The Inexact Science of Fair Fare Determinations

Sydney's public transport has long resisted world trends by maintaining a fare structure which differentiates between modes.

Ferry travellers, for example, pay more per kilometre travelled than either bus or train passengers. In some cases the differences are staggering. The 1.2 km ferry ride from Balmain East to Darling Harbour attracts a full adult Opal fare of $5.74. As a comparison, the Opal adult off peak train fare from Newcastle (Hamilton) to Sydney (Central), a distance of 165 km, is $5.81. 

Even on peak services, the fare per km travelled to Newcastle by train is about one hundredth of the fare paid by Balmain East ferry commuters.      

The introduction of the Opal card has extended the modal differentiation:

• Opal users who transfer between services on the same mode do not pay extra, but if the transfer is made between modes, a separate fare is charged.
• since August 2014, "go anywhere" monthly, quarterly and annual travel passes are no longer available.
• the remaining weekly MyMulti ticket zone rules are applied differently across modes. Someone travelling from Manly to Sydney can use the cheaper MyMulti 1 ticket on a bus but must use a MyMulti 3 if taking the ferry.    

A common justification for fare "modism" is that it is fairer. Why should bus travellers, for example, pay the same fare as passengers on a more costly ferry trip?

So what is the difference in operating cost per passenger journey of ferries, trains and buses? According to the NSW Auditor General, rail services were the most expensive at $13.28 in 2014, followed by ferries ($9.27) and buses, which were the cheapest ($7.46).

But a more meaningful way of looking at this is to compare cost per passenger km. The average distance travelled varies between modes, so this tells a slightly different story.

(1) Source: NSW Auditor General's Report Financial Audit Volume 7 2014 (p.17)

(2) Train and bus average distance sourced from BTS Household Travel Survey 2012-13. Ferry average distance estimated from data supplied by BTS from November 2013 Ferry Census.
(3) The Auditor General's Report does not provide details of what costs are included in its analysis. The assumption made here is that the comparisons are like with like.

As the average train journey is more than twice the length of average bus trips, train operating costs are more favourable, 31 cents per km less than buses.

Average ferry trips are also longer than the bus average, which means buses are just eight cents cheaper to run per passenger km than ferries.

There are also modal differences in the directness of journeys. Trains offer the most direct point to point journeys, but ferries are also far more direct than buses. The 1.2 km ferry ride from Balmain East to Darling Harbour, for example, compares favourably with the alternative, tortuous 6.5 km bus journey. 

No comprehensive data is available to compare bus and ferry journey distances as the crow flies, but it is not unreasonable to conclude that, if this was done, the operating cost of ferries per passenger km is actually less than buses if journey distance is measured directly, point to point.

The agency responsible for reviewing transport fares in NSW is the Independent Pricing and Regulatory Tribunal (IPART). In making its fare determinations, IPART acknowledges that fare subsidies can be justified because public transport has external benefits enjoyed by non users. These include reduced road congestion and less air pollution. From time to time, IPART attempts to measure these external benefits by mode, which later feed into its fare determinations.

To put the best possible spin on this, a careful reading of IPART reports reveals that measurement of external benefits must be an inexact science, if it is a science at all.

In August 2014, IPART published an issues paper "Estimating the External Benefits of Public Transport Used in Setting Maximum Fares for Rail, Bus and Ferry Services". Based on IPART's current model, the paper estimates the external benefits of ferries are tiny compared to other modes:

Source: IPART Issues Paper Estimating the External Benefits of Public Transport (table 3.1), August 2014

The limited external benefits of ferries were due to a combination of reasons, including higher air pollution and IPART's belief that passengers have the option in most cases of using a lower cost bus service as an alternative to ferry travel.  

Later in 2014, IPART released another report, revising its methodology and assumptions about what to include as external benefits.  One change was to "focus on estimating the external benefits associated with an extra passenger using an existing service". The previous method assumed services (and therefore costs) increase in proportion to patronage growth.

Another change was to widen the external benefits measured, including reduced road accidents and improved health outcomes.

The revised method made surprising changes to the estimate of external benefits by mode:

Source: IPART Report: Review of External Benefits of Public Transport, Table 1.1 p.8 (December 2014)

The new report provides the estimates as a range of possible values. In the case of ferries the range is very large: between one and 21 cents per passenger journey. As students of statistics will know, when there is a range of possible values like this, the mean is not more likely to be the true value than any other value in the range. So the external benefit per passenger km for ferries, according to IPART, could be one cent or 21 cents, or anywhere in between.

These figures suggest that the external benefits of ferries could be twice as high as buses and trains or they could be as little as one twentieth. IPART is not sure.

To further complicate matters, the range of possible external benefits used by IPART in its models, continue to be very limited. Suggestions by stakeholders for including other things, such as improved mobility and social inclusion, are dismissed in the report, partly because they are too difficult to measure.

This points to ontological flaws in IPART's analysis, a weakness not uncommon in other economic studies. Something that cannot be measured is no less real than something else that can. 

Read together, the Auditor General's Report and the latest IPART report point to the following conclusions about ferry fares:

• the operating cost per passenger km of buses and ferries are similar. Ferry costs would be less than bus costs if journey distances were measured direct, point to point.
• the measurement of external benefits of public transport travel is highly subjective and the estimated ranges provided by IPART are so wide that it is not possible to determine whether ferries offer a higher or lower benefit than buses or trains.

The solution lies in learning from European countries where public transport fares do not distinguish between modes. These countries build highly legible, integrated public transport systems with heavily discounted periodical multi modal tickets. This leads to high rates of public transport use, highly mobile and liveable city environments and high cost recovery, in most cases more than double the rate achieved in NSW.  

A fresh approach to fare structures in Sydney is long overdue.