Fair Move: 06 Fares that reflect mode of travel
- Immediately introduce different fares on each public transport mode to reflect their different costs and benefits and to encourage their best use.
- Immediately abolish the free tram zone to improve safety and access for those who need it most.
Our research shows that a flat fare system that does not distinguish between travel modes overcharges for some services and hits people on low incomes the hardest.
A better and more equitable approach is to set fares differently for each public transport mode.
Flat fares are simple, but don't make the best use of the public transport system
Melbourne’s metropolitan fare system currently charges the same fare regardless of which public transport mode a person chooses to travel on. This system is appealing because it is simple to understand, gives certainty on cost to users and encourages multimode travel.
Hong Kong, London and Sydney, all major international cities with extensive public transport systems, charge separate fees based on which mode is used.
While flat fares have the appeal of simplicity, our research shows that pricing all modes of public transport travel with a single fare contributes to the imbalance in the public transport system, increases road and public transport congestion and reduces equity. This is because each mode is unique – not just in the service it provides, but also in trip purpose, level of crowding, income levels of users and the benefits from reduced road congestion, pollution and increased active transport.
Our analysis shows that the costs on society from increased bus use are much lower than for train use, with trams sitting in the middle (shown in Figure 6).
The low result for buses is driven by the fact that many bus services are not crowded, and so additional trips can be accommodated without significantly increasing costs. Buses also require much less infrastructure than trains and trams, which require their own network of track and electrification. Despite these lower costs, bus trips generate significant benefits in reduced road congestion and other social benefits.
The outcome of our analysis is clear: fares should be higher for trains than trams, and buses should be the lowest priced mode – and there are clear practical reasons why this is preferable, including differences in trip purpose and distance by mode.
Public transport trip purposes are quite different by mode. Train travel is dominated by work trips, while the standout difference for bus travel is the significant share of people using bus trips to buy something, as well as to get to education. Trams are unique in the number of social and recreation trips they provide.
Trip lengths also vary by mode. Research by CIE shows that average trip distances for additional trips on public transport are around 12km for train, 4.5km for bus and 2km for tram (CIE, 2020). Trip quality is also affected by the public transport mode used. Trains are typically time efficient, covering large distances in short amounts of time while trams are much slower, followed by buses which are both slow and indirect.
The result of the current fare structure is that people are charged the same for high cost, high value public transport trips (such as a CBD train trip to work at peak hour) as low cost, low value trips (such as a trip to the local shops).
 There is a tension between the preservation of mode fares and the shift towards simpler fares with respect to distance travelled (King and Streeting, 2016).
Flat fares are inequitable
The types of people using each mode also varies significantly.
As discussed previously (see section 02 recommendations), while public transport is often viewed as a transport choice provided primarily for people on lower incomes, the evidence shows that this is not the case. Using data from the Victorian Integrated Survey of Travel and Activity (VISTA), we have placed people into five levels (quintiles) of household income. The highest quintile reflects the top 20% of households by income, while the lowest shows the bottom 20% of households.
We found that public transport is used more by wealthy households than poor ones. People who belong to households in the top 40% of incomes make up 45% of public transport trips, while people belonging to the poorest 40% make up only 36%. Analysis of the data suggests that on an average day those using public transport have household incomes that are 8% higher than those who don’t.
The data is even more stark by mode, with trains and trams being used disproportionally by those on high incomes. The only mode that shows an opposite effect is bus. Bus services are used disproportionally by those on low incomes: 47% of trips on buses are made by people in the lowest 40% of household incomes, while only 34% of bus use is made up of those in the top 40% of household incomes.
This shows that the current fare system is not just overcharging for bus services from an efficiency, quality and value point of view, but that it is hitting those on low incomes the hardest.
A move to price buses lower than trams, which are priced lower than trains, would not just make better use of the public transport system, but would also increase equity.
Express bus services
For the purposes of our analysis, we defined bus routes into two categories: express and normal services.
Bus services to the Melbourne CBD are not the same as a typical bus service, and have a profile of benefits and costs more similar to trams. Our analysis shows that these bus services should be charged at a rate similar to trams, and that this is reasonable given the higher level of service they provide, as well as reflecting the higher levels of crowding on these services, especially in peak periods.
