Welcome back! I hope you all had a “perfectly unhappy” summer break; here’s our adoring foster dog Kuri getting into the spirit. I’m pleased to say that — as of 9 January — Kuri was successfully adopted into a loving new family.

In this post, I first make some general observations about public transport fares, and, second, consider the current fare system in Auckland. In making these observations, I draw from my experiences in New Zealand and Australia, particularly South East Queensland (NB: Here is some information on recent changes that I was involved). I hope you enjoy!

Public transport fares: The nature of the problem

Imagine you are running a PT system that is characterised by three key attributes.

First, market research indicates that — for most people — quality matters more than fares. That is, most people prefer a comprehensive network of fast, frequent, reliable, and decent services to one that is cheap. The summary below provides some insight into such issues in a global context (Source: Accenture).

Second, the elasticity of demand for PT is approximately -0.40. This implies a doubling (100% increase) in fares will cause a 40% reduction in demand, ceteris paribus. While overall demand is inelastic, there are some specific market segments (people and/or journeys) for which demand is elastic. Litman (2017) discusses elasticities in more detail.

Third, political processes set the PT budget to be the sum of (1) annual subsidies and (2) fare revenue. Annual subsidies are typically fixed, while fare revenue is determined by settings we can choose.

In this context, the simple question we want to answer is what is the best way to charge people for using public transport to maximise patronage while remaining within budget?

Even from these three stylised pieces of information, we can gain some useful insight. For example, because overall demand is inelastic but extra fare revenue can be spent on more infrastructure/services, we can conclude:

higher fares == more revenue == more infrastructure / services == ambiguous impact on patronage.

That is. while higher fares have a direct negative effect on patronage, they also increase the revenue available for PT investment, which may increase patronage. If the additional investment attracts a lot of passengers, then higher fares may well lead to more patronage (and more revenue), and vice versa if revenue is used ineffectively.

The same analysis doesn’t hold, however, for elastic market segments, where instead we find:

higher fares == less revenue == less infrastructure / services == less patronage.

In this case, higher fares have an unequivocal negative effect: Higher fares lead to less patronage, both directly due to prices and indirectly due to less revenue for investment in PT infrastructure/services. Hence, we should avoid absolutely avoid increasing fares for elastic market segments.

Differences in elasticities provide a strong economic rationale for setting fares lower for some market segments, and higher for others. It is usually, however, not the only thing people consider when setting fares. Here are some common socio-economic reasons for setting lower fares for a particular market segment:

  • Economic efficiency, such as:
    • High elasticity, as discussed above.
    • Low marginal costs, such as when spare capacity exists.
    • Positive externalities, such as reducing car travel in congested conditions.
  • Social equity, by targeting discounts to people with less ability to pay (vertical equity).

I think these are relatively uncontroversial. What’s more controversial and less well understood, is that (in the usual situation where demand is inelastic and budgets are constrained) discounts tend to rob “Peter” to pay “Patrick”. That is, discounting fares for one market segment requires that other fares are higher (holding constant the investment in PT services/infrastructure).

So before we discount fares for certain market segments, we need to ask ourselves why these people/journeys are more deserving than others? I’d suggest the socio-economic reasons presented above are a useful place to start. Now let’s turn our gaze to Auckland, ah Auckland …

PT fares in Auckland: Evaluating the Present System

From what I can tell, Auckland’s PT system currently offers discounts for the following people/journeys:

  • Journeys using HOP, which are discounted compared to paper tickets;
  • Cross-town journeys, which are discounted due to the radial structure of fare zones;
  • Concession card holders, such as children, seniors, and school/tertiary students; and
  • Regular users via monthly passes.

I’d argue the first two discounts (HOP card users and cross-town journeys) can be motivated by low marginal costs. That is, it’s more cost-effective if people use HOP to pay for their journeys and/or travel cross-town.

Concession discounts, in contrast, are easily motivated on social equity grounds, even if you might quibble over (1) the level of the discount and (2) eligibility criteria/processes. Such issues are relevant during peak times when capacity constraints are binding and marginal costs are high. This highlights how the various reasons we might offer fare discounts can sometimes sit in tension with each other. In general, I consider concession discounts to be relatively uncontroversial.

And finally, we have monthly passes. I don’t know of any particularly convincing motivation for offering monthly passes on social equity grounds. In terms of economic efficiency, the case is also not clear-cut. Specifically,

  • High elasticity: I don’t know of any evidence that finds monthly passes are associated with high elasticities.
  • Low marginal costs, while monthly passes reduce transaction costs for users and AT, these are relatively small. On the other hand, monthly pass holders seem likely to travel at peak times, when marginal costs are high.
  • Positive externalities, again, I don’t know of any evidence to suggest that people who use monthly passes have more positive external effects than other PT users.

One of the reasons I don’t really understand the monthly pass is that it just seems so poorly-targetted when compared to other potential bulk-buy passes, such as dailies, weeklies, and annual passes. My intuition is that we’d be better off replacing the monthly pass with a combination of:

  • Daily value cap of, say, $15 per day, which is automatically applied to qualifying HOP cards;
  • Weekly discount of, which applies a 50% discount after you have made 8 journeys per week; and
  • Annual pass, which must be pre-purchased and has a price set at approximately 40 times the weekly pass.

The value of these discounts, compared to the monthly pass, is that they are more targetted to off-peak periods when elasticities are high and marginal costs are low. The daily value cap targets evenings, whereas the weekly discount targets weekends and the annual cap targets summer holiday periods. In contrast, the monthly pass is not targetted to off-peak periods at all. I’ll explore these issues in more detail in my next post, once I’ve had some more time to think.

Summary and Next Steps

In the first part of this post, I presented some general ideas on PT fares. The purpose was to introduce objectives and terms that may help build some common understanding on issues relating to PT fares. The takeaway message of this section is that — in the presence of inelastic demand and a budget constraint — the act of lowering fares for some people/journeys tends to necessitate higher fares for others. Once you appreciate this point, then I think you start to apply a higher evidential bar to discounts, because fare discounts for person A mean higher fares for person B.

In the second part of this post, I consider Auckland’s existing fare system and — in particular — the discounts it offers. I think most existing discounts are readily motivated on strategic grounds, aside from monthly passes. I feel that there is insufficient evidence to support monthly passes and, moreover, they seem to be poorly-targeted compared to other types of bulk-discounts, such as dailies, weeklies, and annual caps/passes. In contrast to monthly passes, these other passes target discounts to off-peak periods that tend to be characterised by higher elasticities and lower marginal costs.

