Figure 1 The Correlation Between Revenue and Fare Level (Mingzhi)
Figure 2 According to the Relationship among Revenue, Fare Level and Service Level, the Change of Fare Level Might Impact Service Level (Mingzhi)
HIGHER FARE
BETTER SERVICE
Issues Matter
Fare Implementation Costs:
Capital Costs: capital equipment in fare collection system, e.g. Fareboxes;
Operating Costs: Developing and distributing fare media (tickets and passes), managing reduced fare programs, and customer service question;
Fare Level
Ridership
In transit, the standard measurement of sensitivity to fare changes means that for every 10% increase in fares, ridership will decrease by 3%.
Service Level
Better service level might to some extent increase ridership.
It is important to balance various factors.
Can we increase fare levels and provide better service?
Since the fare level might be in a positive proportional relationship to the service level, we can simplify it to the graph above on the left (See Figure 1 & 2). When it is connected to the Revenue-Fare Level Curve below, we can find that when the fare level is F1, the service level is S1, the revenue reaches the maximum R*, which is the equilibrium point that the profit-oriented enterprise usually pursues. At present, the local fare level is around F2, the service level is S2 and the revenue is R1 (R1<R*). According to economically rational, F2 should be adjusted to F1. However, since transit is not a purely profit-oriented industry, a part of revenue can be sacrifice for better service level.
Therefore, as shown in the graphs, with the same revenue R1, the fare level can increase from F2 to F3, so that the service level can increase from S2 to S3.
Figure 3 When Considering the Elasticity of Transit Fares (Mingzhi)
Concerns about fare increase
An Increase in fare level might cause a decrease in ridership, but at the same time better service level can bring about new ridership. How to ensure the balance between different factors is very important to ensure the revenue.
But the question is, what if we look at it from the perspective of equity? Is the ridership after fare increase still the original ridership? Just as the first class seats on the airplane provide better service, the higher price threshold also brings about more affordable passengers.
Of course, air tickets have a higher price elasticity than transit fare (See Figure 3), so a reasonable increase in the transit fare level would not affect the choice of most passengers. But at the same time, low-income groups are highly price sensitive, and the increase in the fare level may still affect their travel choices.
Therefore, in the reading Fare’s Fair, by Eric A, Morris, it is reasonable to consider time on fare system and use off-peak discounts, promising both economic efficiency and social equity.