Staff Report #1
September 25, 2019
To All Commissioners
Re: Fare Strategy
That the Commission:
1. CONFIRM the fare structure and rates as set out in the table below, effective January 1, 2020
London Transit Commission Fares – Effective January 1, 2020
|Adult, Senior, Student||$3.00|
|Adult||5 for $11.25 ($2.25/trip)|
|Student (grade 7-12)||5 for $9.00 ($1.80/trip)|
|Child(3)||5 for $6.50 ($1.30/trip)|
|Citipass (unlimited & transferable)||$95.00|
|Weekday (Mon-Fri only)||$81.00|
|Student Summer (2 months)||$95.00|
|Park and Ride||$70.00|
- Cash and ticket fares include a 90-minute unrestricted transfer
- All ticket options also available on smart cards as stored value
- Child fares included in this table represent those that would be reverted to in the event the current subsidy provided by the City of London is revoked
- All monthly pass options are available only on smart cards
2. DIRECT administration to advise the City of London of the new fares, and required adjustments to pricing for the various subsidized fare programs, which, based on current subsidy levels would be as follows:
|Senior (65 and over)(3)||5 for $8.50 ($1.70/trip)|
|Youth (age 13-17)||$61.00|
3. DIRECT administration to prepare and implement a communication strategy relating to the fare increase
At the June 26, 2019 meeting, a Fare Strategy report was tabled with the Commission (see Staff Report #3, dated June 26, 2019) which saw the Commission confirm the current Fare Pricing and Media Strategy as well as the associated principles relating to fare structure. In addition, the report provided an assessment of the current fare structure as well as analysis of the various subsidized fare programs which have been put into place over the past 18 months.
At the August 28, 2019 meeting, the Commission approved the 2020-2023 operating budgets for the conventional and specialized transit services. The 2020 budget included the requirement for a fare increase that would generate approximately $3.3 million in fares in 2020. Subsequent to Commission approval of the 2020 operating budget, administration began assessing scenarios for a fare increase that would generate the revenue requirements while at the same time, meet the remaining objectives of the Commission’s Fare Pricing and Media Strategy, an excerpt of which is set out below.
Fare pricing and media strategy objectives:
- meet established transportation revenue requirements;
- maintain and build ridership, mitigating the traditional ridership loss associated with fare increases; and
- ensure that fare administration is both effective and efficient, balancing fare administration cost, fare validation requirements and customer convenience.
The general rule of thumb with respect to transit fare increases is that for every 3% increase in fares, there is a 1% loss of ridership. Given the recommendation calls for an approximate 15% increase in fares, the elasticity rule would suggest an approximate 5% loss of ridership, however this rule cannot be considered in isolation. When considering potential impacts on ridership as the result of a fare increase, other principles need to be considered, including the following:
- customers want a service that provides direct travel that is convenient, reliable, safe, and affordable;
- customers are sensitive to savings;
- fare pricing and media options can influence service use; and
- customers will pay for service quality.
One of the primary factors that resulted in the Commission’s decision to forego fare increases over the past multi-year budget cycle, was the principle that customers will pay for service quality. The previous Five Year Service Plan was specifically targeted at improving overall service quality and responding to a number of long-standing customer requests (e.g. improved service on weekends, extending the service day). The changes that were implemented September 1, 2019 represent the final piece of the previous Five Year Service Plan Framework, which included:
- the addition of 90,000 service hours over the five-year period
- the introduction of five new express routes
- introduction of Sunday service beginning at 7am versus 9am on nine routes
- introduction of extended service day to 1am Monday through Saturday on nine routes
- elimination of interlined routes
While it is recognized that issues remain with respect to gaps between customer needs and expectations and the service that is currently offered, the changes implemented over the past five years have resulted in significant improvements system-wide. The outstanding service improvements will be covered in the next Five Year Service Plan Framework, covering the years 2020 – 2024, which will continue on the path set by the previous Plan, and look to:
- enhance overall service levels
- explore alternative service delivery models
- improve direct connections
- build on the express route network
- eliminate 60 minute headways
- minimize impacts to existing passengers
The improvements made to date, coupled with those planned for the next five-year period cover two of the key principles set out above; namely, customers want a service that provides direct travel that is convenient, reliable, safe, and affordable, and the customers will pay for service quality. As such, no ridership loss relating to the fare increase is being budgeted.
The third and fourth key principles considered in this report’s recommendation; customers are sensitive to savings and fare pricing and media options can influence service use, both deal with the mix of options included in the fare structure and the pricing differential between them. At a high level, the current fare structure includes four categories; cash, ticket, monthly pass and tuition pass. The following table sets out the ridership and revenue make-up in each of the categories.