To finish, I want to emphasise that fares are not a panacea for PT in Auckland. Some people seem to think that demand for PT would soar if only we could get the fares exactly right, and subsequently over-emphasise the role of fares. I personally counsel an alternative perspective: For most people, fares are just one factor of many that affect their use of PT. Rather than striving for the perfect fare system, I’d instead advise that we aim for one that (1) aligns with strategic objectives; (2) is simple and easily communicated and marketed; and (3) avoids perverse/unintended consequences.  Once you’ve achieved these outcomes, perhaps the best thing you can do is regularly review fares to identify issues and opportunities for improvement. This is especially true now that we have such rich ticketing data available via HOP.

One of the reasons I’m somewhat ambivalent about fares is because I find that fares don’t ultimately vary as much as people think they do. That is, the total costs per kilometre often tend to work out quite similar across different cities, even if the structure of the fare zones and products varies greatly. For example, here’s a figure from 2011 (source), which evaluates PT fares per passenger-kilometre (in AUD) for fourteen cities in Australia, Canada, and New Zealand.

This suggests that Auckland is something of an outlier on the high-side, which you may initially think is concerning. The thing to remember, however, is that since this figure was made AT has implemented integrated ticketing and a new fare structure, such that the cost per passenger-kilometre in Auckland now is likely to be much lower than what it was before. Aside from Auckland’s fares having historically been on the high-side, what I find most striking about the figure is actually how similar the cost per passenger-kilometre is across different cities, ranging from a low of $0.13 to a high of $0.20 per kilometre. Its not a large range and/or spread given the differences in size and structure of the cities themselves.

Is there likely to be further room for improvement? Absolutely, hence why I’m writing this post. And in my next post, I will put some skin in the game by presenting some of my own ideas on how Auckland’s PT fares could be improved. Before I do, however, I’m keen to hear your own ideas on how PT fares in Auckland could be improved.

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  1. “…. Some people seem to think that demand for PT would soar if only we could get the fares exactly right, and subsequently over-emphasise the role of fares…”

    IMHO fares are nowhere near as important as schedule. PT use will get it’s next big “bounce” when it grows up and becomes a proper PT system, rather than the current commuter orientated system designed mainly to relieve pressure during rush hour. Why is it, for example, still regarded as acceptable to shut down the rail network between Xmas and the 8th January? Why does the last train services on weekend depart at 12:40, leaving a roughly six hour gap, when most bars and pubs close between 2am and 3am? Why is it still regarded as acceptable to run just two trains an hour after 8pm and on weekends? Off peak service needs to improve, and dramatically, if PT is to grow.

    1. With regard to the Xmas network shut down out West this also resulted in the Henderson overbridge being closed for the period so access from residential area to shopping was impacted.

  2. I think (and I say this as I suck my thumb) that demand is only inelastic for peak commuter trips. For almost everything else where PT service is poor and alternatives not, there should be a high elasticicity.

    So I disagree discounts are robbing Peter to pay Paul (nobody pays Patrick, he a photographer! Lolz sick burn), or not always for sure. If we discounted various kinds of off peak or counter peak trips we’d probably just get a whole lot of new passengers paying extra, albeit discounted, fares.

    Also I’m not sure if there is necessarily any strong relationship between revenue and service levels, or at least with the capacity to move people. You seem to be suggesting that each extra passenger requires extra service? This is obviously not the case as we have quite a bit of extra capacity being operated already outside of a few peak hours.

    For arguments sake we could have free interpeak fares for anyone who has already travelled at peak (i.e. a daily cap of sorts). That would generate no extra revenue, but lose no revenue either. It wouldn’t require and extra service or expenditure… but presumably it would generate a lot more patronage.

    Anyway, overall I agree that trying to get fares perfect is a fools errand. I’d rather see them set to a point where it is very easy for people to make all sorts of trips whenever. It just needs to be easy, and the price needs to be relative to what people will pay for travel and alternatives. IMHO that steers towards a all you can eat type model where you given folk extra off peak, evening and weekend trips (when they have less willingness to pay) for ‘free’.

    1. Agree. Off peak is way too expensive especially considering the service drop. Was considering a PT trip to red beach from isthmus zone on the weekend for family but it’s just too expensive compared to taking the car. 2 adults there and back is $30.00 HOP. Then have to add on weekend child .99c fare. Considering how long it takes as well now the novelty has warn off, think I’ll be driving.

      1. Elasticity is going to be completely different for off peak users than on peak.
        Weekly passes etc make PT cheaper for people who use it to commute than for those that use it less frequently off peak. The completely wrong outcome.
        They should get rid of all concessions altogether (except children) and replace them with very cheap off peak fares for everyone.

    2. You are free to disagree, of course, but until you have evidence to support your view I think you’ll have a hard time convincing people.

      I think the view that pt demand is elastic is seductive because it means you can discount and get more money and patronage. Evidence shows this is the exception not the rule.

      Why don’t you accept all of the evidence (and there is a lot) that demand is generally inelastic, with some notable exceptions?

      1. Because that evidence, at least the Litman article, lits a series of simple price-demand elasticities for public transport overall, or a couple that break it out by mode.

        One number for PT, but clearly that could be vastly different depending on various situations. I’m very interested in the exceptions, those are the things you would target, not the overall average rule.

        1. Nick, I know of many studies that analyse market segments more finely. I agree perhaps not finely enough, but those that do still struggle to identify elastic market segments.

          So it is far to say that we agree demand is generally inelastic, but that some segments are elastic? And that targeting discounts is key?

          In lieu of this I would tend to take a risk-averse approach that sought to target discounts towards the segments we know are relatively more elastic (even if not fully elastic).

  3. The problem with “free” fares is the system quickly become unable to cope with demand. This has been proved at least twice in Auckland, the last was the City Circuit bus which used to be crowded with students, but as soon as a small fare was introduced those students decided to walk between the university and Queen St.

    1. “The problem with “free” fares is the system quickly become unable to cope with demand. This has been proved at least twice in Auckland, the last was the City Circuit bus which used to be crowded with students, but as soon as a small fare was introduced those students decided to walk between the university and Queen St.”

