Auckland Transport yesterday announced the results of their tender for the new bus network in South Auckland and it appears they’ve achieved a very good outcome by both increasing service and reducing costs. The winners of the of the contracts are
- Go Bus (owned by Ngai Tahu and Tainui) have picked up just over 50% of the services.
- A joint venture between Ritchies Transport Holdings and Murphy’s got another 40%
- Howick and Eastern got 5%
*I assume rounding accounts for the missing 5%.
Go Bus is new to operating in Auckland – other than running rail replacement buses some years ago. They say they’re investing $40 million their bid through new buses, equipment and depot facilities. They’ll be using 89 buses most of which will be brand new and built in New Zealand. Ritchies and Howick & Eastern haven’t said if new buses will be used for these routes.
It comes after the incumbent in the area, NZ Bus, announced a few weeks ago that it hadn’t been selected as the preferred tenderer for any of the South Auckland routes.
The new network is of course a big step forward with more frequent and direct routes. With it AT say there is “a 21 percent increase in hours of operation and a 15 percent increase in kilometres covered by the services” Despite this the net cost to AT of running the services will decrease by $3.1m per year, or 15%. That’s obviously quite a significant saving and pleasing to see. Some rough calculations suggest they could be saving up around 20% per service km. AT’s explanation for the better outcomes is
Dr David Warburton, CEO of Auckland Transport, says the cost savings were achieved through a mix of economies of scale, greater efficiencies in the way routes are organised and a modern fleet that is fuel efficient and maximises the number of passengers per trip.
On the other side of the ledger, he says, a modern, comfortable, fleet getting people where they want to go faster and more conveniently, will all contribute to attracting more passengers. This has the double advantage of increasing revenue share opportunity for the operators and reducing the cost in subsidies.
Interestingly this result puts it in the realm a benchmarking study done by Ian Wallis & Associates in association with MRC suggested was needed some years ago. It said:
Without the benefit of a detailed benchmarking appraisal, our judgement is that the AKL unit costs would need to reduce by around 20%-30% to achieve good/best practice levels.
Below are some figures on just what the buses will cost to operate.
The current public subsidy is $20.3 million each year. From October, when the new contracts come into effect, the contracts will cost $36.3 million resulting in $17.2 million public subsidy with about $19 million in passenger fare revenue being paid to Auckland Transport thereby reducing the overall net cost by more than $3 million.
It’s also a good win for the new Public Transport Operating Model (PTOM) contracts now being introduced and which have long promised to improve PT costs and outcomes – and which many operators opposed. You may also recall this post from last year looking at the quality level of buses operators will be required to use.
Getting better outcomes from contracting has recognised as an issue for a considerable amount of time and it’s taken possibly a decade or more to get to this point. With PTOM the contracting is done using “units” which contain one or more routes with a full timetable – unlike in the past where operators could cherry pick the best individual services to run commercially leaving the rest to be subsidised. You can see the units for south Auckland and which routes are in them on this AT document.
Under the old contracting scheme, the operators would collect the revenue and Auckland Transport would pay the operator the net cost of running the service. Now with PTOM all fare revenue goes to AT who will then distribute it based on the contracts with bus operators with bonuses or penalties depending on performance. This is much closer to the gross contracting used successfully in many other cities (and on the Northern Express) but which the government opposed.
If savings like achieved in South Auckland can be replicated across the rest of the city that could have some profoundly positive effects for our PT network. It will see farebox recovery go well above the 50% target the NZTA have set and that could give AT a greater ability to further improve PT in Auckland. Some examples of what it could allow are
- Further increase services, perhaps raising more routes to frequent status
- Spend some of the savings in infrastructure like bus lanes or perhaps light rail.
- Lower fares
- Not do anything and reduce the level of subsidies required.
Of those I would favour the first two options as they can help to make PT in Auckland even better and attract more usage.
Overall this seems like positive news and well done to AT for the result.