Full Version - Issue 7 | November 2011 - LTA Academy

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Different Approaches to Public Transport Provision However, rapidly rising automobile ownership after the Second World War led to a drastic decline in public transport ridership and revenues. Public transport service levels fell as these transport enterprises cut costs to survive. To maintain service provision, governments decided to nationalise their decrepit public transport industries by taking over the failed transport enterprises in the 1940s to 1960s. Due to inefficiency and the lack of incentives to reduce costs, unit operating costs in many government-operated public transport enterprises increased steadily after nationalisation. Public transport operations had to be heavily subsidised to maintain service levels and affordable fares. With rising government debt in many countries since the 1970s, it became increasingly unsustainable to continue subsidising public transport. The lack of funds also led to significant underinvestment in public transport infrastructure and assets. Due to inefficiency and the lack of incentives to reduce costs, unit operating costs in many governmentoperated public transport enterprises increased steadily after nationalisation. Since the 1980s, many cities in Australia, Europe, the UK and the US have privatised public transport provision, in attempts to harness the market to keep costs down and tap on private finance for infrastructure investment. It was believed that, under private ownership and operation, the profit motive would incentivise 32 JOURNEYS | November 2011 operators to be efficient, innovative and reduce costs. These would in turn reduce the need for government subsidies, hence lightening the fiscal burden on governments and taxpayers. In addition, lower unit operating costs of private operators could also lead to lower fares. In many cities, privatisation was accompanied by the introduction of competitive tendering for public transport provision in the 1980s and 1990s, which usually led to substantial unit cost reductions. However, in several cases, unit costs actually increased in subsequent competitive tenders without corresponding service improvements. This has led to discussions over the need for an alternative approach to competitive tendering in the form of negotiated performance-based contracts (Hensher 2007). In many cities, privatisation was accompanied by the introduction of competitive tendering for public transport provision in the 1980s and 1990s which usually led to substantial unit cost reductions. Public Transport Industry Structure Similar to electricity, water, gas and telecommunications, a large proportion of public transport costs comes from expenditure on infrastructure, for example, bus interchanges, rail stations and tracks, and operating assets, such as trains and buses. The other main cost component is the costs of operations and equipment maintenance. Due to the high fixed costs relative to operating
costs, public transport, especially in local urban contexts, can be considered a natural monopoly with significant economies of scale. This means that one large operator can supply public transport services at lower costs than two or more smaller operators. Due to the high fixed costs relative to operating costs, public transport, especially in local urban contexts, can be considered a natural monopoly with significant economies of scale. This means that one large operator can supply public transport services at lower costs than two or more smaller operators. While there are potential benefits, there are also risks associated with privatisation. Basic economic theory warns of the dangers of monopoly, public or private. Driven by the profit motive, private monopolies could exploit their market power to charge much higher prices than would have been possible with market competition. They may also reduce costs by lowering service levels, such as reducing service frequencies and equipment maintenance levels. An effective regulatory framework with price control must be in place to ensure that monopoly exploitation does not occur. Different Approaches to Public Transport Provision Government Operators Some would argue that, since private monopolies are likely to abuse their market power, it would be preferable to nationalise public transport. Nationalisation can be defined in several ways, for example, it could mean the government taking over transport planning, ownership of infrastructure, or service provision. In this article, nationalisation is defined specifically as government provision of public transport services. Proponents believe that government-run public transport operators which are not profit-driven would be less likely to abuse their market power, and would place greater priority on public service objectives, such as affordable fares and service enhancement. The government would also have more direct control over fares, supply of services, and service quality. However the lack of a profit motive provides little incentive for government operators to be efficient. While it is possible to set clear performance objectives for public enterprises, the experience in several countries has shown that government operators have generally failed to operate efficiently and their unit costs have increased steadily over the years. They would also face greater political pressure to provide unprofitable services. A benchmarking study done in 2008 compared Sydney’s government-run rail operator CityRail with Melbourne’s private rail operator Connex (LEK 2008). Both operators were comparable in scale but there was a disparity in cost efficiency. Using data from 2006/7, the study found that Connex’s costs were lower than CityRail’s. Connex’s annual rolling stock costs were 40% JOURNEYS | November 2011 Different Approaches to Public Transport Provision Some would argue that, since private monopolies are likely to abuse their market power, it would be preferable to nationalise public transport. 33
Page 2 and 3: JOURNEYS Publisher LTA Academy Land
Page 5 and 6: Mohinder Singh Dean LTA Academy A s
Page 7 and 8: Urban Sustainability and Transporta
Page 17 and 18: References Urban Sustainability and
Page 21 and 22: The idea that the demand for transp
Page 23 and 24: Table 2: Key Measures Adopted in th
Page 25 and 26: As resources to implement such poli
Page 27 and 28: • The development of a brand for
Page 29 and 30: 7. Targeting and Segmentation 8. Br
Page 31: Different Approaches to Public Tran
Page 35 and 36: In Britain, bus services in some ar
Page 37 and 38: saw unit costs rising in subsequent
Page 39 and 40: The presence of two operators allow
Page 41 and 42: Hensher, David A and Stanley, John.
Page 43 and 44: There was broad consensus among WPP
Page 45 and 46: Often, the greatest barrier to effe
Page 47 and 48: Freight Tax Incentives in Japan In
Page 49 and 50: Urban Planning in Shanghai, People
Page 51 and 52: and Transportation Working Groups c
Page 53 and 54: Barriers to a Sustainable Road Frei
Page 55 and 56: driver in the US can be as high as
Page 57 and 58: Bangkok 2020 Declaration signed by
Page 59 and 60: JOURNEYS | November 2011 Achieving
Page 61: AHMEDABAD Population: 5.6 million L
Page 65 and 66: MADRID Population: 3.1 million Land
Page 67 and 68: PRAGUE Population: 1.2 million Land
Page 70 and 71: References VIENNA Population: 1.6 m
Page 72 and 73: References Functional Area Affordab
Page 74 and 75: References Toei - Tokyo Tokyo Metro
Page 76 and 77: References Toei - Tokyo Tokyo Metro
Page 79 and 80: The LTA Academy was launched in Sep

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