Part D – Understanding and improving industry performance (PDF ...

The inclusion of assignment fees in the fare model has
been a source of contention in the past and continues
to be challenged today. The Foletta review argued that
licence market values should not be included in the fare
model and noted that the Victorian Taxi Association (VTA)
had agreed with this view. The McQuillen review (which
examined the KPMG review) sought to challenge the
view that licence values and assignment fees resulted
in higher fares because “only operating costs have
ever been considered by the Victorian authorities in
the determination of taxi fares.” 17 In any event, given
that large numbers of operators have been incurring
assignment costs since the time of the Foletta review, the
inquiry’s view is that this is strong evidence that fares in
the past were based on inflated cost estimates. The cost
surveys undertaken by the ESC in 2005 indicated that,
while operator returns were considered to be ‘low’, 18 the
cost base for making this comparison included either
$19,213 (2000) or $20,580 (2004) in assignment costs. If
this cost was included instead as part of the return to the
operator, these returns would be very high. 19
The approach taken by the ESC in 2005 and 2008 reflects
that assignment costs are either a real cost to an operator
(who does not own a licence) or an opportunity cost to
the licence owner (the value that could be realised by
assigning it to someone else). The ESC also noted that
this causes a circularity between fares and assignment
values: higher fares lead to higher assignments and then
higher fares. To avoid circularity in the fare model, the
ESC adopted a methodology in 2008 that decoupled
assignment fees in the fare model from actual assignment
fees paid by operators. Consequently, the value used in
the fare model to calculate the appropriate change in fares
was somewhat below the real figure: just over $20,000 as
opposed to the then current rates of just below $30,000
per annum.
2. Meeting demand at peak times
Many submissions to the inquiry describe issues with
demand at certain times. The main concerns reported
to the inquiry are availability late at night on weekends in
Melbourne and general availability in outer metropolitan
and regional areas.
• In Melbourne, taxis are the only available transport
service operating on Saturdays and Sundays in the
early hours of the morning in the CBD other than
Nightrider bus services. At these times, there are
still significant numbers of people in the city. Issues
relating to the poor availability of taxi services during
these times include very long wait times at ranks,
frustrated customers walking onto the road to hail
taxis and conflict between customers while trying to
obtain a taxi.
• Local councils and businesses report insufficient
taxi services in outer metropolitan areas. Some of
these areas have only one or two local operators,
severely limiting the availability of taxis for short trips
by residents. Users in these areas report long wait
times for taxi services during peak periods and that
taxis sometimes never arrive or are often late after
first taking other bookings closer to the city. Councils
also report that operational limitations associated
with the interface between the outer suburban and
metropolitan taxi zones contribute to the difficulties
residents experience in accessing key services that
are in the metropolitan zone, with residents often
refused travel in both directions.
• In regional Victoria, taxi users, councils, businesses
and community groups report problems with service
availability, including taxi numbers failing to keep pace
with population growth in large regional cities, long
wait times in some areas, a shortage of WATs, limited
choice and flexibility in services (especially in smaller
towns and remote communities) and poor integration
with public and community transport. Some regional
tourism destinations suffer from insufficient taxi
services during periods of high visitor numbers.
These submissions are supported by the evidence
obtained from surveys conducted by the inquiry:
20 per cent of all problems reported with taxi services by
respondents to the Latitude Insights Survey of Consumer
Detriment occur on Saturday nights between 7pm and
4am when accessibility is at its lowest. 20
17 McQuillen, Rob PSM (2001), Op. Cit., p. 21
18 There also appears to be some confusion in the ESC report about the
appropriate benchmark for measuring the significance of this return.
The ESC calculates a return on sales (revenue) of 3.8% and 3.6% for
the 2000 and 2004 years respectively. However, returns on sales are
of themselves meaningless because whether they are reasonable or
not depends on the amount of capital that has been invested and on
which a return is required. If only capital-related items are included as
costs (~$35,000 per vehicle per annum), then a return of over $4,000
is in excess of a 10% return on capital employed
19 Either on a return on sales basis or a return on capital employed
basis, as discussed in the footnote above
20 Latitude Insights (2012), Op. Cit.
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