1 to 3 require that some of the additional users will be transferred from private auto use, and the benefits obtained under these headings constitute

Managing public transport the “externalities” of an economic cost-benefit assessment. Achievement of these objectives depends upon the amount of modal transfer which can be achieved. Public transport, especially rail, is clearly competitive with private autos for peak-time travel into the congested centres of large cities, but in most areas there seems to be relatively little use of bus services by drivers with autos available even when the fares are greatly reduced (see, for example, Dasgupta et&. , 1985). Better and cheaper transit attracts appreciable proportions of erstwhile auto passengers, but in most circumstances its ability to achieve a reduction in private auto use seems to be very limited. Reason 4 corresponds to social welfare obtained by increasing demand where there are economies of scale to be gained: if subsidy can be used to fill spare capacity in the existing services considerable consumer surplus (i.e. the benefit to the customers beyond the price they have to pay for travel) can be obtained at very little cost. The cooperative nature of public transport makes services better the more they are used, since frequency and route coverage can be increased and the access times reduced for all users. Consequently, net benefit can be obtained from subsidy even when additional capacity has to be provided to cope with the increased demand, unless the level of subsidy is very high (see Glaister, 1984, Gwilliam, 1984, Bly and Oldfield, 1986). Objectives 5 and 6 simply require that subsidy be used to provide service in areas where it would otherwise not exist, or to improve very poor levels of service to a degree where they become much more useful, or to provide fare concessions for specific groups of people. The extent to which additional service or fare concessions can be bought by subsidy is easy to determine, but it is also necessary to assess the extent to which subsidy is justified by the “needs” of the passengers served. Identification of “needs” is fraught with difficulty since the term is so elastic, and no simple basis is satisfactory for such assessment. The link between subsidy and objective 7 is also direct: by reducing fares and/or improving services, subsidy can obviously ameliorate the sense of unfairness of captive users who see that the proclivity of their more affluent neighbours to use private autos is degrading their own transport services. Here again, the difficulty lies in determining the extent to which the expenditure can be justified, and the sectors of population at which it should be aimed. It would be extremely difficult to translate these various objectives into operational goals even if there was universal agreement on the extent to which cheaper and better public transport was able to achieve them. On the whole, the subsidising authority tends to sublimate the specific objectives into a much vaguer policy view that some level of subsidy is desirable, often with an eye to what is being done elsewhere, and possibly with the requirement that certain non-viable services be retained. Without specific guidance on how service provision should be

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shaped by the wider objectives, the operator has little alternative but to treat the non-specific subsidy as an offset to his costs, and provide services according to principles which are much the same as they would be for purely commercial operation, except perhaps for a generally wider coverage. Clearly, this approach is unlikely to ensure the most effective use of subsidy. Once it has been decided what services should be operated, transit management’s task is to operate them as efficiently as possible, reducing costs to a minimum consistent with satisfactory operation. Since public transport is heavily labour-intensive it is to be expected that costs will rise over time as wage levels increase, for although there has been a general improvement in productivity, measured in terms of vehicle-kms operated per employee, in most countries it has not been sufficient to offset increases in labour costs. Average costs per vehicle-km operated were increasing relative to prices in the great majority of 117 (mainly bus) operations surveyed by Bly and Oldfield (1985), at an overall average of 2.5% per year over the decade 1970-80. Statistical relationships between high levels of subsidy and relatively high unit costs and low levels of productivity, or between increases in subsidy and increases in unit costs and reductions in output per employee, have been identified using data from North American transit operators by a number of US researchers, most recently Anderson (1983), Pucher, Markstedt and Hirschman (1983), Cervero (1984) and Pickerel1 (1985), and in data from a number of different countries by Bly and Oldfield (1985). The relarionships have been measured both in cross-section between different operators, and over time as the level of subsidy has increased. Of course, statistical investigations of this type cannot ascribe cause and effect, and in these cross-sectional studies unit costs are dependent on a host of other factors so that the linkage with subsidy explains relatively little of the observed variation. Nevertheless, the identified connections are potentially important since if subsidy were to discourage efficiency the benefits which flow from subsidy would be undermined. Many of the relationships were found to be highly significant statistically, and the general pattern of findings across the studies is robust. Undoubtedly, part of the linkage is due to cost increases or reductions in productivity, for reasons quite unconnected with subsidy itself. This connection is not necessarily as benign as it might appear, however, since a strong link from costs to subsidy, whereby subsidy is readily increased to compensate for higher operating costs, would suggest that subsidy is not always directed to those aspects which best meet the objectives of the passenger. But there is also evidence that the linkage operates from subsidy to costs. Bly and Oldfield (1985) identified time lags which suggested this direction, though the evidence was not strong. It is also interesting that American studies have suggested that dedicated taxes have a stronger effect

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I’. H. BLY

than less automatic sources of funding (Pucher, Markstedt and Hirschman, 1983, and Cervero, 1984). All of this suggests that, if subsidy is too easily come by, efficiency is likely to suffer, a proposition which is unlikely to be novel to most people, even though the evidence about links between subsidy and efficiency has often been contested fiercely. The extent to which subsidy is likely to undermine management incentives appears, from the studies cited above, to be dependent on the mechanism for providing subsidy. If the subsidising authority is willing to provide subsidy without attempting to identify what the subsidy has achieved, or to make provision of more subsidy dependent in some way on previous performance, it can hardly complain if management opts for the quiet life and allocates more of the available money into higher wages and easier operating conditions for the staff rather than improved service for passengers. At the same time, a management which is genuinely keen to improve efficiency finds its bargaining position undermined if it is well known that the financial viability of the undertaking will be guaranteed regardless of efficiency. What is needed is a subsidy mechanism which makes support dependent on performance and a close monitoring of trends in costs and output by both transit management and the subsidising authority. The required degree of control and assessment of performance depends upon the quality of the information available from the undertaking, and on the provision of explicit operational objectives which can encompass the wider social aims of the subsidiser or transport authority. 3. MANAGEMENT