Ridership and Revenue Make-up by Fare Category – 2018 Results
Cash Revenue represents the smallest portion of ridership at approximately 5.5%, but given it is the highest of the fares, represents double that in terms of percentage of revenue at 11.3%. Monthly pass riders are the next lowest in terms of both ridership and revenue make-up, which is considered slightly problematic given that pass riders tend to be the most “captive” in terms of making the decision that transit is their primary mode of transportation. The ticket category, at 22.7% of ridership and 30.4% of revenue is slightly overstated given all of the trips taken by children 12 and under are classified as ticket riders, and 2018 saw a significant increase in this category with the introduction of free transit for this demographic. Finally, the tuition pass category makes up 51.9% of ridership and 38.5% of revenue. The unique feature of the tuition pass program is that it is universal in nature, meaning that all students pay for the transit pass whether they use transit or not. This provides for a cross-subsidization within the program, with infrequent or non-transit users subsidizing the pass cost for frequent users.
The final two principles of the Fare Pricing and Media Strategy relate the provision of reduced transit fares in an effort to address broader social issues in the community. The specific principles are set out below:
- it is beyond the mandate and expertise of London Transit to effectively resolve broader social and community issues related to income distribution; and
- that new or reduced concession fares intended to resolve broader social and community issues relating to income distribution be considered if arrangements are made to subsidize London Transit for the associated loss of revenue – noting such subsidy is not a public transit subsidy but a subsidy supporting a defined group’s use of the service.
The City of London currently has 5 specific subsidy programs in place relating to the provision of a reduced transit fare for a specific group; free transit for children 12 and under, free transit for customers with visual impairment, senior tickets priced at 25% off of the adult ticket price, an income-related pass offered at a 36% discount from the Citipass, and a youth pass (ages 13-18) offered at a 36% discount from the Citipass. Each of these programs were established to address a social issue in the community, with three specifically identified in the London For All – A Roadmap to End Poverty Report.
The second part of the report recommendation sets out the pricing for each of the subsidized programs that will take effect January 1, 2020 should the City of London continue with the subsidies currently in place. Should any or all of the subsidy programs be eliminated, the associated fare option would also be eliminated, and customers would revert to the LTC fare structure set out in part one of the report recommendation. This report does not assess nor recommend changes to the subsidy levels associated with these programs given the decision to maintain, alter or remove these subsidies rests exclusively with Municipal Council.
Proposed Fare Increases
The report recommendation calls for increases to be applied to all fare categories versus the traditional approach of trying to avoid across-the-board increases. This approach is being recommended for a number of reasons, the key ones being:
- the amount of revenue required from the fare increase is substantial, and it would be difficult for one or two categories to withstand the impact of the required increase without significant loss of ridership;
- the current balance of ridership and revenue between the fare categories is considered appropriate, and as such, there is no need to utilize pricing as a strategy to shift rider categories; and
- the last fare increase took effect January 1, 2008, and as such, it is appropriate for all categories to absorb part of the required increase.
Careful consideration was given to each of the fare categories when determining the recommended rates included in the report recommendations. Details with respect to each category is set out below.
Cash ridership provides the highest revenue per ride (average fare in the cash category for 2018 was $2.75), it is also the most costly to process, and as such, many transit agencies utilize pricing strategies to discourage the use of cash to pay for transit. Cash is also the method of payment for those who utilize transit infrequently, whether that be by choice or due to available financial resources. The establishment of cash fares also considers the ease of which the fare can be paid, noting that change is not offered on the bus. The current fare of $2.75 requires, at a minimum, four coins, however experience has shown that many riders put $3.00 in the fare box because finding a one and two-dollar coin can often be easier than finding the required three quarters. In addition, in order to continue the effort to reduce the number of passengers paying a cash fare, there needs to be a discernable difference between the cash fare and ticket fare. The current fare structure provides an approximate 30% discount for a rider to utilize an adult ticket versus paying cash. All of these factors need to be balanced when assessing the appropriate cash fare going forward.
The average adult cash fare across the LTC peer group currently is $3.32, with the lowest cash fare at $2.75 (LTC) and the highest at $4.00. The report recommendation calls for the following cash fares in each of the cash categories.
|Cash Category||Current Fare||Recommended Fare||% Increase|
Note 1 – Child cash fare represents the fare that would be in place in the event the City of London subsidy which provides for children 12 and under to ride free was no longer provided.
This recommendation recognizes that, given many riders already pay a $3.00 cash fare, the revenue gains associated with this change will not be an additional $0.25 for every cash rider, but something less. This understanding was balanced with the assessment that increasing the adult cash fare to $3.25 could make transit an unaffordable transportation option for those with financial challenges, noting the proposed $3.00 fare still remains significantly lower than the peer group average of $3.32. The proposed fares result in the discount for riders choosing adult ticket versus cash are reduced to an approximate 25% discount, which is still deemed adequate to incentivize riders to switch to the ticket category.
Revenue projections have the increase in adult cash fares resulting in an additional $200,000 in revenue in 2020, no ridership loss is assumed relating to the proposed increase.
The ticket category generates the second highest average fare, with an average for the entire category of ticket fare options for 2018 being $1.79 per ride. Based on the adult fare category, a transit rider would need to ride the bus 43 times in a calendar month (approximately 1.4 times per day) to make a monthly pass a more economic option than tickets. The launch of the stored value option on smart cards in early 2019 is anticipated to see an increase in “ticket” riders going forward, noting the amount deducted for a ride on the smart card is the equivalent of a ticket fare versus a cash fare.
