My post the other day about the Public Transport Management Act, and the changes that it now seems won’t be happening to it, got me thinking about ways in which we could improve the cost-effectiveness of providing public transport. While the fact that the PTMA will now not be changed sounds good, I worry that this is effectively the result of many of the bus operators’ concerns (generally that they might not be able to make huge profits off public subsidies anymore) have been met in another way. The lack of detail on a new “Operating Model” for public transport procurement, contracting, route planning and so forth has me worried.
It has me worried because, over the past 10 years, a lot of effort and public money has gone into improving the public transport system in Auckland – but the results have tended to be less than spectacular. This is particularly the cases with buses, where patronage gains in recent years have actually been pretty small. Having a good look at the orange line in the graph below illustrates this:
The month with the highest bus patronage since February 2002 was actually all the way back in August 2003. In fact, if we look at months with more than five million bus trips, two of those months were back in 2002 and 2003, with only March 2010 joining that bunch. In short, bus patronage really hasn’t gone anywhere much in the past eight years. While this is partly because we simply haven’t done much to improve the bus system, what we have done is spend a lot more money on subsidising bus companies.
The increased spend on public transport operating costs is illustrated in the table below:
In short, we’re now spending three times as much on public transport as we did 10 years ago, but we’re only carrying 42% more passengers. Furthermore, the population of Auckland has grown so much in that time that annual trips per capita has only increased from 37 to 41. If we think that during this time rail patronage has increased from around 2.5 million trips per year to 9 million trips per year, it means that we’ve really been throwing at lot of money at our bus system for very little return.
Why has that happened? Well having a look at the level of subsidy in Auckland versus Wellington versus Christchurch you start to see some of the potential reasons – a comparison is included (which also compares with a number of international cities) in the table below, which comes from a really great NZTA research report into public transport:
What’s perhaps one of the most interesting comparisons in this table is between Auckland and Christchurch when it comes to the subsidy per boarding. In many ways Auckland has quite similar levels of PT use as Christchurch, although patronage is more “peaked” (higher share or work trips but lower boardings per capita). The other difference of course is that Auckland has a rail system, but on a ‘subsidy per km’ ratio trains are actually more cost-effective to run than buses in Auckland (plus electrification and integrated ticketing should massively reduce rail operating costs in the future).
One interesting thing about Christchurch, which leads to the whole point of this blog post, is that a major player in the provision of its bus system is owned by the Christchurch City Council. This has driven a bus system in Christchurch that Aucklanders quite rightly can be envious of in many respects – such as its integrated ticketing system and clearly the fact that at a financial level it is very cost-effective.
What interests me is whether doing something similar in Auckland might yield significant benefits in making public transport operations more efficient and cost-effective. Whether, if Auckland Council (or one of its CCOs) established a bus company to add competition to the market in terms of tendering for routes (and in the near future it won’t matter which company operates your route because of integrated ticketing) we would see benefits. I suppose at one level there’s an ideological argument – about whether public ownership and operation of public transport should be encouraged or discouraged – but I’m really keen for such a debate to not be along ideological lines. Quite simply, I just wonder whether we could get better bang for our buck with the council involved in running some of the buses.
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Perhaps the council investment CCO could try it and run it commercially, it could be done in a way so that no one council organisation is favoring itself and have any contracts where the council bus company tenders audited by treasury. One option to start it would be to buy one or two of the existing bus companies.
The other thing that needs to be considered is the Veolia contract, I have heard some horror stories about how they have handled situations purely because of the way they get paid.
Abolishing the funder-provider split is the start of returning to the inefficiencies and operational laziness that Auckland had for decades under the ARC/ARA and its predecessors. I’d have thought people should have learnt from that, as Auckland’s greatest period of public transport decline was under an integrated funder-provider model. The value for money was atrocious and service standards even more so, primarily because of capture by the unions which felt they could extract value from a council owned entity. Enormous efficiencies were extracted from the split in the 1990s and the privatisation of Yellow Bus Company (one of the eccentricities of Yellow Bus was that in the 1980s the ARA had literally dozens of odd bus makes and models, which cost a fortune to maintain).
Christchurch is quite different from Auckland. The funder/planner (Environment Canterbury) does not own the services it contracts. Red Bus competes with other companies (primarily Leopard) for contracts with Environment Canterbury. Thanks to the foolish Auckland mega-city idea, Auckland doesn’t have this functional separation any more.