INFORMATION

The extent to which management needs a formal system of organised information depends upon the size of the operation. A manager of a small number of buses is likely to have the sort of detailed personal knowledge of all aspects of operation which renders an elaborate system of performance indicators unnecessary. Even for quite small operations, however, collection of the basic statistics will provide a check on subjective impressions, while for larger operations some form of information system is essential to enable management to keep track of performance in all its aspects, especially where day-to-day management is delegated to individual sub-centres so that central management has to rely on a flow of information from the individual operating districts. Computerised data handling has offered greatly increased capacity for analysing and displaying information, and at the same time the involvement of various levels of government in transit operation has generally increased the demand for statistics to inform and justify their transit decisions. But even though the data handling may be computerised, the information which has to be fed into the system is costly in staff time and resources, and these extra

costs have to be justified by the value of the information in assuring better decision making. Moreover, the flood of information which computerised systems can produce will be counterproductive if it is so badly organised that the lesser detail is allowed to submerge the really important aspects of operation. Selectivity in deciding what data to collect, in presenting it to different sectors of management, and arranging it by priorities, is essential if the net effect is not to be merely the addition of an extra layer of cost to the larger undertakings. Studies and reviews of performance indicators have been made by, amongst others, Fielding et al. (1978), OECD (1980), the Institute of Transportation Engineers Committee 6F-22 (1982), and Fielding, Babitsky and Brenner (1985). Naturally, a very wide range of measures are in use in different operations, and in recommending particular indicators the OECD Road Research Group emphasised the importance of tailoring the package to the circumstances and needs of the individual operation. Table 1 summarises the indicators recommended by the OECD group for four different types of application (labelled I, C, P and E in the Table): internal assessment of performance trends within a single operating unit (I); comparison of performance between different operating units or divisions within the company (C); service planning to estimate the implications of service expansion or contraction (P); and, finally, comparisons between different operators by an external authority (E). Smaller operators would have less need, and smaller ability to pay, for collection of the entire range of information, and a small sub-set is indicated by an asterisk as being essential at all levels. Most of the indicators suggested by the other authors are represented in Table 1, if not in the same form then in a closely similar definition. Fielding et al. (1978) emphasize seat-miles as an alternative to vehicle-miles (vehicle-km), as is common practice in many Continental European countries also, though this indicator can prove misleading if increases in vehicle size suggest improvements in productivity as measured by seat-miles/employee, for example, which are only genuine gains insofar as vehicles are likely to become full. Otherwise, passengers are more interested in the frequency with which vehicles arrive than the frequency with which seats or vehicle capacity arrives. Fielding et al. (1978) also refer to indicators measuring energy consumption because transport energy was a preoccupation of the time, though the issue has been generally downgraded in public transport policy since then, and as far as management is concerned energy costs play a relatively minor role in decision-making. The indicators examined by the Institute of Transportation Engineers Committee (1982) are almost all included in the OECD set, but their report remarks on the very wide range of indicators found in North American transit operating practice.

Managing public transport 3.1 Assessment by external authorities Where indicators are used in assessment by external authorities, who may have to deal with several operators, some form of standardisation is obviously desirable. Since 1979 the US Urban Mass Transportation Administration (UMTA) has collected a wide range of comparable statistics from all transit applicants for federal operating assistance under Section 15 of the Urban Mass Transportation Act of 1964 (as amended). Section 15 has provided a reliable database covering over 300 operators and has been the subject of analyses by many American researchers. Moreover, the US Surface Transportation Assistance Act of 1982 requires the Department of Transportation to make triennial audits of all the transit agencies, using sets of performance indicators of the type described in Fielding, Babitsky and Brenner (1985) which are based on Section 15 data. In many countries, rather more limited sets of data are collected by Government from public transport operators, and extracts of comparable data are published in statistical year books, as in the case of the French Ministry of Transport’s “101 Reseaux de Transport Urbain”. In other countries, collections of comparable statistics are made by operator associations, such as the Italian Confederation of Local Public Transport, CISPEL. Collection of comparable statistics provides an extremely useful database, but overemphasis on standardisation of indicators intended primarily for internal consumption may be counterproductive, since the main requirement is to suit definitions to the operator’s individual needs and practices. Where comparisons are to be made, it is obviously easier for central management to make comparative assessments across different operating divisions than it is for an external authority to compare different operators. The external authority may have to contend with statistics measured in rather different ways, and can only hope to make comparisons at a very aggregate level, perhaps grouping different systems into peer groups according to fleet size, peak/ off-peak operating ratio and speed, as suggested by Fielding, Brenner and Faust (1985). But cross-sectional comparisons, whether external or internal, have to be made cautiously in full acceptance of the fact that differences in apparent performance may be due to different operating conditions and requirements rather than to genuine differences in efficiency. Discrepancies should be investigated, of course, to see whether apparent differences in performance can be defended by local management, or whether some corrective action should be taken. Thereafter, the most realistic approach is probably to monitor trends in the various performance indicators, taking action where unexplained variation in relative performance seems to occur. Exchange of information with authorities in other areas is also helpful to ensure that performance in one place is not declining below the norm.

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3.2 Financial information Generally speaking, management information concerning costs and service production has always been reasonably good, even if on a less formalised basis than the recommended indicator packages. There is considerable literature on the costing aspects, and many different methodologies are in use (Kemp et al., 1981). There have been attempts to achieve some degree of standardisation in particular countries. The US Uniform System of Accounts was introduced by the US Department of Transportation (1979), while the Chartered Institute of Public Finance and Accountancy (1974) has recommended a standardised approach which is widely used in the UK. Even so, and perhaps inevitably, there is still considerable variation in costing practice between operators in each country, but at least the evolution of such methodologies has encouraged a more systematic approach to cost allocation and estimation. These methods have greatly improved the accuracy with which the costs of proposed new services can be predicted, and have thrown considerable light on discussions between operators and subsidising authorities about the viability of individual routes.

