On Decisions on Maintaining Route Operation

Considering the level of cross subsidy that exists at the moment, it was emphasised by some operators that decisions are not taken at a route level basis but their view on action in the context of a change in bus subsidy would be based on the impact of the scheme across all services. This means that, in the short term, these operators would examine total profits and establish the level of cross subsidisation needed. If profits still remained after that, improvements could be considered on the busy profitable routes and extra profits may be used to fund quieter routes.

However, in the long term, decisions could be taken differently and the level of cross subsidy could be reduced by de-registering services. Action could be taken in five different ways: changing the fare, the frequency, the quality of the bus route, and changing the route (splitting, cutting) or deregistering (at certain times of day and days of the week).

Routes may be divided into three groups with respect to the reaction to implementation of IPP:

• loss making routes that incur greater losses;
• profitable routes which become less profitable or possibly loss-making;
• profitable routes which become more profitable.

Loss Making Routes: Deregistering

On an already loss making route that is getting worse, without an overriding strategy/plan or the need for the route to be maintained because it is an important part of the network, the action from bus operators is likely to be to deregister the service.

In the urban area, the local authority could envisage that more evening and weekend services would be deregistered. In the rural area, where evening and weekend services are already contracted, daytime services might be expected to be withdrawn.

The safety net that might be available to support the additional tendered services was calculated by a simple pro-rata basis related to the amount of FDR in the LA area. Clearly, this would tend to favour an area with a greater predominance of commercial services. Discussions with the LAs confirmed that this was the case, the urban authority felt that the levels discussed were reasonable, comparable with their existing budget. The rural authority, however, believed that the levels discussed would make little impact on the services that would be required.

A particular point was made regarding the application of the subsidy to schools travel, given that some pupils travel on contracts and others on public services. The implied level of subsidy is extremely important, particularly in a rural area where most passengers in peak hours are travelling to school for distances which exceed the statutory limit.

Profitable Routes Which Become Less Profitable

The reaction of the bus operators would be to try to reduce costs on such routes. The most common answer was to reduce mileage by eliminating marginal services (evenings, weekends). In some cases, cutting a section of the route which is not very busy might also be considered. Whilst this would not be popular with the public and local politicians, it would have to be considered for the long term. In addition, there may be some cases where operators will consider cutting daytime frequencies, although due to the entry threats that operators face, this action may only be actually implemented on a limited number of routes.

Another action would be to move towards more fuel-efficient vehicles. On marginal routes it may be possible to use smaller vehicles to save costs fuel. But adjustment to the bus fleet is unlikely to happen in the short to medium term.

Operators were also asked whether a possible response on such routes could be increasing fares, assuming that demand on the route is inelastic in the short term.

Answers differed with regards to the increase in demand resulting from quality improvements. Some interviewees felt that there was no incentive to try to increase demand by increasing quality as it was noted that significant increases in demand through improving quality alone by the operators was unlikely. Others noted that investment in new buses, bus stop environment and better information has, in the past, lead to an increase in demand.

However, they all agreed that they needed to improve on profitability first before increasing bus quality although these routes could indirectly benefit from the change in subsidy that would accelerate investment on busy routes. For example, new low floor buses on busy routes may eventually be transferred to these less profitable routes when the vehicles are replaced.

Reducing fares or increasing frequency were not considered as likely to increase profits, as interviewees felt that generated demand would not be sufficient to compensate for lower fares or extra costs.

For some operators, especially those running urban routes via the city centre, splitting such routes was not seen as a viable option to increase passenger boardings. They felt there would be political implications in doing so, and that regular customers would complain if they were asked to alight and re-board a service and possibly pay two fares instead of a seamless journey that they now undertake. Extra resources would also need to be provided by the operator to implement and manage two separate services instead of one, for example.

However, other operators said that splitting routes might be considered to maximise profits. A specific example was given of an interurban route that served several areas of the town beyond the bus station on one end of the route. It was noted that since the quality of the bus station was good, it could be a viable option to split the route at the bus station, serving the other areas of town with a separate minibus service (with potentially a lower frequency). These operators said that it would not be seen as too difficult as most customers are used to changing services.

As for the loss-making routes, the local authorities anticipated the withdrawal of evening and weekend services. They expressed a preference for operators to cross-subsidise on a given route 'within the week', as opposed to cross subsidy between routes. They felt that this clarified the distinction between commercial and socially necessary routes, and made the tendering process more meaningful.

Profitable Routes Which Become More Profitable

As stated above, extra profits would not necessarily be directly re-invested as expenditure would be based on the overall profitability of the network. If the general picture showed increased profitability, operators could see that on busy routes there would be an incentive to improve quality, increase frequency and maybe then reduce fares or delay fare increases. These actions would be seen as a 'reward' to existing passengers, rather than an incentive for new passengers.

Operators noted the need for the local authority to participate in route quality by improving bus shelters and bus information. This is particularly an issue in outer areas where the quality of the infrastructure was generally poor; this should be addressed because this is where people begin their journeys.

The local authorities were concerned that additional profits on urban routes should not simply disappear from the system, but should be seen to be ploughed back into improved services. This was particularly the case where the LA was participating in route quality by investing in infrastructure, but also when the additional profits resulted from the change in subsidy system. They were anxious to see partnerships or contracts which would deliver quality improvements and possibly extension of the hours of 'commercial operation' (effectively a cross-subsidy within a route).

Other possible actions such as changing fares, frequency or routes have already been described for the previous category and apply to these routes in the same way.

On Auditing and Fraud

The main issue raised in response to initial presentation of impact from the model was uncertainty about the actual number of passengers using bus services. It is felt that an accurate assessment of passenger levels is required, as any underestimate would be a commercial risk, and in the absence of an accurate way of establishing patronage the only alternative would be to over-count users. It would be difficult to encourage drivers to provide accurate counts, given that they already have enough responsibilities in addition to driving, and high turnover of drivers makes training and consistency in recording difficult to implement.

Recording non-paying passengers was thought to be the main difficulty. The example given and noted was with respect to school children boarding buses. Due to the speed and the large numbers involved, accurate recording by the driver could be very difficult. Consequently, drivers could be told to 'keep their fingers on the button' when school children are boarding in order to prevent undercounting, and that in areas where routes have marginal levels of profitability drivers would be encouraged to count in a similar way to provide an over-estimate rather than underestimate of patronage.

The interviewees noted that a high level of auditing would be required from the local authorities as they would be likely to doubt figures produced by operators.

On Smartcards

All interviewees agreed that the only solution to the problem of recording passengers accurately is the introduction of Smartcards. Half felt that they could be a feasible option in about 3 to 5 years time. The others felt that there was no business case for Smartcards in their area and would only consider them if there was government funding to introduce a national bus Smartcards scheme.

It was also said that technology would need to be developed to prevent people repeatedly getting on and off a bus with their cards to falsify passenger numbers, and that some independent auditing would still be required to prevent Smartcards misuse.

On Competition

Operators feel that the main likelihood of competition comes from small operators who would recognise the benefits in competing with main operators on busy routes. Head to head competition was considered undesirable because of the resulting cost implications. However, one operator feared that this could happen and that the change in subsidy could destabilise the bus industry.

It was felt that there could be some beneficial effects from small operators seeking to serve niche markets, but this was not a universally held view.