      That’s not true. The big dip in patronage occurred in September 2011 when the city link route changed from Wynyard to UoA to Wynyard to K Road. The city link had another big drop after fares were introduced, but these weren’t students. Students aren’t typically people speaking a continental European language with backpacks large enough to live out of or a group of 6 superannuitants with mainland Chinese mannerisms.

    2. This City Link is still free, in a way, for anyone who has arrived in the City Centre by PT already. I’m not sure anyone is suggested flat out zero fare for anything mind.

  4. While I agree in principle about preferring daily or weekly caps over monthly passes, monthly passes are dominant in Europe where they are generally paid for my direct debit out of a bank account (or in the case of people commuting on season tickets by National Rail into London, often by employer loans recovered out of pay because UK national rail has some of the highest fares in the world). So what happens in Europe is that people in effect subscribe to public transport in much the same way as we subscribe to broadband or a cell phone plan. The inertia principle applies where you have to take an action to cancel your subscription, which is one reason Sky TV subscriptions are only declining relatively slowly (in spite of paying a fortune for often poor advertising riddled content – reminder to self: Get rid of Sky subscription).

    Incentivising non-peak services through reduced fares not only comes at marginal operational cost (since the cost of the vehicle is covered by the peak service); it can increase social inclusion (or at least reduce social exclusion). It can also move price-sensitive but time-insensitive customers out of the peak. These things together could encourage more non-peak service (most of Auckland’s buses only operate in the peak) which in turn encourages more non-peak patronage.

    The AT Hop card & integrated fares have been key tools to enable the New Network of more frequent all-day services useful for a variety of purposes, not just the journey to work or study (I’m sounding like an AT media release here) – but to get the best use out of this network, you need a fare structure that encourages its use and acknowledges the fact that for many Aucklanders on benefits and minimum wage jobs, price is an issue and a barrier to using public transport.

    1. Darren touches on employers paying for the employees PT commuting cost as a benefit in the UK. Stu’s post is largely discussing the impact on none commuter PT use so this comment is off at a slight tangent.

      So I’ve had employer subsidized PT as a benefit, however, the employer usually has only done it because they also subsidize parking for car driving employees. I’ve often thought that the government providing a tax break to employers who provide a PT benefit would nudge loads of people out of their cars and onto PT?

      1. Does anyone know the fringe benefit tax rules surrounding this? My suspicion is that there is no fringe benefit tax payable on providing parking space in general? But subsidizing PT would probably incur a fringe benefit tax? So essentially the government is incentivizing people to drive.

        1. Yes PT passes are subject to FBT.

          Buying a pass for employees to park at a commercial parking lot down the road is subject to FBT also, but on-site ‘included’ parking is not, which is the loophole they tried to close but got shouted down.

          It seems the distinction is whether you pay a third party or not, which is pretty arbitrary.

        2. The distinction between FBT or not for employer supplied parking is whether the spaces are allocated to a person or just on a “first come, first served” basis. If allocated, FBT is payable.

          I agree the most equitable approach would be to eliminate FBT if an employer buys a PT pass for its staff. It seems only fair.

        3. If I were an employer I would have a pool of monthly pass cards freely available to staff that coincidentally equals the number of staff that choose to use PT. They would just have to periodically return the card to the pool (even if for just a minute or two).
          I don’t see how FBT could apply to such a scheme because technically all the cards are in a pool that anyone could use.

        4. Or just have one card per employee. First come first serve, no different to employers who do the same for car parking. Return it to the pool every day that you get to work.

        5. Ari, I doubt AT would let employers do that. They don’t even let children who are entitled to a child’s HOP fare use a card registered to another child – and in that case, the fares are paid journey by journey. But I think employers could pay for monthly passes for individuals, and keep a pool of unregistered cards that at least enable other employees to get the HOP fare while they’re considering whether a monthly pass is worthwhile.

    2. The high cost of rail fares in the UK is a clear example of the downsides of privatising rail services – despite rail being an essential service to the country and a public good with all the benefits that rail and the use of rail brings, the private companies have to make a profit, which in turn means users have to pay more, a lot more in the case of the UK.

      New Zealand needs to learn from this. Private companies operating public transport means higher cost to the end user, so that the private company can make a profit (which when foreign owned, then goes out of the country and does not benefit New Zealand).

    3. Hi Darren — good observations and I largely agree!

      Two comments:
      — I’m not sure if monthlies are that ubiquitous in Europe? At least in Switzerland and the Netherlands annual passes seem to be the norm, but that’s my anecdotal experience, not data.
      — I’m not sure that *just* because something is common in Europe, it should be adopted!?! It is true they do many things well, but not everything mind; I’d look everywhere for good ideas.

  5. I just use the monthly pass because it is the least hassle for me to top up or to worry about running out of credit. I may save a few dollars over the year by just paying fare by fare, but that discourages me using PT outside of my work commute. I sometimes use the pass much outside my commute if it is convenient, but usually it isn’t and I just take a car. I use PT because it is cheaper than parking in the city, but if the monthly pass increases in price much more it might convince me to lease a car park in the city and just drive in.

    I think monthly or annual passes with big discounts are a good approach to getting people to use more PT because people are more likely to buy the cheaper option and once they buy it, are more inclined to use it if they have no limits on it.

    1. Hey Ari,

      And I’d be interested in your view on the following combination:
      — A daily cap and/or weekly discount that applied automatically; and
      — An annual pass that you could pre-purchase for a cost of say 9-10 monthlies.

      So basically, if you travel regularly you will automatically qualify for the daily/weekly discount, which in turn reduces costs of travelling on evenings and weekends.

      And if you’re really sure of using PT then you have the choicie of the annual, which reduces cost during summer/holiday periods.

    2. Your combination makes sense. Daily caps are important and discounts are good to encourage extra travel. I would just get an annual pass if available. Some people may not have $2k sitting around to get an annual pass, but it would be attractive to many. I would definitely take up the offer.

  6. I like the idea of a simple discount for off-peak rather than free gimmick stuff. That Queensland taskforce suggestion of 30% sounds good. Generally the Auckland structure of fares is pretty right (not thinking about ferries mind you), but could just be a bit cheaper I think.