3.3 Ridership information Information about ridership is much less satisfactory, except insofar as it is represented by total farebox revenue. The relationship between revenue and ridership has tended to weaken almost everywhere as fare systems have become simplified and less discriminating: distance-graduated fares systems have become coarser, have given way to zonal fares schemes, or in many places to flat fares. As Webster (1976) has shown, management’s incentive to move towards simpler fares schemes, which can reduce boarding times, increases as the percentage of operating costs covered by fares decreases, but this trend in fare collection also represents a general desire to make transit more “accessible” to the passengers, with simple and easy-to-understand ticketing. In many cities, a large proportion of ticket sales has moved off the vehicle altogether, as is perhaps best exemplified by the Dutch “strippenkaarten”, multi-ride tickets which can be purchased from a large number of shops and kiosks for use on buses and trams anywhere in the country. The system is certainly convenient, but as the Dutch authorities are finding in their investigation of the effects of a series of fares increases (Ruhl et al., 1985) ticket sales provide little information about what sort of passengers use what sort of services, so that extensive passenger surveys become necessary. This may not be a bad thing, since surveys, either on vehicles or at stops, can provide more detailed information than could be gleaned from analysis of revenues from even the most discriminating system of fares. If properly used surveys may produce dividends in improved demand forecasting, service planning and

fs Y f f f f Y Y f f fb fb

Accidents/incidents

Categorisation of fleet by vehicle-type, capacity, age Number of breakdowns in service per ~'000 vehicle-km Lost vehicle-km due to unserviceable vehicles Frequency of failure to provide vehicle for service

Mean out-of-service time per vehicle Spare vehicles/required fleet size Categorisation of faults by type, vehicle type/age/kms Maintenance workers per vehicle Cost/quantity of materials per maintenance employee Number of vehicles serviced per maintenance employee by type of work Number of vehicles cleaned to standard per cleaner

SAFETY

MAINTENANCE

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Lost vehicle-kms - categorised by cause: missing staff, missing vehicles, congestion Proportion of vehicles beginning duty more than x minutes late Measure of deviation from schedule, or measure of average passenger-waiting time Measure of vehicle load: % of vehicles full or passenger-km/seat (capacity)-km Letters of complaint

SERVICE RELIABILITY

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renewal Maintenance productivity

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Vehicle reliability affecting service reliability

Indicator of waiting time for high frequency services only.

Fleet size planning

Vehicle utilisation Schedule speed Schedule efficiency

t

APPLICATION+

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T

in OECD, 1980)

Vehicle-"ours and kilometres Vehicle-hrs/vehicle OP vehicle-kms/vehicle Vehicle-hrs (km)/vehicle crew or vehicle-hrs (km)/employee Revenue vehicle-hrs/total vehicle-hrs (km) Revenue vehicle-kms/revenue vehicle-hrs Crew-hrs paid/revenue vehicle-hrs Peak vehicle requirement/vehicles in service between peaks Mean numbers of transfers per passenger Spare vehicles/required fleet size

INDICATOR

Table 1. Indicators of public transport performance (based on recommendations

SERVICE PRODUCTION

ASPECT OF INTEREST

IPCE IC I CE IC IC IC IC I E P P I CE IC IP E IC I CE IC IPCE IC

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indicator is considered to be part of a basic minimum set

For revenue prediction

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Occupancy

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I

For fleet renewal

between staff

I Balance

APPLICATION+

internal assessment comparisons between different operating divisions service planning external assessment and comparison of different operators

l:

to to to to

indicator indicator indicator indicator

relevant relevant relevant relevant

indicator may vary fairly rapidly, examine at frequent intervals indicator likely to vary slowly, examine annually seasonal variation likely comparison with budget, schedule 01‘ standard may be necessary peak/off-peak variation may be of interest

I: c: P: E:

f: Y: S: b: P:

Passenger journeys AND (preferably) passenger-kms categorised by ticket type, value, journey length Passenger-kms/vehicle-hr or km (passengers/vehicle-hr. km) Passenger-kms/employee (passengers/employee)

RIDERSHIP

+NOTES ON APPLICATION:

Revenue/cost ratio (categorisation of revenues) Revenue per vehicle-hr or km Fare index or revenue/passenger or passenger-km, relative to prices Per cent of tickets inspected, per cent evasion or fraud

REVENUES

T

Average cost per vehicle-hr (preferably) or‘ vehicle-km Operating costs and capital investment versus budget Cost categorisation: unit costs per vehicle-hr, per vehicle-km, per vehicle; variable, semi-variable. fixed Cost per employee Payroll cost as a proportion of total cost Engineering cost as a proportion of total cost Administration cost as a proportion of total cost Cost per passenger-km (preferably) or per passenger Maintenance cost per vehicle or per vehicle-hr or km, by vehicle type/age Running cost (fuel, oil, tyres)/vehicle-hr or km, categorised by vehicle type/agf

INDICATOR

COSTS

ASPECT OF INTEREST

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P H. BLY

market segmentation (see, for example, Haywood and Blackledge. 1980). Although, surveys to collect information on patronage are costly, less costly approaches to obtaining some of the information are offered by developments in electronic ticketing equipment. These have provided a wide range of machines for selling individual tickets on vehicles, with automatic recording of boarding point, time of day, service used, passenger type and fare paid, and with facilities for transferring the recorded data directly to a computerised analysis (Mellor, 1985, or Goldsack. 1984). Application of the same principles to off-bus sales is straightforward with a flat-fare system. since the on-vehicle ticket canceller can store information about the types and number of journeys made, though not about their lengths. Information on journey distance, and the use of tickets bought off the vehicle in any graduated-fare system, requires monitoring of tickets on both boarding and alighting, though some coarsely-zonal systems require that passengers cancel a number of tickets in proportion to the number of zones travelled (as with the Dutch Strippenkaart), with random inspection to deter overriding. Ultimately, the way to go seems to be towards some form of stored-value ticket. which is decremented for each journey made. The Washington Metro has used such a system for some years (with, admittedly, considerable initial teething troubles), and Cubic Westinghouse’s similar system for buses, “Smartpass”, is now in use with several US transit systems. If a sufficiently convenient system of monitoring the ticket at both entry and exit could be devised, distance-discriminating fare systems could be used without any disadvantage in boarding times or inconvenience to passengers, and the stored information would provide considerable detail on patterns of use. Such a system presents certain practical difficulties concerning space for the machines and passenger flows, but systems requiring ticket cancellation at both entrance and exit are in use in Japan. 3.4 Service reliability Although service production is generally monitored fairly well, service reliability is difficult to measure and interpret, yet it is of obvious importance to passengers. Kilometres or miles lost from schedule are normally reported, yet even services containing the full complement of scheduled vehiclekms can sometimes be hopelessly irregular. Passengers are more affected by deviation from schedule in a long headway service (over ten minutes, say), or by the distribution of intervals between vehicles in a short headway service, than by lost vehicle-kms. It seems likely that passengers are particularly responsive to changes in service regularity or reliability, and it will pay management to go to some lengths to maintain this at as high a level as possible (Bly, 1976). Gault and Doherty (1979) review several different methods of constructing indicators of serv-

