The Cost of Public Transportation

(Part 2)

In last Sunday’s column, we postulated that there are three ways we can look at how public land transportation fares can be calculated.  Let’s try to call these 1) the cost-revenue-profit way, b) the route profitability way, and c) the urban planning policy way.  The first, which looks at the actual and real costs of jeepney or bus operations and how this can be distributed per passenger (adding the operator’s profit, of course), was discussed earlier.  But we concluded this was just for reference, and is not the usual basis for fare-setting. 

Let’s analyze the route profitability way.  Let’s analyze a certain route, say Talisay to Citilink Terminal.  The assumption in the cost-revenue-profit analysis is that the vehicle is full to its capacity, or even if it’s not full, we assume a certain constant load factor, say 80 percent.  But that’s over-simplistic and the real world is far too different.  There are fluctuations, both in the hour of the day, and the portion of the route.  Let’s call these the time and distance disparity.  We have already established in previous discussions that travel demand is never constant during the day and peaks during the morning and evening due to home-work/school-home trips.

We can calculate the demand during peak periods, say 6-9 am and 5-8 pm, and compute the number of seats (and vehicles, of course) required.  Then we can allow the exact number of jeepneys to ply the route.  Commuters would be happy with that, no long waiting times and scrambling to get a ride in the morning and afternoon.  The problem with this is that on non-peak hours (which is actually a longer portion of the operating hours), there will be fewer passengers and vehicles will be running not full or even empty.  In fact, a few jeepney drivers do stop operating and take naps during mid-mornings and mid-afternoons.

The other fluctuation is that of where the passengers actually board and alight the vehicles.  In our example, some may board in Talisay and alight midway before reaching Citilink.  Some may board midway (if there are still vacant seats) and get off in the terminal.  And a few others may even board and get off along the way.  If the capacity seats are numbered, say 1 to 20, some of those seats may have more than one passenger in a 1 way trip.  All of these contribute to the fact that the profitability is affected by the route itself and the behavior of the clients along that route.  Drivers will tell you some routes are more profitable than others.

Then there’s the law of supply and demand.  If there are fewer vehicles in the route than what it demands, it’s more profitable to operators/drivers but the passengers suffer during peak hours due to lack of available jeepneys.  This will also introduce a demand which attracts other operators to apply for franchises, add more units, or worse, operate colurums.  If LTFRB is not too careful and allows the increase, the number of units will swing to the other extreme and will result in an oversupply.  Which then will result in jeepneys fighting tooth-and-nail for passengers?  There’s equilibrium somewhere but finding it is a real headache.

Finding the correct fare using route profitability will yield a higher rate compared to simply the cost-revenue-profit model.  But it is affected by the number of vehicles on the route (or technically, the no. of seats available).  We conclude that fare-setting is strongly related to the issuance of franchises.  The bottom line is – “no operator will go into business without an assurance of profit.”  The variable is only how much.  The other bottom line is since franchise-issuance and fare-setting are strongly inter-related, LTFRB should be prudent to put the customers first in decision-making; we can’t make the operators and/or drivers happy at the expense of the riding public.  But then, there’s another “higher” consideration … (To be continued.)