Saturday, September 17, 2005

Government reports on public transport

Two reports on aspects of public transport came out this week.

* Victorian Auditor General's Office
Franchising Melbourne's Train and Tram System

The main theme was that the original train and tram franchise agreements entered into by the Kennett Government were unworkable, and that the current government had no choice but to renegotiate them.

The original contracts were unsustainable because they assumed rapidly growing revenue and shrinking costs. This revenue increase was to be obtained through massive patronage growth and reduced fare evasion. Without service improvements and co-ordination the projected patronage growth was never going to happen. And fare evasion was never going to fall due to our 'open system' and the fault-ridden Metcard automated ticketing system. Metcard's limitations also made it impossible to correctly apportion revenues between operators, as required in the contract.

On the expenditure side, the contracts proposed a shrinking government contribution. Thus the operators would have to meet more of their costs through fare revenue. And unless there were massive efficiencies obtainable from reduced costs, then before too long the operators stood to lose more and more each year.

This could not be sustained so the biggest franchisee (National Express) took their bat and ball and went home. After a period where the government ran the surrendered services, the State Government negotiated new contracts with the remaining operators (trading as Yarra Trams and Connex) to take over the entire system. These new contracts provided a more sustainable revenue base for the operators, more evenly distributed risk and established a central marketing body (Metlink).

These contracts were negotiated by the DOI and were praised in the audit report. It looks as if they will bring organisational stability to the system and we will be freed from the incessant name changes (changing each year in some areas) which confused the public.

The signing and later failure of the initial franchise agreements is a story of greed on both sides. On the one hand the government wished to screw the operators down on cost. The government also wanted the operators to bear much of the risk and lumbered them with a dud ticketing system that hurt their revenue.

Winning the right to run a large part of Melbourne train or tram system would have seen as a filip to the winning company. Operators might even have been willing to use Melbourne as a 'loss leader', in the hope that other, more lucrative, contracts will be won in other cities. Perhaps for this reason, and a belief that gaining market share from rivals was more important than profitability, the bidders were silly enough to sign up and promise huge patronage increases.

In retrospect, the patronage increase promise seemed particularly rash. By agreeing to it, over-optimistic operators violated the business principle that they should only agree to be held accountable to something within their control.

It is that some aspects of attracting and retaining passengers (such as servive reliability) are (mostly) within the operator's control. However many of the factors critical to growing patronage are beyond an individual operators' control.

One example would be that individual rail operators have no control over bus routes and timetables, even though co-ordinated services would increase the number of people with access to a station and thus train patronage. Thus rail patronage is largely limited to those within walking distance of a railway station.

Then there is the case where advertising activity by one enterprising operator benefits the other operator almost as much. This is because passengers do not (and can not) differentiate between tram operator. Thus the operator not spending the money gets the benefit for no expenditure, so is actually financially better off than the operator who spent some money to promote the service. Another form of single-operator marketing might simply shift patronage between public transport modes, and do nothing for overall modal share and thus revenue.

The new arrangments tidy up marketing with Metlink, but do not address patronage-affecting matters such as co-ordinated bus services. It is hoped that these will be the subject of revised bus operating contracts, which are currently being discussed.

* House of Representatives Standing Committee on Environment and Heritage Inquiry into Sustainable Cities .

A significant part of this report deals with transport. Recommendations include improved public transport (including federal funding), removal of FBT tax concessions that reward heavy car use and increasing tariffs on 4WD vehicles not used for primary production (currently they attract a concessional rate compared to other cars, dating from before they became fashionable in the cities).

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