ice reliability. London Regional Transport, whose services are often severely disrupted by traffic congestion. operate a sophisticated procedure for service monitoring reliability. with “excess passenger waiting time”, beyond the wait expected if buses ran exactly to schedule, calculated from the observed distribution of bus intervals and attributed to buses missing from service or to traffic congestion, as appropriate (Fairhurst, 1979). Such disaggregation of unreliability indicators by cause, missing crews, mechanical defects or traffic congestion, even if only on the basis of the simple lost kilometres indicator, can be useful in discussions with local authorities to establish cases for priority treatment of transit, or other corrective action, in traffic management schemes. On the other hand, consistent loss of scheduled service because of congestion may indicate unrealistic scheduling. 3.5 Prediction Systematic analysis of information on ridership, fares and service can greatly refine management’s ability to predict the outcome of proposed operating changes, and therefore to select the best options. These predictions hinge on reliable estimates of demand elasticities, and although a useful body of generalised evidence on elasticities is available in the published literature (Webster and Bly (editors), 1980; Mayworm et al., 1981) demand elasticities are inherently variable from one situation to another, so that global generalisations are no alternative to local experience and analysis. This is especially true of the effect of service changes on patronage, since this is likely to vary with service frequency and type of area served. In many operations fares are constrained more tightly than service, since fare levels are often the subject of close political scrutiny, but in principle increases in fares can be traded off against reductions in service to achieve a given financial target. Different balances between fares and service will result in different total ridership, and there will always be one optimum combination which comes closest to the operator’s objective, whether this is maximising ridership, or passenger-kms, or net profit; thus separate constraints on what fares can be charged, and what service should be offered, will not in general achieve the most desirable result. Some general principles regarding the relationships between demand elasticities under the objectives of maximum ridership or maximum profit are given in “The Demand for Public Transport” (Webster and Bly (editors), 1980). These suggest, for example, that for maximum ridership the level of fares and the amount of service operated should be adjusted until the elasticity with respect to fares is roughly equal to the elasticity with respect to the number of vehicle-kms operated multiplied by the revenue to cost ratio. Given the simplifying assumptions used to obtain these relationships, they can be taken as only a very rough guide to the correct balance, but much more detailed modelling of transit

Managing public transport operations, including representation of the impact of service peaks on costs, occupancies and passenger waiting times, suggest that these simple relationships can provide quite a useful guide (Bland, 1982). The practical difficulty in assessing the desirable balance lies in obtaining reliable estimates of the demand elasticities, especially elasticity with respect to the level of service operated. An easier check lies in the concept of generalised cost, whereby the time passengers spend travelling is costed at a rate which reflects the willingness of passengers to spend extra money in order to reduce their travel time: typically, time spent in-vehicle is costed at a quarter to a third of average hourly pay rates, while time spent walking to the route may be costed at one and one-half to twice the in-vehicle rate, and time spent waiting at two to three times the in-vehicle rate. Theoretical considerations suggest that, for maximum ridership, route coverage and service frequencies should be such that, on average, the cost of the time spent walking to the route should equal that of the wait time, and both should equal the average cost per passenger. Again, these relationships cannot be expected to hold exactly, but they provide a useful rule of thumb for identifying situations which seem far from balance. Such considerations, embodied in a cost/benefit model of public transport subsidies (Glaister, 1984) suggested imbalances between fares and services in some of the large urban transit operations of the UK which have been generally acknowledged and later corrected.

4. THE

WIDER

SOCIAL

OBJECTIVES

The previous section was devoted to the information which management would require for monitoring performance and for forward planning even if its concerns were purely commercial. In practice it is rare for a transit company to be able to operate without one eye towards the “public service” aspects of transit provision, which will modify its “commercial” decisions to a greater or lesser degree. The information discussed above is obviously relevant to these wider considerations also, but many of the reasons underlying the provision of subsidy, as described in Section 2, require examination of information which lies altogether outside the realm of the operator. For example, objectives which require transfer of travel from private to public transport can be monitored only by assessing the degree to which that shift has been accomplished, and hence the extent to which congestion, pollution, and the distribution of activities (and ultimately land use) have been affected. The operator might survey passengers to determine how many say they have transferred from autos, but such information is likely to be misleading since new passengers are gained and old passengers lost continually, for a variety of reasons, and a comprehensive assessment can best be done by the local authority. The exercise is likely to be both difficult and costly, involving as it must some

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form of personal survey. The achievement of objectives relating to provision of services for those who have no private auto available, and whose mobility might otherwise be severely restricted, is perhaps easier to assess in the sense that one can identify the additional services bought by subsidy, but a proper justification would require an identification of the types of people who use them, and consideration of what they would do without them, so that the benefits can be judged against the costs. The local authority may also wish to assess the redistributive implications of transit financing, perhaps comparing indicators of the distribution of both benefit and cost across different income groups (Roth, 1982). The information required for all these assessments is generally outside the operator’s experience. Fielding et al. (1978) considered revenue passengers per service area population, and percentage of population served (i.e. within l/4 mile of a transit route), as global indicators of the “effectiveness” of a service, but they also acknowledge the deficiencies of such simple measures. Use of subsidy to improve the mobility of those with no auto available requires the targetting of service at particular groups of people, not the entire population, while the use of simple definitions such as population within l/4 mile of the route ignores both the degree to which the nearest service actually serves the needs of the population in terms of level of service or the destinations available, and the fact that access distance to the route is only one component to be traded off against frequency and fares, so that rigid requirements about maximum access distances are likely to result in inefficient service provision. The OECD Research Group (1980) recommended as more global indicators the items listed in Table 2, but the crux lies with the last entry, special surveys for specific objectives. If the controlling authority is to be able to judge the success of its policies, an essential preliminary is that the objectives be defined as clearly as possible, and translated into terms which permit measurement. Attention can then be concentrated on specific indicators appropriate to the objective, and special studies mounted as necessary to obtain the required data. In practice this has hardly ever been done, partly because such studies are difficult and expensive, but largely it seems because the objectives are rarely formulated in a way which would permit a quantitative assessment. It is surprisingly rare for a subsidising authority to take even the basic step of estimating how many additional passengers it has gained from general operating subsidies, despite the usefulness of indicators such as subsidy per additional passenger attracted for putting the costs of the policy into perspective. The much more difficult step of translating passenger gains from subsidy into the wider benefits anticipated in the subsidiser’s objectives is universally lacking, and the belief that such benefits will indeed accrue seems to rest largely on acts of faith.