  7. Just like we are looking into congestion charging for road users, shouldn’t we do the same for PT? Why not make off peak free and on peak paid? It probably wouldn’t make much difference to overall revenue or costs…

    1. Not wise making PT free as this then creates inflated demand with people just travelling on it because it is free and overloading the system with people that don’t need to be there / would not otherwise be there, such as the big increase in youth gangs, undesirables and problem people riding around on the trains and loitering around stations since the HOP ticketing system was brought it. This then makes the PT service unsafe and deters legitimate people from using the system (driving them back into their cars) and increases the cost of providing the PT service with increased vandalism and having to provide much more security (in the form of expensive and ineffective private contractor security guards).

  8. Here’s the problem with comparing the cost of PT vs. the cost of driving:

    If you have $30 in your pocket, and you drive 20 km, you will still have $30 in your pocket. To most people, the cost of driving 20 km is $0.

    How much does driving actually cost? Nobody knows. As a rough approximation I assume PT will be cheaper when travelling alone, and driving will be cheaper otherwise.

    The main problem anyway will be speed and frequency. You may be able to drive to your destination and back in an hour, while the same round-trip on PT would take up the entire afternoon, especially off-peak. Even if PT would be free it just sucks up too much time to be useful.

    1. +1, PT has the biggest benefit when it allows you to own fewer cars. If a household can go from 3 cars to 2 cars, they save a minimum of $40 a week, even if they drive the same distance. The marginal cost of driving is low.

      We need to reduce the marginal cost of taking public transport to a similar level. Currently time is the biggest cost of choosing PT for most trips. We can fix that with increased frequency far better than with decreased fares.

      1. It’s not just frequency, but also geometry. If things like shops aren’t clustered in town centres, it’s game over for PT.

        As soon as you’re not looking for just everyday groceries, more often than not you’ll find the shops selling them are somewhere random. Over here (lower North Shore), that’s often in the light industrial area of Wairau valley (*). Cheap land I guess. Then there’s the Wairau Park shopping area tucked along the motorway, and mostly unreachable on PT. If you shop around, you always have those pesky few minutes drives between shops, which turn into half hours or even entire hours when walking or taking the bus. Lots and lots of time.

      2. This is true, my family has only one car (we live in the city so it costs $65 a week just to house it), but with my wife and a young son I have lost the battle to be car free. I usually commute to New Lynn by bus, sometimes by bike, at times by car, and my favourite, a bike train combo. Bike, bus and bike train combo all take roughly the same time, 40-45 minutes door to door, with a car about half this time. I feel better riding or using public transport (it lightens my conscience about our destruction of the world), but not may people have as heavier conscience as me I have found (those that contribute to this site aside of course). Driving or bus riding costs about the same, but if we didn’t own a car, we would be $100 better off every week. So it is the car ownership, maintenance and storage that really costs (even in the suburbs using your driveway is really a waste of good space and at Auckland land prices at least as expensive as a downtown carpark). If public transport apps integrated a little estimator of actual cost of your trip by private vehicle we could laugh a little harder at those who persist with selfish decimation of our atmosphere, and perhaps convince a few more to leave the dark side?

        1. Hi Matthew. Since you’re already looking at the economics, you’ll probably already have worked out that rental cars for a weekend or a week don’t cost a lot and – were you to ditch the car – would still leave you with change from $2000 (based on a one-week trip away and maybe 8 or 10 weekends). And based on your commuting pattern, you’d be using less than $800 on PT fares? I don’t know about the transport requirements for other members of your family but it sounds like the economics were ok for you to ditch the car.

          Can you put your finger on the most important issues that would need to be resolved for the whole family to have been happy to go car-free? I think that’s the question AT needs to ask.

        2. Yes for a family to go car free I think you need to be in close walking distance to some really good PT routes & also have your school/shopping within walking distance (or cycling distance with good safe infrastructure)……ie Netherlands quality almost needed. I think PT fares would probably have to be cheaper ideally, especially for short trips if the walking or cycling wasn’t up to it. Mum/Dad & 3-4 x kids adds up for a small trip there & back even with concessions. eg 1 piddly zone would be $11.62 on HOP, 2 zones would be $20.70. Two zones would be a common/likely occurrence, especially given walking that may be too far.

  9. A great irony with Auckland Transport is when they brought in the AT HOP ticketing system, they didn’t introduce any incentive for their own staff and public transport operator staff to use public transport.

    Prior to the HOP ticketing system being brought in across bus, train and ferry services in Auckland, rail staff used to have discounted staff privilege tickets available to them which was taken away and not replaced with anything when the HOP system came in.

    All the unions representing bus, train and ferry staff jointly approached AT with a request for a staff privilege AT HOP card to be introduced which would provide all transport operator staff and AT staff with free travel on all public transport modes in the AT network. AT refused.

    AT obviously rather have their staff driving to work, adding to Auckland’s congestion and having to pay for building more staff car parking at all AT sites and depots as staff numbers grow.

    The great irony is while AT expect their staff to pay to use public transport, they are quite happy to let the public ride for free and turn a blind eye to the massive amount of fare evasion occurring, particularly on the trains, which is being blatantly exploited since the HOP system was brought in and train staff were made to stop checking all tickets by AT. This is one of the reasons rail patronage continues to rapidly grow year after year, as so many people have worked out how easy it is to ride for free or exploit the fare system and not pay the full correct fare for a journey, knowing there is little chance of being caught and even if caught, know that there is nothing even the new Transport Officers can actually do if you refuse to provide (correct) details or get off the train. This is why places like Takanini station, Papakura station and Pukekohe station and surrounding streets are crammed with cars (to the inconvenience of those who live in those streets) despite the risk of being broken into and the longer more inconvenient travel times, because of the advantages of free train travel and not having to buy as much petrol every week.

    If the people who run Auckland’s public transport were actually using it and relying on it themselves, they would see the many issues such as those highlighted above and on this website in general, and are best placed to raise issues and get changes made. The incentive needs to be provided with AT providing a free staff privilege AT HOP card for all AT staff and their public transport operator staff, similar to what public transport staff get in London and many other world cities.

    1. Free transport for AT staff – heck no. If they are getting a free service, then that basically eliminates any reasons for the ‘issues’ being taken seriously. If something is free, then you kind of have zero credibility for complaints.
      The increasing patronage is measured by HOP cards and bought tickets. The ‘freeloaders’ you mention wouldn’t be ‘captured’ by data gathering.