The average adult ticket fare across the LTC peer group currently is $2.71, with $1.90 being the lowest adult ticket fare (LTC) and $3.75 being the highest. The report recommendation calls for the following fares for each of the four ticket categories.
|Current Fare||Recommended Fare||% Increase|
|Adult||5 for $9.50 ($1.90/trip)||5 for $11.25 ($2.25/trip)||18%|
|Student (grade 7-12)||5 for $7.70 ($1.54/trip)||5 for $9.00 ($1.80/trip)||17%|
|Child(1)||5 for $5.50 ($1.10/trip)||5 for $6.50 ($1.30/trip)||17%|
Note 1 – Child ticket fare represents the fare that would be in place in the event the City of London subsidy which provides for children 12 and under to ride free was no longer provided.
In addition, as set out in the second part of the report recommendation, the senior ticket fares that would take effect January 1, 2020, based on the current 25% subsidy provided by the City of London would be as follows. Should this subsidy be revoked, senior ticket riders would pay the adult ticket fare.
|Ticket Category||Current Fare||Recommended Fare||% Increase|
|Senior||5 for $7.15 ($1.43/trip)||5 for $8.50 ($1.70/trip)||18%|
As discussed earlier, the availability of stored value on smart cards which began in early 2019 is anticipated to see a shift to the ticket category. The recommended pricing for the ticket categories continues to offer a significant discount off of the comparable cash fare, as set out in the table below.
|Fare Category||Ticket Fare||Comparable Cash Fare||% Discount|
|Ticket – Adult||$2.25||$3.00||25%|
|Ticket – Student||$1.80||$3.00||40%|
|Ticket – Senior||$1.70||$3.00||43%|
|Ticket – Child||$1.30||$1.50||13%|
Revenue projections have the increase in ticket fares resulting in an additional $1.8 million in revenue in 2020, no ridership loss is assumed relating to the proposed increases.
Monthly Pass Fares
Pass riders are considered the most captive, in that, they have invested in a monthly pass that they intend to utilize to the extent necessary to get value for the dollars invested. The monthly pass category represents approximately 20% of both total rides and total revenue.
The average adult monthly pass price across the LTC peer group currently is $99.46, with the lowest monthly pass at $76 and the highest at $150. The report recommendation calls for the following fares for each of the monthly pass categories.
|Pass Type||Current Price||Recommended Price||Increase|
|Park and Ride||$60||$70||17%|
Note 1 – Youth and Income Related pricing is based on the current City of London subsidies in place which provides for a 36% discount off of the Citipass. These pass types would not be part of the LTC fare structure in the event the City of London subsidy was no longer in place.
As indicated earlier in this report, pass riders are considered to be the most captive, and as such, it is desirable to maintain a significant portion of the ridership in the pass category. As the table below sets out, the comparison between the ticket fare and monthly pass fare (in terms of number of rides) has remained consistent pre and post the recommended increase.
|Equivalent Ticket Rides|
|Pass Type||Current Fare||Recommended Fare|
Revenue projections have the increase in monthly pass fares resulting in an additional $1.3 million in revenue in 2020, no ridership loss is assumed relating to the proposed increases.
Tuition Pass Fares
Tuition ridership and related revenue is directly tied to enrollment at the participating institutions, both of which have experienced significant increases over the ten year period. Unlike the other fare categories, which have not seen an increase in fares since 2008, the tuition pass contracts that are in place include the provision for annual price increases. Over the period 2009 through 2018, the cost of the tuition pass has increased approximately 46%, and now sits at $250.76 for a 12 month pass.
Annual increases to the tuition passes are included in current contracts with Western University Students Council, Society of Graduate Students Council and Fanshawe College Students Council, and are based on a combination of Consumer Price Index (CPI) and annual service improvements. The revenue associated with these contracted price changes is not included in the projected revenue increases associated with the proposed fare increases included in this report.
Other Fare Options
As indicated in Staff Report #3, dated June 28, 2019, in addition to assessing the increases in the existing fare categories that would be required to meet budget expectations, consideration would also be given to the introduction/removal of fare categories or options.
Given the uncertainty with respect to the 2020 Operating budget both in terms of the level of funding the City of London will ultimately approve for base operating as well as whether the current subsidized transit fare programs will remain intact, be altered or eliminated, no further adjustments to the fare structure are being recommended to take effect January 1, 2020 with the fare increases.
Administration will closely monitor the response to the fare increase as well as any impacts resulting from potential changes to the subsidy program over the course of 2020. A detailed analysis of the impacts will be included on the 2020 Work Program including a report and recommendations to the Commission considering adjustments to the fare structure that are intended to mitigate any negative repercussions resulting from the fare increase as well as to increase ridership going forward.
As indicated in part three of the report recommendations, subsequent to approval of the fare increase for 2020, administration will create and implement a communication strategy including, but not limited to traditional medium including onboard communication, social media and website. The campaign will include reference to the previous fare increase being in 2008, and continue to emphasize the value of the discounted ticket and pass fares as compared to the cash fare.
Updates will be provided to the Commission as appropriate as this program is rolled out.
Mike Gregor, Director of Finance
Concurred in by:
Kelly S. Paleczny, General Manager