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P. H. BLY Table 2. Indicators for assessment of social objectives (based on OECD, 1980) Number of trips per inhabitant by area Vehicle-kms per inhabitant by area Proportion of population within l/2 km of service

Service coverage to assess equity

Demographic characteristics, by area: car ownership income&Et3 elderly persons to assess ‘need’ school children Accessibility measures I Modal split To assess total transport Traffic flows, congestion delays, parking difficulty effectiveness and environmental Energy use by mode factors Snecial survevs for soecific obiectives

4.1 Objectives of subsidy Gwilliam (1984) gives a good review of the theoretical effects of subsidy, and discusses the likely importance of them. His general conclusion is that the major contribution to the economic benefit obtainable from subsidy will come from objective 4 listed in Section 2: making maximum use of existing public transport infrastructure and the services already provided, by virtue of being able to fill spare capacity and so capture economies of scale, or, if some additional capacity has to be provided, by the improvement in service enjoyed by the existing passengers as well as the new ones. Objectives 1, 2 and 3 require appreciable modal shift from private auto to transit and the available evidence suggests that in most situations even very good and cheap transit will not persuade those with an auto available to forsake it (Bly, 1985). This is generally true, but it should not be overstated, since there are obvious cases where it plainly does not apply. For travel into the congested centres of large cities, where low road speeds and difficult and expensive parking greatly reduce the attraction of the automobile, a large proportion of transit users, and especially rail users, have opted for public transport rather than auto. Computer modelhng of travel into Central London, for example, suggests that transit subsidies could achieve worthwhile external benefits from the modal shift it would encourage (Lynam, 1974, and Oldfield, 1979). In economic terms, social welfare would be maximised if passengers were charged the marginal social cost (i.e. ,the extra operating cost their carriage incurs, plus any external social costs caused by the extra congestion, pollution and intrusion). Since it is generally concluded that in congested areas auto users pay less than their marginal social cost, the best balance overall would require the imposition of extra charges on auto users to ensure that they pay the full marginal social costs. This approach has not yet been introduced in any comprehensive way be-

cause of the practical and political problems: indeed the technically-interesting road-pricing scheme in Hong Kong has recently been dropped as politically unacceptable. Blunter controls in the form of parking restraint and pricing operate in most cities, but in many cities it is considered that the desirable balance between transit and auto can be achieved if transit users, as well as auto users, are allowed to pay less than their marginal costs. Such “second best” pricing is often quoted as a justification for subsidy. However, it is not likely to be a strong argument in most areas since the cross-elasticity between auto and transit is generally very small. But even without consideration of second best, margmal cost pricing of public transport in order to maximise the welfare of its consumers by making best use of available capacity would normally require subsidy (Nash, 1978). Since public money is limited and there are many other demands on it, and the raising of public money has a cost in itself in terms of redistribution of wealth and overall economic efficiency, it is generally impracticable for the amount of subsidy made available to equal that required to maximise welfare in this one particular field. The authority will have to decide how much subsidy it is prepared to allocate, given its other commitments, and then the question is how to obtain most benefit within this ceiling. Theoretically, for a set rate of return on cost (i.e. for a given proportion of profit or subsidy), economic welfare is maximised if the prices charged in different markets are such that surplus of price over marginal cost is inversely proportional to the elasticity of demand: thus if the demand elasticity is low the prices charged should be high, and vice versa (Baumol and Bradford, 1970). Even in the absence of social considerations this approach underlies the market segmentation used for discriminatory faresetting. This has tended to characterise longer-distance public transport-rail, air travel and express buses--rather than urban transit, where for some

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Managing public transport reason, whether convenience or apparent equity, the universal tendency has been to impose a uniform fares structure. For a given financial constraint, market pricing can certainly provide a greater net benefit than uniform fares, though if carried to extremes it can produce an extremely complex fare system. British Rail is currently simplifying its system, which had become segmented to the point where, with some hundreds of different types of fare, it was confusing to both staff and passengers. The economic theory can be instructive, but transit management needs a simpler and more transparent objective than the maximisation of some abstract economic benefit-to-cost ratio, especially when economists often disagree about the details of the calculation. Maximisation of passenger-kilometres, subject to the budgetary constraint, is a relatively simple target which has considerable appeal, and this has been the operating criterion of London Transport for over ten years. Each pound of expenditure is considered justified if it attracts more than a certain “passmark” of passenger-kms, and conversely a cut in service is justified if for each pound saved the number of passenger-kms lost is less than the passmark (inevitably, in practice proposed cuts in service are sometimes subject to considerations other than this). Glaister and Collings (1978) have compared the performance of this criterion with that of a fuller economic optimisation, and although they are rather lukewarm about the use of the simple target they concede that, provided the target is not interpreted too naively, the losses in welfare relative to a proper economic optimisation are likely to be small. The caveat about over simple treatment of the target refers to the fact that the trade-off between passenger-kms and cost should be different for different types of passenger. For economic welfare maximisation the passmark should depend on the demand elasticities and marginal costs which are likely to vary between different services. However, as noted in Section 2, many of the objectives of the subsidising authority go beyond the welfare of the actual consumers to embrace the welfare of society in general, via traffic congestion, the environment and urban form. The implication of the different objectives is that different valuations should be placed on the different types of passenger attracted to the service. For example, where the objective depends on transfer from auto a higher valuation would be placed on auto-available travellers (so that this perfectly commendable objective requires a regressive distribution of subsidy benefit). Similarly, higher valuations would be placed on serving “mobility-deprived” people (however this might be defined) if the aim were to meet their needs. Glaister and Collings (1978) express doubts about the practicality of converting the objectives into quantified weights or passmarks, and it is true that this could not be done in any theoretically-stringent or empirically consistent way. Nevertheless, it would

