Improving our Farebox Recovery

Whether you support improved public transport or not, one thing that everyone probably agrees on is that we need to improve the efficiency of our PT services, particularly in regards to the level of subsidies required. Long time readers of the blog may remember a policy change the NZTA made a while ago called the Farebox Recovery Policy which set an arbitrary limit as to the amount of operating costs that need to be paid for by passengers. That limit was set at 50% and didn’t really seem to have been set based on any evidence but rather seems more like it has been set at that level for political reasons. Agree with the policy or not, it is now a requirement that Auckland has to meet it so I was wondering just how much impact the draft RPTP would have on us doing so. Thankfully the plan has an appendix dedicated exactly to that for us to look at (appendix 4, starting at page 115).

The definitions of costs and revenues used to calculate FRR are set out in NZTA policy guidelines. Some costs, such as rail rolling stock capital servicing charges, station and bus stop facilities maintenance, and the Total Mobility scheme, are not included. Costs associated with providing passenger information, planning, and contract administration are also excluded.
Using these definitions and NZTA funding claims, the Auckland FRR was calculated at 44.3 per cent for 2011/12. This takes account of the true operating costs for rail in Auckland, including rail track access charges and rail rolling stock maintenance costs. The 2011/12 FRR was used as the starting point for the development of FRR targets in this RPTP.

At 44.3% it suggests that on average fares would need to be about 13% higher with the same level of patronage however Auckland already has what is considered one of the highest costs per km out of many of the cities we compare ourselves to.

Increasing fares further would potentially also have the negative impact of reducing patronage making things worse still and this seems to be the path that Brisbane is taking as they have been increasing fares are a rate of about 18% per annum and people are starting to stop using services as a result.

The other alternatives are to grow patronage or reduce costs and thankfully that seems to be exactly the path we are taking. Based on the current costs patronage would need to be about 13% higher than it is today assuming that our costs stayed the same. I think that not only can we achieve that, but probably greatly exceed it. Over the next few years we will see our PT network become a lot more attractive and efficient for a number of reasons, here are some of the big ones:

• The bus network will become a lot more efficient with the proposed new network which uses exactly the same number of buses and vehicle kilometres to achieve a much more extensive high frequency network.
• The new PTOM contracting environment should mean that Auckland Transport is able to to have much better control over bus operating costs (a post with more detail about this will be up in the next few days).
• The full rollout of the HOP card should help to make PT trips easier and even buses faster due to quicker dwell times which should help to make them more attractive.
• The new fare structure will contribute to making the PT system more attractive and should be revenue netural
• The electrification of the rail system will improve operating costs, make it more attractive and drive a lot of additional new patronage.

Auckland transport have investigated the impacts of these and other options to determine if we will meet the requirements and here is what they say:

To explore these issues, a number of alternative scenarios (involving fare increases, cost reductions, and service improvements) were evaluated and then provided to the Auckland Transport Board in May 2012.
The evaluation suggests that it is possible to achieve a 50 per cent FRR within the next three years without damaging the recent momentum in patronage growth. In the short-term, however, the policy will need to focus on ensuring that the FRR does not fall below current levels. This should be achieved by continuing to regularly review operating costs and fare levels, increasing fares (where necessary) by at least the rate of inflation, and achieving savings in unit operating costs through improved efficiencies – such as savings from implementation of the PTOM.

Beyond this period, a target FRR of 50 per cent or better should be achievable, provided that continued cost savings and patronage growth associated with rail electrification and service improvements can be delivered, and fare levels continue to keep pace with operating costs.

So with only fare increases at the rate of inflation, not only are we expected to meet the policy but it is quite possible that will will exceed it. They also break down how they expect the recovery rates to change by mode and as you can see the biggest mover is the rail network which sees its recovery rate improve by 50-70% due to the improved costs and increased patronage brought about by electrification.

I actually think AT have tend to be over conservative with their projections on patronage so I suspect that we will not only meet the 50% target but well exceed it. That would then allow for more money to be spent on further improving the services we provide helping to reach our target of doubling PT usage over then next decade. In some ways we lucky that we are in the position where we will see these vast improvements that means we can avoid things like fare increases although I’m sure we can all agree that pretty much all of the projects should have been done a long time ago.

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