      I think you’ll find one of the main reasons for AT refusing free travel for AT staff would be the huge media and political backlash for this – if AT get free travel, why not Watercare staff? Why not all Auckland Council staff?

      1. The reason for suggesting free public transport travel for AT staff and their public transport operators is because AT is a separate entity to Auckland Council and Watercare etc. Some staff in Auckland Council and Watercare get company vehicles to use, as do many people in many other public and private businesses, which get used for travelling to work and personal business – there is no media and political backlash for this common widespread activity, so why should providing free public transport to the public transport staff by the public transport organisation be viewed any differently? No different to a person who works in a biscuit factory getting free biscuits.

        Irrespective of whether the staff are paying or not to use public transport services, if they are using them to get to work or appointments etc like anyone else and are inconvenienced by issues or problems, they still end late and are subjected to all the same consequences as anyone else. All the more reason to have more AT and public transport operator staff in particular using PT services so that they can be made more aware and greater appreciate issues from a passenger point of view that they may not see or appreciate when just operating the service – staff will want to get to work on time or get home or where ever they are going to as fast as possible as anyone else, and if relying on public transport and get inconvenienced by a bus that does not turn up or a connecting train service to/from Pukekohe is not held at Papakura, the staff / managers in charge of planning and decision making might be a bit more vocal and pro-active to get changes made.

        Presently many AT and operator staff use their own personal cars and park in staff car parks (many of which are too small to accommodate current ever growing staff numbers, resulting in staff parking in commuter parking areas which then takes away potential parking for commuting passengers) which are provided and paid for by AT. It has been publicised in the media before the irony of complaints made by AT staff based at their Henderson office about the lack of parking and the poor public transport for getting to and from this site.

        Regarding collecting patronage data, the Train Managers on the trains carry out passenger counts at certain stations on every service, which would obviously include freeloaders. Anyone who travels regularly on a train, particularly in South Auckland and to Pukekohe will see the high number of people who clearly do not pay at all and how no-one cares.

        1. “particularly in South Auckland and to Pukekohe will see the high number of people who clearly do not pay at all and how no-one cares.”

          How do you see that? How do you know that someone hasn’t tagged on at the station and that you just haven’t seen it? How do you know that they aren’t a monthly pass holder who has simply forgotten to tag on or assumed that they don’t have to?

        2. See it all the time where people walk straight onto the platform from the footbridge ramp / station entry point and walk straight past the tag on posts without tagging on or going to get a ticket from the ticket machine, and get straight into the train and then leave the station without going near the tag off posts.

          A dead giveaway are the people who haven’t paid waiting for the Pukekohe train at Papakura station on platform 4, who wait sitting on the bench right until the last minute before the Train Manager closes the doors, waiting to see that no Ticket Inspectors are going to come down the platform and board the train, before boarding the train. These same people then get off the train at Pukekohe station and walk straight past the tag on / tag off posts and leave the station.

          All this happens all the time, every day particularly during the off peak, evening services and all day on weekend services.

  10. Monthly passes are probably used most by those that need them most, so there is a captive market, which limits elasticity. I’m fairly certain it would skew toward low/minimum incomes, so the obvious positive externality is avoiding a regressive charge. This was probably part of the reasoning behind monthly passes in the first place…

  11. Monthly passes only provide a large discount for customers travelling 5 zones every day as only need 14 return trips to make them pay. However 5 zones trips are relatively low given you have to travel from the City to Helensville or Pukekohe. This would make them a relatively small number of trips across the PT network given annual Pukekohe patronage is about 300k, or 0.5% of PT boardings, and those that would travel daily to the city a much smaller subset of this. Therefore removing them would give you very little extra money to play with. Annual passes would appear to suffer from the same issues, but with a large added equity & affordability issue that would dissuade people from using them.
    I think a pay by month or even fortnight ‘subscription’ to PT would make a lot more sense and get a lot more take up. This would make PT more like how most companies sell us regular use type of products, whether it be internet, mobile phones, insurance or gym memberships. To dissuade people from cancelling it over summer would have a one month cancellation notice period. The unlimited PT pass could be priced about $75-$100 a fortnight.

    1. Hi Luke,

      Removing monthly passes is less about saving money, than it is about providing better incentives for people to use PT when the marginal costs are low.

      I’d suggest that even if we were talking about revenue neutral changes, then daily/weekly/annual passes would give you better value for money than monthly.

      I also think that daily/weekly/annual passes are a more intuitive product to market, as they are use time units that align with people’s short, medium, and long-term perceptions/experiences.

  12. I don’t see any benefit in weekly or annual passes…what’s the purpose of giving a discount to a regular user, since that only comes at the expense of the casual user, who is really the user you’re hoping will become a regular user. Why should some people pay more than others for the same trip?

    Another idea: giving every ratepayer a $100 HOP credit for PT each year (though I suspect the next C&R mayoral candidate would lobby remove the credit and reduce rates by $100). That might get people using PT a bit more, if that’s the goal?

    I’d like to know more about how PT fees are set as it seems like they are just too high. Do fares need to recover capital & opex for bus stations, ticketing software, etc – if so, that might be unreasoanble given road opex is done via rates. EIther way, it feels like I should be riding more cheaply on a bus given I’m sitting in a vehicle with numerous other people on a pre-defined route.

    The harsh reality is that it’s not cheaper to take PT, in most practical circumstances. For somebody who already owns a typical car (ie most of us) the actual running costs are about 20c a Km (nb this is far lower than figures quoted by the AA which include new cars/corporate fleet, etc.)
    Here’s an example

    Parking costs are an additional factor (if you need to park in the CBD, takapuna, newmarket, etc) – it seems like there must be a very high correlation between PT use and carpark pricing/availability.

    A person’s PT fare would be weighed up against a car’s passenger capacity, cargo capacity, comfort, convenient & time saved, etc. Then there’s Uber to consider, which is roughly $1.60/km but when comparing KM costs you have to remember uber is door-to-door whereas PT routes are wiggly, with gaps and if you ride with a friend then Uber is pretty cheap.

    1. You make a very fair point.

      I discuss dailies/weeklies/annual passes in the context of replacing monthlies, but there does need to be a discussion about the trade-offs involved.