still be possible for the subsidising authority to arrive at agreed weights, however subjectively, which would at least leave the transit manager with a clearly-defined task. In any case, this type of target is likely to produce better results than many of the other objectives in current use. Two operating criteria in widespread use are to provide as high a level of service as possible subject to an agreed fare level and the budgand to ensure that a certain etary constraint, percentage of the population is served by a route at no more than a specified access distance. Both of these approaches ignore the desirability of trade-off between level of service and level of fares, or between service frequency and route coverage, and are therefore bound to be less effective than a proper optimisation. 4.2 Maintenance of low-demand services For low-frequency services in more rural areas a rather more disaggregate form of assessment is required, since mobility depends on the ability of the available services to take people to places they actually need to go to, and to allow them a convenient amount of time there before return. Scoring systems which award weights dependent on an aggregate indicator of “need” in a village (proportions of elderly and school children, proportion of households without auto, etc,), and on the number of useful bus journeys which could be made to specified types of destinations, are intuitively appealing, though because the attribution of weights is inevitably arbitrary different index methods are likely to produce inconsistent rankings of villages’ need for service when applied to different data sets (Bird, 1981). If the different indexing merely reflected different objectives this inconsistency would present no problems, but there is evidence that the different schemes give markedly different answers for similar objectives, and there is a danger that they provide a misleading precision in assignment of resources. Recent work in this field looks promising, however, with development of techniques to assess the likely incidence of accessibility difficulties using census data, public transport schedules and information about local facilities, but based initially on household interviews to identify needs peculiar to the area studied. Transfer of the methodology to a different area, and comparison of the predicted accessibility problems with those identified by household interviews in the new area, has shown an encouraging degree of consistency (Kilvington and McKenzie, 1986). 5.

SUBSIDY

MECHANISMS

COMMERCIAL

AND

OPERATION

If provision of subsidy can be explicitly linked to performance relative to the targets of the subsidy, not only will it provide encouragement for the operator to focus on the stated objectives, but it might

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also free management to operate “commercially” in those areas of service where the social objectives were not dominant, retaining the financial inducements to improve efficiency and cut costs. Given the often “fuzzy” nature of the subsidiser’s objectives, this desirable state of affairs will be difficult to implement. 5.1 Subsidy allocation One suggestion for moving some way along this path is to provide “matching” subsidies, so that an operator receives a fixed sum per passenger or per passenger-km, or perhaps per unit of farebox revenue (at some agreed fare level). More sophisticated mechanisms follow from this: Forkenbrock (1981) has suggested an allocation dependent on both ridership and the amount of service operated, so that the subsidies can encourage shifts in the amount of service operated per passenger gained. However, Forkenbrock’s proposal for Iowa was not adopted, and although several of the State transit assistance programs in the US have included specific formulae tying the amount of subsidy provided to maintenance of certain performance standards (in California, New Jersey, New York, Pennsylvania) the sanctions have rarely been enforced. One problem with cutting subsidy when performance is poor may be that the transit authority is reluctant to make a bad situation worse. However, the relatively simple Pennsylvania system, where a subsidy bonus is allocated dependent on year-on-year improvements in passengers carried and revenue earned per vehicle-hour, on controlling cost escalation, and on the revenue/cost ratio, as described by Miller (1979), seems to have been successful. This type of “payment by results” may improve efficiency, but its limitation is that, except for the objective of filling spare capacity, all passengers do not contribute equally to the subsidiser’s objectives so that some types of passenger are more “beneficial” than others. Thus targets which discriminate between passengers may be desirable. One way to make the subsidizing mechanism self-policing is to shift all subsidies directly to the user. so that the operator is left to respond commercially (subject to constraints on his monopoly position, of course) to a demand which has been shaped by provision of subsidies to particular classes of user. Concessions for the elderly or school children are widespread, of course. However, the logical outcome of extending this approach would be to provide cheap fare tokens to those with an automoble available but not to those without, if the objective were to achieve modal shift, a form of discrimination which would be unlikely to command universal understanding. Less discriminating forms of user-side subsidy are common though, in the form of employers’ support for employees’ purchase of transit season tickets via contributions or interest-free loans or, less directly, as an employers’ tax (the versement transports) payable in France. Provision of company automobiles,

by contrast, works in quite the opposite direction. User-side subsidies via transit tokens or discounted season tickets may also be attractive where the objective is to provide services in low-density areas for those without alternative transport. This type of subsidy is likely to be superior to a cash grant because the whole point about transit service is that it is cooperative: the service may be infrequent but at least it offers a degree of mobility to a whole group of people in a form which is cheaper than if their travel needs were to be met individually by providing subsidised taxis. In areas of extremely low demand, of course, taxi may be the cheapest option, though here again coordination and sharing can arguably provide more mobility per unit of subsidy than allowing the recipients to spend a cash grant as they please. On the debit side, user-side subsidies may incur relatively high administrative costs, and there may be problems with fraud in systems where tokens can become negotiable. 5.2 Competition Another approach to attaining efficiency in subsidised services is to encourage competition. The subsidising authority decides on the quantity and quality of services to be offered, and potential operators compete for the service either by tendering to run the service for an agreed price, with the authority taking the farebox receipts and subsidising as necessary, or by tendering for an amount of subsidy necessary to operate an agreed level of service at an agreed fare level. This approach is widespread in some countries, though in practice the tendering procedure has sometimes been less open to competition than the principle suggests. It is one approach required by the 1985 Transport Act in the UK, whose provisions are laid out in the White Paper “Buses” (Command 9300, 1984). This requires local authorities to identify routes which will not attract a commercial operator, but where the need for service is sufficiently great to justify subsidy. The authority then invites tenders from potential operators to provide a prescribed service, at an agreed fare level. The Act does not require the same deregulation in London as in the rest of the country, but a recently reorganised London Regional Transport already has some promising experience in letting some of its more suburban services to competitive tender (Higginson and Rigby, 1985). The other major provision of the UK Transport Act is rather more controversial and transport authorities in other countries will doubtless be watching development in public transport from 1986 onwards with considerable interest. From October 1986, monopoly protection will be abolished and operators will be free to compete for patronage on the road. They will have to register the timing and frequency of the services they intend to run, and their vehicles will be inspected to ensure mechanical safety, but registration cannot be refused unless an operator is deemed to be undesirable on the basis