Christchurch is more cost effective I suspect because Environment Canterbury has been more focused in extracting value from contracts compared to ARTA which has been institutionally far more concerned with rail than bus. The stability in contracting and focus has made a world of difference. Don’t forget when Canterbury first contracted out bus services, the then CCC owned LATE won NONE of the contracts for services, and was leasing out its buses to the group of companies that won them. This forced the company to drastically improve its efficiency, and eventually the market settled down to two operators. Sufficiently efficient to not be worth new entrants to bother.
Auckland’s bus contracting problem is that operators know too well that ARTA/ARC has long lobbied for much tighter control over them, which puts a barrier to new entrants. On top of that the profitable routes are being pillaged by highly subsidised rail services, which has made bus operation in Auckland significantly less attractive.
Given that table is public transport subsidy per boarding, it includes the high rail subsidies in both Auckland and Wellington, lifting the average considerably. That doesn’t mean bus subsidies are anywhere near that high.
I may also say that Paul Mees’s work should always be peer reviewed by someone with some transport economics background in new world cities. This report lacks that.
Liberty you would still have the funder/provider split. Auckland Transport is the funder and either the Council or (more likely) one of its other CCOs would be the provider.
In my view, the bus companies either need to be relegated to more or less companies that supply buses and a driver and collect the fares directly for AT, they should have no active involvement in route planning. If this isn’t possible then AT should in my view set up their own company and tender for all the routes themselves.
The Zurich analysis is slightly flawed IMO because it appears to be analysing the canton of Zurich which is a bit like analysing the whole of NSW. Zurich city its itself is a city within the canton and has a population of around 330,000 people. The surrounding satellite towns which all have rail connections to the city (and indeed many people commute into downtown Zurich), makes up the 1 million people. I think you’d find the statistics quite different if you looked at the city alone, as PT share within the city is closer to 80+%. Furthermore, there is no per passenger subsidy per se, everyone either buys daily, monthly or yearly passes and there are no barrier gates on trains/buses/ferrries etc. I.e. people get on and off as they feel free, and any passenger numbers are purely estimations. I’d say the subsidy quoted is also misleading in that Zurich still spends significantly more on PT per capita than Auckland or New Zealand, but simply has much much higher loadings.
Was this not one of Mike Lee’s ideas from 2007? I guess it was born out of the same frustration.
Surely a big barrier to entry in Auckland in NZ Bus controlling most of the bus routes in the Isthmus, West and South. And then there’s all the depots they own in great sites that are difficult to replicate.
An issue I see is that if the hope for big increase in bus services comes about, AT are going to be paying NZ Bus huge amounts of money. Various reforms have shown public ownership can be just as efficient provided it is structured correctly, and the right incentives are in place.
Private bus companies have had enough time to show us their ‘innovation’ and ‘efficiency’ in Auckland and I don’t think the result has been what was claimed by the ideological proponents at the time. No reason the same efficiency gains could not have occurred under public ownership just as like has happened with NZ Post, electricity SOE’s etc.
Switzerland General Abonnement (annual pass): free travel on all SBB routes, and also those of most private rail companies, throughout Switzerland. The GA travelcard is also valid for postbuses and boats, as well as for short-distance public transport services like trams and buses in most cities and urban areas. And it gives special discounts on many Swiss mountain railways. (Map here: http://mct.sbb.ch/mct/en/uebersichtskarte-general-abo.pdf)
The price is 3,100 Swiss Francs (=NZ$4,080)
In comparison, currently I pay NZ$3,960 a year for a crappy ferry service to Waiheke Island alone.
I agree with rtc. The best model should be AT planning the routes and taking the revenue, and putting these routes out for competitive tender on a yearly basis. The bus companies are able to compete on the provision of the buses, bus maintenance, storage, staffing etc, with the bus companies already located in certain areas and having access to different fleet types being the only competitive advantages. The most efficient will expand, tender for more routes, and we can see all the private sector efficiency gains.
PT must be a collective network of modes and routes, therefore any competition between modes and routes will reduce overall efficiency. AT must be in control of route and timetable planning for all modes to negate this, while being the funder and evaluator of private company performance. This way open source data and pass numbers could be made available without commercial sensitivity opposition. AT sets standards that must be maintained in areas such as ticketing and bus capacity and quality and evaluates tenders on both price and past performance.
For this to work AT must have clear policy, good consultation and be intent on providing the best PT service with the funds allocated/subsidised to them from fares, AC, NZTA and central govt. If the council owns a bus company, as Liberty has pointed out, it is crucial there is that funder/provider split. The reason a model like this hasn’t been adopted is because of greedy bus companies not wanting their individual monopolies being destroyed.