      My suggestion would be that someone who already uses PT for their commutes (and hence make use of a weekly/annual pass) may be more likely to use PT off-peak.

      So we’re talking about targeting discounts to a self-selected group of people who may have a higher propensity to use PT than the average person. Basically, it’s an elasticity argument.

      I’ll look to discuss these issues in more detail in the next post.

      1. I think AK Sam raises some important points. Getting people using PT has to be the main focus. Perhaps your question: “what is the best way to charge people for using public transport to maximise patronage while remaining within budget?”

        has no answer while the PT budget is so low and fossil carbon is so cheap. There is no equity when we are subsidising people to change the climate.

  13. It’s worth pointing out that Auckland doesn’t really have discounts as such. PT fares in Auckland are roughly double that of PT fares in most other parts of the country, so the “discounts” are merely the equivalent of normal PT fare levels as experienced outside Auckland.

    Queenstown recently introduced an initiative designed to boost PT usage to a million users – they capped fares at $2 per journey across all fare zones. So even Arrowtown to Queenstown (about the same distance as Manurewa-Britomart) is $2.

    Similar situation in many parts of the country. Fares are generally around $3-$4 for the longer journeys of 20km or more (Havelock North-Hastings-Napier).

    So basically, Auckland already has higher than average PT fares, to pay for a wider range of services and infrastructure.

    1. Given Auckland makes up more than 50% of PT trips in NZ, it pretty much sets the average. But you also can’t compare most places as they’re no where near as big. Looking at the data, a better comparison is to look at cost per passenger KM. Auckland is a little above average but there are plenty of regions higher, including Otago.

    2. How are you measuring PT fares? I prefer % per passenger-kilometre travelled. By that measure, Auckland is not double Wellington, but rather about 30% higher.

      Lower fares are a fine thing to advocate for, provided people accept that in most cases this will mean reduced investment in services and infrastructure. Like your beloved rural rail services ;).

    3. Queenstown hasn’t capped fares at $2, they’ve set a flat fare of $2 on their card system, and flat fare of $5 if paying cash.

      In comparison an Auckland 1 zone fare is $1.85 on Hop, or $3.50 with cash.

      Considering Queenstown (excluding the one exception with Arrowtown) is smaller than one Auckland zone, that’s hardly evidence that Auckland is ‘double’.

      1. Nick, I’m referring to the non-discount Auckland usage. I.e., not the crosstown single zone users, but those crossing the radial boundaries. Arrowtown-Queenstown ($2) is about the same as Manurewa-Britomart ($4.85). That’s my point, Auckland already charges a premium on routes of higher demand, and less on routes of lower demand.

        I don’t think that was ever intended in Auckland though? It’s just a consequence of the radial structure chosen, which in a nutshell charges more if you’re going to the city (and those in the CBD itself have the highest fares, as they enter a second zone almost immediately, no matter which way they go, due to the small size of the zone).

        Stu, I’m not sure what rural rail services you refer to? Rapid Rail (GA) or Ruahine Runner (Greens)? Both are very high-cost loss makers, I agree. Regional passenger rail in NZ must be tourism-focussed to be financially viable, but that’s a bit off topic.

  14. I’m very much in favour of automatically applied daily or weekly caps, but I’m not sure I understand why you see those as incentivising off-peak travel but not monthly passes. I get that daily/weekly products target off-peak trips more directly (since you’re more likely to have run through your 8 weekly trips at the end of the week), but anecdotally monthly passes also encourage non-commuting trips – you already have the pass, might as well use it, sort of thing. And it reduces the erroneous sense Roeland mentions that taking the bus costs something and driving doesn’t – once you’ve paid for the pass, taking the bus feels ‘free’, like driving feels ‘free’ except when you top up.

    1. Hi Chris, I think you make a fair point: Monthlies can target off-peak periods if they are set at ~20 times the daily fare for two peak trips. That way, they’d only appeal to people who would also use them for off-peak periods.

      But as you note they do it much more indirectly than daily / weekly / annual passes.

  15. Great post, Stu. The Accenture research in interesting. This is the research to consider when wondering how to keep young carless people comfortable using PT as they grow older, even when they have families of their own, etc.

    What it doesn’t cover so well is what encourages people to try out and switch to public transport. They only surveyed public transit users. Have you found good similar research into what incentives encouraged people to make the switch to becoming a public transit user? There would be differences. I think for people considering trying out public transport, price is important, and our cash fares are too high for this group, especially families.

    1. Yes that is a good question too! The post is not really limited to young though, insofar as demand elasticities seek to capture the demand-response of all people currently using the system plus any new ones who are attracted. So it’s measuring both responses, which I think is important.

      In terms of cash fares, my preference would not be to discount these. Instead, I’d be much more in favour of discounts and behaviour change initiatives targeted to low income households. I’ll discuss these in the next post, but they basically include:
      — 50% concession for people on welfare
      — HOP cards with $5 automatically sent to people who move house (data is tricky)
      — Targeting HOP promotions and free cards to low SES areas.

      You may be able to think of others?

      1. These are good, but they are targeted interventions that require constant attention. To me the biggest problem is structural with our zones and fares that are loaded in favour of the wealthy inner suburbs.

        I think Queenstown has it right. They decided that all residents should have equal access to public transport without favouritism, and in Auckland this change would benefit the working poor in a way that welfare-based moves might miss. We can (and should) help our poorer residents by putting everyone on a level playing field by scrapping zones and equalising public transport fares.

        1. “We can (and should) help our poorer residents by putting everyone on a level playing field by scrapping zones and equalising public transport fares.”

          How would that help poorer people? If I live in Otara and work in the airport precinct packing boxes, how would raising PT fares for me help at all? How does it help the young mothers I saw on the airport bus travelling from Papatoetoe to Mangere to buy some essentials at the cheapest location who were discussing just how tight money was for them?

          Cheaper fares help those who travel further. It harms everyone who makes local trips.

        2. No argument with your logic there SB, but the upside is that equal fares gives more affordable access to more places for work, for leisure and for education. Things like a family trip to the beach, the zoo or the museum become so much cheaper without excess zone-based charging.

        3. Larger zones make for bigger jumps, too, if a small journey crosses the boundary. Which was given as a reason for the change from large zones to smaller stages in the the 80’s. Larger zones was definitely a regressive step.

  16. In Auckland while cost per distance travel is comparable to other city, value per distance travel is not same among cities.