Managing public transport of past irresponsible behaviour. Thus different operators will be free to serve the same routes, operating at whatever frequencies and fares they believe will be profitable. This will certainly remove public transport management from the complex social issues discussed in Section 4, leaving them free to operate on purely commercial principles, but under conditions none of them has experienced previously. Experience in other countries where public transport is not protected by monopoly powers is likely to provide little guidance to the outcome, given their very different circumstances and demand patterns, so that we do not have a sufficient empirical or theoretical basis from which to predict the results. The final shape of the competition will depend upon institutional changes within the industry, and on the readiness of new (probably small) operators to enter the market. There may be initial periods of instability as some undertakings are prepared to operate at a loss for a time in order to outlive their competition, as happened in some cases during the pilot experiments with deregulation (Fairhead and Balcombe, 1984). Certainly it seems likely that competing operators will be more responsive to changing patterns of demand than has been the case in the past, where emphasis on stability has sometimes fossilised route networks which were no longer appropriate. In recent years the publicly-owned National Bus Company and Scottish Bus Group, which operate for the most part outside the largest cities, have implemented a series of Market Analysis Projects in their various subsidiaries to establish what service network could be operated without subsidy (Barret and Buchanan, 1979). The intention was to present local authorities with an explicit choice about the extra services they were prepared to buy through subsidy. These analyses give the two companies (or their component undertakings-eventually the giant NBC will be broken into smaller companies) a substantial, if rather dated, information base on which to plan their services under deregulation, although the calculations of the sustainable network were made without considering the effects of free competition from other operators, which will require a wholly new approach to forward planning. The Government expects the greater responsiveness to the market which competition will encourage to bring more innovative services (Command, 9300). Innovation is by its nature hard to foresee, though the relaxation of regulations on taxi operation may encourage various forms of shared taxi service in areas of low demand, and it is interesting that the National Bus Company has recently begun to operate a large number of minibuses. Proponents of small bus operation generally base their arguments on experience in the less developed countries (Walters, 1979). Such conclusions may not be appropriate to conditions in industrialised Western countries, although there may be some advantage in operating smaller vehicles where several operators are competing along the same route (Glaister, 1985, Oldfield

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and Bly, 1985). Each operator’s share of the demand along the route will depend upon his share of the buses operated, and for a given outlay an operator can provide a larger number of small buses than of large buses. Thus the best size to operate under competition may be smaller than would be optimum under monopoly. Against this, however, the competitive game “Pirates” developed by Colin Buchanan and Partners suggests that new minibus operators are likely to make little inroad against existing big bus operators (Buchanan and Lewis, 1985). In general, the large element of driver’s wages (even if they can be paid at lower rates) will tend to militate against deployment of very small vehicles even in areas of very low demand, unless the type of service offered is such that passengers are prepared to pay fares approaching the levels of taxi fares. 5.3 Possible impacts of the 1985 Transport Act in the UK Many of the uncertainties connected with the outcome of competition concern institutional aspects and are not amenable to theoretical modelling, but some modelling has been done at TRRL to establish the sort of equilibria which might exist between competing operators under a variety of assumptions about the operators’ objectives (Oldfield and Emmerson unpublished, and Webster, 1986). These authors suggest that there will be equilibrium situations in which more than one firm operates the same route, provided their operating costs do not differ by more than 10% or so. In these circumstances, the combination of competing firms is likely to provide passengers with a rather higher level of service, at rather higher fares, than is optimal: that is to say, on average passengers would be better off with rather less service and fares reduced commensurately. In terms of net economic benefit the loss of welfare is unlikely to be very large, since the tradeoff between service and fares tends to be a very gradual one. Benefit declines only slightly below the maximum benefit even when the balance is quite a long way from optimum, except where underprovision of service causes severe overcrowding (Bly and Oldfield, 1974). The major benefit from deregulation is expected to be the reduction in operating costs which competition should encourage. The White Paper “Buses” suggests a target of cutting unit costs by 30%: critics of deregulation have argued that such large reductions are not feasible (Gwilliam et al., 1985) but few people would deny that there is considerable scope for cost cutting in some parts of the transit industry. Examination of the variation of costs amongst municipal and big-city operators in the UK suggests that, if all operators in each category of fleet size were able to reduce their costs to the level of the lowest-cost operators, average unit costs would fall by about 15% (Webster, 1982; Higginson and White, 1982). Comparisons of private and public operators providing similar types of service in the

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UK (Tunbridge and Jackson, 1980) and in Australia (Wallis, 1980) suggest cost differences of 30% and more. Of course, all these comparisons are subject to the qualification that the different operators were providing different service networks, or were working under different conditions. Doubtless these discrepancies are responsible for some of the variation in cost, but even the lowest-cost operators may be able to find further cost reductions in the face of competition. If the cost reductions are as substantial as seems possible, they should easily outweigh any imbalance between service and fares which competition might bring. Certainly, London Regional Transport’s experience of competitive tendering for some of the suburban bus services seems to have achieved worthwhile cost reductions approaching 25% (Higginson and Rigby, 1985). Another effect of competition will be to remove most of the existing cross-subsidy between services and, possibly, between peak and off-peak operation if peak surcharging becomes common practice. Cross-subsidy can provide a net benefit in terms of consumer welfare, as Gwilliam (1984) argued, though theoretical modelling at TRRL suggests that the net benefit could be positive or negative under a range of plausible assumptions (Webster 1986). In all cases, it is likely to be very small relative to the total generalised cost of travel. However, straight economic measurements of welfare are probably not very relevant to discussions about using cross-subsidy to maintain services in low-density areas, since the essential justification of cross-subsidy is that greater weight is attached to the benefit conferred by extra transport provision on people living in “transport-deprived” areas than to people living in areas where the public transport services are relatively good. The argument of the White Paper against cross-subsidy is that, whatever the benefits to the subsidised passengers, there is no reason why it should be the profitable passengers (who are quite likely to live in less affluent urban areas) who pay. Few people would disagree with that. Nevertheless, removal of cross-subsidy will certainly result in the loss of some services in areas of low demand unless reductions in operating costs or innovations encouraged by competition manage to bridge the gap, or unless the local authority elects to subsidize them. Services may also be lost at times when demand is low, even in relatively dense areas. The net effect of the Transport Act will be to remove network-wide general revenue support, of the type aimed at objectives 1 to 4 of Section 2, and to focus transit subsidy on those “uncommercial” services which are the subjects of objectives 5 and 6. From the operator’s point of view, it will have the merit of making all the socially-based considerations the explicit responsibility of the local authority, which will have to translate its objectives into defined services, at specified fares, to be offered for competitive tender. Operators will be freed to concentrate on the tendering, a normal commercial

