SIMPLE PASSENGER TRANSPORT ECONOMICS

Consumable items Oils, filters etc.

Tyres

Component parts Clutches, brake linings, road springs etc.

performance required level of service, in terms of routes covered and frequency.

Having identified our costs we have to decide on the level of profit we are looking for and the likely tax liabilities of our enterprise.

Once the cost of providing the services have been identified, and quantified, the next issue is, who is going to pay for it?

Here we have to identify the number of passengers we expect to carry and the source of our revenue.

If a policy is followed where each journey, regardless of how long or short that journey is, is charged at the same rate, then it is a matter of identifying how many passengers are carried in a given period. Then divide the total operating costs (including tax liabilities and profit sought), by the total number of passengers carried, which will determine the level at which the fares need to be set.

This may come directly for the fares paid by the passengers, or it may be provided by local, regional or national administrations, in the form of subsidies, or tax concessions. The carrier’s income will usually be derived partly from fare revenue with the remainder coming from one or more forms of subsidy.

Subsidies are usually paid where local, regional or national authorities what carriers to provide services for social reasons which would not be sustainable on the fare income alone.

The social reasons for providing such services may include the provision of services in rural and less developed areas, providing services outside peak times and providing services to retired people, children, disabled people and military staff, railway workers and various other social or employment related groups. However, the authority/s that believe it to be correct, to allow these groups to receive subsidised or even free travel, should be prepared to pay to carrier the full fare where the passengers travel for free. They should also pay the difference between the full fare and the actual fare collected, where the passenger travels at a reduced rate. This should apply to every journey taken.

Therefore it may be appropriate for the local administration to pay the carrier all of the fare or the difference between the full fare and the fare paid for each journey taken by the pensioners, children and disabled people living in its town or region.

However, it may also be reasonable to expect the Federal Administration to pay the carrier for the journeys taken by military personnel.

Additionally, if groups of workers such as railway personnel are carried for free or at reduced rates, their employer, in this case the Railway Company should reimburse the carrier for every journey taken by their employees.

There may also be environmental considerations for promoting public transport and discouraging the use of private cars, such as reducing air / noise pollution and reducing / avoiding traffic congestion. Therefore the fares set by the carrier, and the standard of the vehicles / services provided, need to encourage the use of public transport wherever possible. This is however an area where the financial benefits can be difficult to quantify.

Amongst others the benefits may include improvements in public health, and a reduction in working time lost due to traffic congestion.

Here again, the Federal Authority or the regional administration may decide to subsidise the fares charged by the carrier to specific passenger groups, at certain times of the day or week, or on specific routes in order to encourage the use of public transport. The authority should reimburse the carrier for any shortfall in revenue i.e. the difference between the full fare and the fare charge, for each passenger journey.

When we are considering concessionary fares it may also be reasonable to suggest that only those individuals within the specified social groups, such as children and pensioners, who do not have sufficient financial means should receive free or discounted travel.

When any subsidy of passenger transport is being considered, the supplier of the subsidy should seek the maximum value from the carrier for the financial support provided. Therefore, it will be necessary for the carrier to operate in the most effective and efficient manner.

Amongst the carriers considerations should be:

The cost and depreciation of new vehicles which only need routine maintenance, against the operation and maintenance of old vehicles where unscheduled repairs and in service failure will be common.

It will be important to select suitable vehicles for the journey. For instance the use of minibuses may be inappropriate for a major city centre where large numbers of passengers are transported. However this type of vehicle may be suitable for suburban areas or smaller towns where passenger numbers are less.

It will also be essential to identify passenger flows so that the correct frequency of operation can be established. For example, a service frequency of 10 minute intervals, may be required during peak periods, however this frequency may be reduced to hourly interval at less busy times of the day or week.

These considerations will influence the number of staff employed by the carrier and the shift patterns worked. For example, as some drivers may be only required during peak periods, their working day may be split into two short periods of 3-4 hours each.

It may also be possible to programme vehicle maintenance so that it is carried out outside of the peak periods for vehicle use. This will ensure maximum fleet availability when it is needed most, during peak passenger traffic flows, and it may also to reduce the actual number of vehicle required.

Considerations of this type will eventually lead to effective working practices being developed, and will enable the enterprise to operate at the minimum cost whilst achieving the maximum level of service to its customers.

Once this point is reached and a number of carriers have developed efficient operations, the relevant local or federal authorities may want to introduce a level of competition into the market place. This is where issues such as the contracting out of services, route licensing, and competitive tendering may need to be considered.