BUS PRICING

Page No. 137 - 139

Group 1:
Amritansh (03)
Amitrajeet Kumar (02)
Kartikey Bisht (13)
Rohit Singh (16)
Bus fares may be determined in two ways:

• By the company operating commercial services and deciding what the market will bear having
considered the competition from other bus companies (existing or potential), the motor car or, on long
distance services, discounted rail fares. This is the position in most of Britain outside London, but
through new contract arrangements there is an increased move towards transport authority
integrated fares systems.

• By transport authorities determining fares, routes, frequencies and type of vehicle. All bus, tram
and metro fares and in many cases local rail fares may be decided in this way.

Bus routes are directly operated or franchised with multimodal, multiride tickets. This is the case
in most large cities (eg London, Paris, Berlin, Madrid) in the ‘old’ European Union; most cities in the
new member states (eg Vilnius, Prague, Dresden) and most South American (eg La Paz, Lima) and
Southeast Asian (Hong Kong, Japan, India) cities. Despite the competition policy of the European
Commission (in the UK pursued by the Office of Fair Trading), most EU member states have excluded
bus and train operations.
Tendered services may be either full cost (fares decided by the transport authority) or net cost where fares are
decided by the operating company keeping in mind its required level of income and its subsidy in order to cover
its costs and profit.

On urban services, fare scales will be tapered and lower than on rural sections of routes where prices will
generally be high. On inter-town routes, particularly if there is competition from rail companies or other
operators, fares per mile are generally low.

As a general indicator, a monopolistic market and low usage will result in a high price while a competitive
market and a high load factor will result in a low price. In many provincial towns, companies have introduced
minibuses with simplified fare scales almost on a zonal basis.
There is evidence to suggest that passenger service elasticity can be high where services prove to be
consistently unreliable or where service intervals are long. The replacement of conventional buses on an
hourly or half-hourly headway with smaller vehicles with a 5–15 minute headway (depending on demand)
has had an effect in attracting customers back to public transport.
There are no peak/off peak fare differentials in many places and in some industrial towns the highest
peak has moved to 16.00–17.50 as a result of schools, industrial, commercial and shopper traffic.

Table High flow route showing peak demand

Passengers per hour
08.00–09.00 250–300
09.00–10.30 470
16.00–17.00 (Friday) 500
The morning peak has either disappeared or is now between 09.00 and 10.30 – the end of the industrial worker
flows and the start of the shopping trips. This requires some enhancement of service, but not enough to justify the
added complication of premium fares.

If a flat fare is 25p they would use the bus, while a fare of £1.00 would be unacceptable. In larger towns (eg
Nottingham, Cardiff, Newcastle) with, say, a seven- to ten-mile radius the average fare might be £2.50, but in
competitive or potentially competitive routes fares may be kept at £1.50 for the same distance.

Another option is to use zonal fares, but on short cross (zonal) boundary journeys demand may be lost. Multiride tickets
provide a similar facility to the London travel card but are restricted to one operator and provide travel for a period in a
designated area on both commercial and tendered services.
An important element in this market segment are females aged between 16 and 24 with no car but who work in
the central business district. They have work, evening social, and Saturday shopping trips as a typical week’s
travel pattern. This provides a ten-journey ticket for the price of eight single tickets, with additional free journeys.
It also ensures the passenger will then ride on that company’s buses rather than those of competitors.

Bus companies operate in quite different markets to rail and airline businesses.They have little or no executive
high yield custom, most journeys are local low mileage trips and in competition, fares and costs have to be
kept down.
However demand may be relatively inelastic even on competitive routes. Fare increases from 18p to 20p and 21p to
25p showed no change in patronage, despite the competitor company’s fares remaining the same and
thus lower.
The issue may relate to the low value of 2p or 4p in relation to total fares or to wages. Fares might be increased on
the day increases in fuel prices resulting from taxation were announced; thus passenger perception
was also important in reducing resistance. Coincidentally, bus fares could be increased at the same time as rail
fares and the latter perceived as relatively expensive by the existing bus users.

Most fall in socio-economic groups C D with many younger people (with low spending power), low car ownership
rates (48%) and low second car ownership (10%). The young account for 35 per cent of passengers, elderly people
for 20 per cent (most of whom have concessionary fares or free travel in many local authority areas) and a further
40 per cent are women between 20 and 60 years. Only 5 per cent of passengers on average are males between 20
and 65 excluding central London.

For journeys to work, 95 per cent of passengers are women. Thus inelasticity in relation to price might also relate to
the necessity of the journey and the lack of alternative modes. Market segmentation is thus being used in provincial
towns under the new conditions of competition. It is not as widespread as in the airline or British Rail sectors but it
indicates a pricing policy which recognises that passengers are not a homogenous group but that different market
segments exist and that price, cross and service elasticities have been identified for these segments.