    Cities that are denser has higher value per same distance travel.

    For example you need to travel 1km to buy milk in Auckland, in Japan it could be 200 metres.

    Similarly the concept applies when business people travel to get things done.

  17. Stu
    I am glad that you have noted that this article is based on the premise that subsidies remain at or around the current level.
    What however, if as a starting point AT were to reverse the amount spent on roading v public transport. What if the government decided that they seriously wanted to address greenhouse emissions by drastically reducing car usage instead of limiting more productive industries? What if, as Sailor Boy suggests, the govt wants to increase wealth by providing low cost public transport?
    Vienna has achieved remarkable success in attracting people to public transport with a king pin of this being a phenomenally cheap yearly pass. ($NZ$2 per day) And the proof is it works, with 730,000 now holding the pass and this growing at over 4% per year. And completely contrary to your thinking the casual rider pays something like what the trip is worth? What is the benefit of rewarding tourists and casual riders with cheap transport when they are not the people who drive the success of the system? However, it is clear to the casual rider from the pricing structure how they can obtain cheap fares. I guess the annual pass is a monstrous loyalty programme and at least in Vienna it works with the target of car trips to be less than 20% of all trips by 2025 (currently 27%).
    I note your table of English speaking country’s public transport. In my view, and those of some international commentators the real success stories lie elsewhere. I was gob smacked in Santiago, Chile where their trains make ours look like train sets. And the number of people carried – 2.5 million per day. And what a hell of a difference it makes to the city centre where the traffic is infinitely more pleasant than Lincoln Road.
    I do agree with you that the infrastructure needs to be reasonable. The RTN service that I ride currently is stopped for three or four light changes on Halsey St each day. It doesn’t take much money to fix something like this.
    I hope to write further about Vienna after an acquaintance from there stays with us next month.

    1. I’d love to read that. I hope you include information about the city’s density and PT service available when the passes were first brought in. I’d imagine Auckland might need to do a bit of catch up in bus numbers, route frequencies, driver training to achieve the same results?

    2. Hi taka-ite,

      Just quickly before dinner: I think you’ve misinterpreted my argument. Specifically, the same logic applies regardless of the government, unless they write a blank cheque to PT. I basically don’t see that happening under any government, even one where the Greens were majority party. Basically, whenever you have a budget constraint (set at *any* level), and you offer discounts to an inelastic demand segment, then you are requiring that fares for all other users be higher.

      I’ll come back to your comment re-read later tonight …


  18. I can certainly vouch for price elasticity, Kiwirail Employees used to get quarter price fares in Wellington until transdev took over. Basically none of them catch the train to and from work anymore as they are paying full price.

  19. Stu
    I absolutely agree that someone has to pay. London, for example has a $22 odd congestion charge that presumably is helping fund their underground additions. Vienna has increased parking charges to help pay for their transport.
    I imagine that a very large part of the increase in Auckland of public transport users to the city is due to parking charges rising. When I first started commuting about 8 years ago all the parking buildings I passed were about $11 per day. Those same buildings are now from $25 upwards. That’s a huge incentive to take a bus where that price has changed by only about 5% over the same period. I can tell you that on my route people have not migrated to buses because they are all plush and modern; nor that that timetables have been vastly improved; or that there are vastly more kilometres of bus ways. Sadly none of these apply. I suspect it is driven almost solely by price.
    How would demand for public transport change if those who park in the city for free suddenly had to pay a $20 congestion charge. Or, if like Sao Paulo, every time you passed a toll point (electronic) on the motorways you had to pay a toll? I am sure that demand is elastic.
    I completely agree that even for the Greens such a change would be a hard sell. It will be interesting to see how their policy of free transport for everyone under 19 will gain momentum.
    The great thing about concurrently introducing a cheap yearly pass is that everyone has an option: pay the tolls or avoid them by using a yearly pass. And because you can use that pass all day, every day, every time you use it you benefit financially as does the environment and congestion is eased.

    1. Ok so if demand is inelastic, then a cheap annual pass requires single journey fares to be higher? Or are you suggesting demand is elastic?

      Challenge with increasing single journey fares is that it psychologically it creates a barrier for people to try pt. Few people are likely to go straight to annual pass with trying for a while.

      Challenge with elastic demand is that there really is no evidence to support that. Unless I’ve missed something?

      1. @Stu, I think that is a slightly disingenuous interpretation. PT demand may well be inelastic to fare decreases from say $4 to $2, but introducing a $20 congestion charge decreases PT fares from $4 to -$16.

        I doubt that Ferrari sales are elastic to a reduction from $500,000 to $250,000. But if all other cars cost $2,000,000 then Ferrari sales would probably increase a lot.

        1. I’m not trying to be disingenuous, it’s more that the line of reasoning is unclear to me.

          If what you say is accurate, then Taka-ite seems to be talking about cross-price (rather than own-price) elasticities? That is, a congestion charge changes the price of a potential substitute to PT.

          Now, cross-price elasticities from car to PT may be relatively high (they typically are when you are talking about substitution from a large market to a small market), but I don’t see what this tells us about PT own-price demand elasticities?

          You seem to be arguing that because the cross-price elasticity may be high, that the own-price elasticity will also be high. I don’t see why it would necessarily?

        2. The argument is that cross price elasticity is high therefore we should increase the price of the substitute product to fund increased quality of service. It is challenging your premise that funding is fixed.

        3. I think people may have misinterpreted my use of the word “constrained”. I see “constrained” as not being equivalent to “fixed”.

          And even if you did have additional funding, from say road pricing, by discounting annual passes Taka-ite is still making a decision to use that revenue to lower some fares more than others.

          Unless we’re talking about PT being free, which I don’t think we are, you can’t escape (no matter the quantum nor the source of revenue) that discounts, such as annual passes, are picking winners/losers.

        4. I see. You are asking which winners we should pick?

          I guess I also struggle in that I see the funding constraints as being so arbitrary it’s outrageous. People say constrained as if we can only tinker at the edges. I see constrained as being ‘right now this is what we have’ in 6 months we could probably have twice as much. We definitely should do that. Additional funding is going to change the landscape so much that it is hard for me to even consider what a ‘good’ version of anything like the current system would look like.