How did Canterbury manage to get around the prohibition in the Local Government Act saying they can’t own bus companies? Is setting up a CCO legal gymnastics that gets around this?
The buses are owned by Christchurch City Council (through a CCO) whereas the Canterbury Regional Council (ECan) are the funders.
In general i’m a free market libertarian and i totally agree the governments role should be to ensure the provision of services, rather than to be the actually provide services.
That said, there are numerous cases of market failure, or plain oligarchic profiteering, where there is good reason to setup a government provider run at arms length from the market supervisor or funder in competition with other pure commercial firms.
Just look at the joke the Aussie banks were having introducing more and more outrageous transaction fees until Kiwibank came along.
On a similar vein, the provision of rail services in the UK are tendered out to the commercial sector on medium length contract, and the maintenance of londons tube lines likewise. But if the commercial firms fail to deliver the government will step in as provider of last resort, strip the firms of the contracts, and run them itself.
Perhaps AKL local government should have done the same during the NZ Bus lockout the other year.
That would require backbone in the part of Auckland Council officials!
Red Bus (the Christchurch City Council owned bus operator) recently lost its contract with ECan. It means that the ratepayers of Christchurch are having to work out what to do with the buses that used to run that are now idle. One of the downsides of a tendering process – if you lose then you are holding the assets (people, buses and depots). And the transition to a new operator is seldom smooth
Some interesting commentary from the various politicians in this article
http://www.stuff.co.nz/the-press/news/4327263/Staff-ran-bus-tender-system
As far as I know, most bus operator contracts are on a year to year basis (as per cateye’s suggestion) while the new Public Transport Operating Model is being worked through.
It’s an interesting table though in terms of costs.
The key driver is not mentioned – the price of fuel.
In 2000, petrol was hovering around $1 per litre. It’s now around $1.85. The passenger Km’s are up by 44% in the same period. Those two multiplied together lead to an increase of around 266%. The more accurate comparison should be the price of diesel but I couldn’t find that easily – I am sure someone else here can.
Anyway, assuming that petrol and diesel prices roughly correlate you could argue that with a 251% increase in costs, that ARTA has achieved better than could be expected given the growth in passenger kms and fuel prices. Food for thought
Miki
CEO
Snapper
not sure I understand your maths there Miki
surely a bus with 1 person on costs the same as a bus with 40 people on?
also fuel if fuel is 30% of costs, and it doubles, then the costs of running the bus goes up by about 30%.
Then there are numerous other costs -fuel, maintenance, rent, capital,wages etc
These may have been increasing at 5% per year but can’t see the reason for decreasing value for money.
Yes it may be true that rail has taken some people of some routes such as from Papakura, New Lynn however that is because it offers a far superior service.
Also think other NZ centres have not had nearly as much of a subsidy increase.
Indeed. One suspects Miki is sticking up for his sister company NZ Bus to try to distract us from how much NZ Bus rips off Auckland ratepayers.
Luke
You are right in that a bus with 40 people costs approximately the same in fuel as one person, so my maths probably simplify this. I’ll try a more advanced approach based on traffic management theory
If capacity increases at peak, there are much different costs compared to if the capacity increases off-peak or if capacity increases due to new coverage.
The three scenarios here
1. Off-peak capacity increases – same number of buses, same routes, more passengers. Main cost drivers will be the basic costs of fuel and labour
2. On-peak capacity increase – drives additional investment in buses to improve frequency so costs are driven by the need to service capital costs for fleet, return and redeployment of fleet to depots, labour costs etc. In addition you get the impact of fuel increases
3. Coverage increase (eg Northern Busway) – similar to capacity increase but much ‘lumpier’ (ie you can add capacity progressively but to add coverage there is a step change in cost to add new fleet, timetables, service etc)
Josh – you seem to think that I am astro-turfing. What I am saying is that it’s very easy to look at the top-line numbers for cost vs patronage and say ‘we are being ripped off’ but you need to look at the underlying drivers of cost to determine that. If you are able to normalise today’s figures vs. 10 years ago (an academic as opposed to practical exercise) that may shed some more light on whether that contention, and the resulting hypothesis that Auckland City should own a bus company, is a good idea. It may well be – just look closely at the cost drivers.
They should certainly look to a flat tender offer, i.e. $X per year to run the service with all fares going to AT or threaten to start a CCO – say the Yellow Bus Company if NZ Bus won’t…
We’re spending far too much to stand still and some competition, even LG provided is required…