process, and on the daily details of actual operation, but they will also have to enter the largely uncharted waters of competition on the road. From the local authority’s point of view, the discipline of deciding precisely where subsidy should be spent will be a healthy one, but the range of problems subsidy can be aimed at is likely to be considerably restricted. Whatever the outcome of deregulation, the results should be instructive. Even if this approach is wholly successful, however, the social aspects of public transport provision will still continue to concern transport authorities. Public transport use has grown over the past decade in many western countries, but a study recently completed for the European Conference of Ministers of Transport (Webster et al., 1985) finds that in many the growth is a consequence of rising subsidy, and that ridership would be declining otherwise. Moreover, although the study identified a number of factors associated with urbanisation and city development which were responsible for a genuinely upward trend even in the absence of subsidy growth in a few countries, it suggested that these favourable influences would weaken over the longer term and ridership would eventually decline. Thus both operators and local authorities will be faced with a shrinking market for transit. This may well shift the emphasis of subsidy policy towards the “needs” based objectives 5 and 6 of Section 2, with less emphasis on modal shift and reduced road congestion if the dispersal of population and employment away from the centres of the big cities reduces the pressure on these areas. Nevertheless, these trends in land-use are causing considerable concern to planners because of the decline of inner-city areas and the restricted mobility of those with no automobile available in the lowdensity suburban developments, and there may be increased interest in the influence of transport policy on urban development. The ECMT study offered little support to the idea that the policies available to Western democracies could markedly change the underlying trends, nor did it find any evidence that public transport subsidies had had any significant long-term effects beyond the boost in ridership to be expected from the lower fares and improved services which it had bought. This does not necessarily imply that longer-term effects do not exist, since they are extremely difficult to identify, and some authorities may still elect to emphasize these very broad and complex objectives. If so, it will become even more important that a clear distinction be made between the separate responsibilities of the management of the transit company and those of the transport authority. Where service provision can satisfactorily be left to the commercial market, management responsibilities are clearly identified. Where service provision has to be shaped to meet social objectives, it is likely to be more efficient if subsidies are made dependent on performance measured against well-defined and quantified targets. Al-

Managing public transport tematively, decisions on the amount and price of service can be made by the transport authority, after proper examination of the costs and benefits, and allocated to operators by some form of competitive tender. 6. CONCLUSION The element of social service has always been present in transit operations, but in the last two decades the emphasis on it has grown, and the social objectives have widened considerably. Much of transport policy has concentrated on pursuing these objectives by providing various forms of subsidy to improve services and hold down fares. It seems likely that a side effect of the injection of large amounts of public money into the industry has been a relative reduction in efficiency and a too easy acceptance of higher costs. Since early this century, monopoly concessions have generally required that in exchange the operator should provide services in areas which were not commercially profitable, and at controlled fare levels, but within these constraints operators have pursued commercial objectives governed by the requirement for farebox revenues to cover costs. If these checks and balances operate less strongly because direct subsidy provides a large proportion of the total revenue, it becomes more important than ever that management has an adequate information system with which to judge how the efficiency of service production is varying over time, and to make a comparative assessment of the performance of different aspects or divisions of the operation. Naturally, how elaborate such a system should be depends on the size and nature of the operation. The growth of emphasis on social factors has greatly widened the range of objectives which public transport policies are intended to satisfy. Assessing the extent to which transit provision is successful in these wider aims, and ensuring that the costs are justified, is inherently very difficult. Normally transit management, with its information limited to its own activities, is not in a position to assess its performance in relation to wider social objectives. This should be the responsibility of the local or transport authority, although it seems that a properly quantified justification is rarely attempted: in the case of the more indirect long-term objectives, it is doubtful whether a satisfactory methodology exists. Since involvement of the local authority in the detailed operations of transit tends to be a recipe for inefficiency, often leading to unclear lines of responsibility and duplication of effort, it is important that the social objectives be translated as far as possible into clear, quantified operational targets, against which transit management can assess performance in terms of its available operating information. It is desirable to make subsidy provision conditional on specific indices of performance, but few funding mechanisms of this type are in successful

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operation. Another approach is for the authority to specify the services to be operated and the fare level, leaving the operator to concentrate on providing the defined services as cheaply as possible. If so, it is important that the method for determining the required services and fares is not so rigid as to ignore the benefits of trading services and fares to obtain an optimum balance, nor so inflexible as to fossilise service networks in spite of changing patterns of demand. It is also important that there be a strong incentive for the operator to keep costs down. At the least, the funding authority should measure and compare the performances of different operators, though comparisons are always subject to some uncertainties. It may be better to encourage some degree of competition, by inviting tenders for providing the services from several operators, though the services will have to be divided into relatively small lots if the advantage is not to lie with a very few large operators. In the UK the Government has decided on the radical approach of deregulating service provision. Any operator, subject to certain safety requirements, will be free to operate in direct competition with the existing operator on any route, or along any new route. It is intended that this freedom of operation will reduce costs by virture of competition, and encourage innovation and a flexible response to the changing demand patterns. This will abolish network-wide subsidisation, though subsidies will be available for identified non-commercial services, subject to competitive tendering. In this way, all social considerations will be moved from the province of the operator, and objectives concerning the need for public transport in low-demand areas will be made explicit in the decisions of the local authority to designate non-commercial services. The operators will be free to operate purely commercially, though in the largely untested conditions of on-the-road competition. The outcome of this approach will doubtless be watched with interest by transport authorities everywhere. work described in this paper forms part of the programme of the Transport and Road Research Laboratory and the paper is published by per-

Acknowledgements-The

mission of the Director. Crown copyright. The views expressed in this paper are not necessarily those of the Department of Transport. Extracts from the text may be reproduced, except for commercial purposes, provided the source is acknowledged.

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