        5. P.s. I think what it comes down to is Taka-ite is constraining his options to make it seem like you’re not making a choice about winners/losers, that is:
          — Base == current fares
          — Taka-ite’s option == current fares – annual passes + road pricing revenue

          I’m suggesting that there is another option:
          — Stu’s option == current fares – some other discount + road pricing revenue

          I think this makes clear that in Taka-ite’s option people who might buy annual passes are winners compared to the people who would receive a discount in my option.

          Just because you identify another source of revenue doesn’t change the math: You are still making a policy decision that favours some passengers over others, there is no free PT lunch (unless demand is elastic to the price change), and you should still justify it just like any other discount.

        6. I think it does change the math though. If we had double the funding our network would look radically different. This would change the number of people who won with each discount, who those people were, and how much they won.

        7. I think it comes down to definitions of winners/losers.

          My definition of a “loser” is measured relative to the possible options, rather than in an absolute way based on the current fare structure.

          The reason is that if you are changing the level of funding then you are changing what you can do with the money. A butt-tonne of funding, for example, will mean that you can afford to discount all fares, so everyone “wins compared to the status quo.

          If you use a lot of the revenue to offer a cheap annual pass, however, then you are constraining the degree to which you can lower fares for a single journey. Under such a scenario, single journey fares will be higher than they would be have otherwise been if you hadn’t offered the annual pass. By my definition, we have made a choice that makes users of annual passes a winner, and users of single journeys a loser.

          My suggestion is that — just like with network design — we treat funding as a very separate question from *relative* fare levels. You are right that it matters to absolute fare levels, but when designing a fare system it’s the relative fare levels that I want to focus on. That is, the act of offering a discount to person/journey of type A not B.

        8. Relative fares are a useful discussion, but they have to be discussed in the context of the system. Consider the PT system from 2005. A monthly pass is only useful for daily long distance 9-5 commuters, they are the winners. With the new network, the winners may also include people who only travel across the isthmus, but who travel a lot. They are also winners.

          I think it’s a bit ridiculous to look at fare policy separate to total funding. We don’t do that with any other infrastructure. We never say ‘you have 12m to upgrade Albany Highway’ or ‘200m to build Britomart Station’. We should ask ‘what is the best solution for a PT network?’ and then as part of that we ask ‘what is the best way to move towards that’.

          Some of the interim steps may be tinkering by changing winners and losers within the same funding, some of the interim steps might be raising 200m a year by congestion charging the CBD so that we can add 15 frequent service routes.

  20. My anecdotal evidence. I think I’ve seen that in NZ/Auckland we are very price sensitive, our incomes are low. Depends in what social circles you run in I guess but look how all the retail shops are always advertising discounts & how we all go on about how much we saved buying this or that…we are like hunters on a savings mission!

    My gut feel is that annual passes may work in some countries (like Vienna) but NZ’s are terrible savers so forking out an annual fee would be hard to do especially for lower income groups (OK monthly payment may work). Seems all these other systems are primarily based on the already PT using daily M-F commuter so will help them then use off-peak travel (especially nights?) for free when there is less congestion & issue with parking/travel anyway. Why not target other groups like the stay at home parents with kids, semi-retired etc.

    Why not just have big discount on off-peak times? Simple & good for those wanting to just try out PT & others putting bums on seats that would otherwise be empty? You could also have automatic daily/weekly/monthly caps if you want but perhaps not necessary to increase patronage. Don’t think we should have free travel for anyone apart from the seniors & children under 5 as we currently have.

    1. why do you think incomes are low in New Zealand?

      According to this data: https://en.wikipedia.org/wiki/Median_income we’re 11th in the world income per household and per capita. My view is that income in New Zealand is inequally distributed, such that marginal utility of additional income is likely to be very high for some people and very low for others. With regards to retailers offering discounts, I find that to be an international activity! As is people hunting for savings …

      But I do agree with you on the cost of the annual pass being a barrier to some, which is why I wouldn’t suggest it is the only discount that is offered. I think you need to layer discounts to attract passengers, first and foremost, and then think about ways of retaining them by offering discounts to use PT when marginal costs are low, as you suggest with an off-peak discount.

  21. Perhaps the biggest reason for a highly discounted annual pass is if we think it will allow people to become car-free more than alternative discounts would. This is important, because people without a car find PT solutions where others wouldn’t, and structure their lives to not need to drive. In Vienna this happened, apparently, but I suspect Auckland’s low density and car dependent layout might prevent it from happening here.

    From the point of view of trying to open people’s minds to PT, incremental steps are important. Lower fares across the board allowing people to try out routes and not be put off by price is key, I think. This is why the annual pass idea is good only in the situation that it comes with the large increase in funding that Taka-ite is also suggesting. Otherwise, the other fares will have to increase or other discounts disappear.

    So Stu is right: given political difficulties in switching funding from roads to PT, we have to consider the general fare structure without any significant increase in funding.

    And Sailor Boy is right: what we’re needing to achieve with PT involves a significant increase in funding, and we’ll be chasing our tails if we continue to argue about fare structures without it. We can’t continue subsidising climate change.

    1. Logically, the process would go:
      1) Provide cheap tickets (eg Vienna)
      2) Increase the service quality to meet demand
      3) Raise the prices (gradually at first)

      We can’t ask a premium price now for a basic service and hope that people just think “oh well it’s getting better so I don’t mind paying extra because it’s an investment”.

      A private company would invest (say, in a toll road or private train), and recoup the investment and gradually. It’s not “user pays” on a per user basis.

  22. As far as I can see, no-one in this discussion has yet acknowledged that Auckland public transport is FREE after 0900 and at weekends for gold-card holders. That’s not a discount — that’s free.
    If cost were the only, or even the major thing preventing the use of public transport, then the trains, buses, and ferries would be over-run with golden oldies after 0900 every day.
    The problems seem to be more than just cost. Maybe public transport doesn’t actually go from/to the places people want to travel. Maybe it takes too long, or is not frequent enough, or is not comfortable enough, or is inconvenient or impossible to use with parcels / shopping / pets.

    1. There are a lot of golden oldies using the buses after 0900, but you’re right… how many do compared to how many drive? Does anyone know any stats? And then a break-down by level of wealth and car ownership so we can extrapolate wildly to the rest of the population.

      Also, it seems retirement villages are at the forefront of having share cars so residents don’t have to own one – I wonder what effect that has had?

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