For example, the commuter 309 bus route is classified as an express bus in our research due to its servicing of Donvale and Doncaster areas before an express segment of the route along the Eastern Freeway, terminating in the CBD. This is in contrast to a more typical bus service, such as route 280, only servicing the local Doncaster/Templestowe areas.
A full list of express bus route numbers is provided in the `Our Modelling Scenarios’ breakout box on page 56. Analysis performed by CIE and Jacobs for Infrastructure Victoria showed that a 30% cut in the fare for normal buses would result in only one in three additional bus passenger trips boarding already crowded peak services. This would, in the main, improve capacity utilisation of the suburban bus network.
For express bus services, additional passengers would be joining already crowded peak services 83% of the time, supporting the argument for peak and off-peak pricing for these uses (CIE, 2020).
More services alone are not the solution
One of the main contributors to the conclusion that bus fares should be low is the high level of unused capacity on existing bus services.
Fares, service frequency and service quality all interact with one another – and it is important to get each one right. Price is only one part of a large number of factors that make up mode selection, including the reliability of service, comfort levels, safety, overcrowding, wait and journey times (SGS-BIT, 2020).
More frequent services without bus service and pricing reform may have limited effectiveness. If a bus trip to the local shops costs the same as a peak period train service to the city, local services will continue to struggle to attract passengers, and cars will remain the preferred method for local trips. Cars will also remain the preferred method for local trips if bus routes are slow and indirect.
Setting the right fares for buses and off-peak trams and trains is one part of the solution, and supports more frequent services: as lower fares attract more passengers, frequent services become more viable for transport planners.
However, fare reform also needs to be accompanied by careful service planning that provides people with the travel options they want, at the times they most need them. Unattractive bus services will suffer from low patronage, and while lower fares would be recommended under our pricing approach, they won’t be enough to encourage more travel if the services fail to meet passenger needs in wait and journey time, comfort and reliability.
We have made recommendations about bus service reform in our paper Five Year Focus: Immediate actions to tackle congestion and will be making further recommendations on public transport services and infrastructure as part of the update of our 30-year infrastructure strategy.
Fares for multimodal trips
When moving to fares that are based on the modes used, the obvious question is: how should fares be collected and charged for multimodal journeys? This is known as the level of integration.
The concept of integrated public transport travel is made up of two parts: ticketing integration and fare integration.
Ticketing integration offers users the opportunity to travel across multiple modes of public transport using a single form of payment/ticketing (increasingly a form of smartcard). The benefits of this level of integration are significant and are described further in the Ticketing that supports reform section.
The issue that needs to be addressed is the integration of fares, or how fares are set for journeys made up of multiple modes.
Fare integration can be viewed on a spectrum. At one end of the spectrum is a non-integrated fare structure in which users are charged a separate fare for each mode they use. Each leg of the journey is charged as a separate fare regardless of whether it is made on the same or different modes (for example, two trams would require two fares).
At the other end is full fare integration, where the same fare schedule applies to all modes and there is only one price for all journeys (this is the current fare structure in Melbourne).
In the middle, a range of options exist including charging for each mode individually (but not each leg), discounting the cost of additional modes and charging the highest mode fare for a multimode journey.
The level of fare integration varies from jurisdiction to jurisdiction, and is tied to the level of mode-based pricing in each jurisdiction. In Australia, Sydney is the only major city to price modes separately. However, there is still a level of fare integration in the way fares are calculated. For public transport trips in Sydney, a $2 credit is applied each time a traveller switches modes ($1 for concessional fares). This means that the cost of a journey is still a function of the types of modes used, but not simply a sum of the mode fares.
Our analysis suggests that in the Melbourne context no extra charge should be made for multimode journeys that involve a bus. This provides equity of access to train stations regardless of location, and also acknowledges the low social costs of additional bus services and the benefits of fewer people parking at train stations.
We suggest train journeys that include a tram trip pay an off-peak fare for the tram component. The reason for the additional charge for trams is that additional use imposes a cost on society. Trams also experience significant overcrowding and can sometimes be replaced with active transport, such as walking.
Our analysis found that this type of additional charge is more straightforward for users to estimate and understand than the NSW approach of providing a credit for the next mode use. An alternative is to simply charge the fare for the highest price mode, but this does not give users a price signal to influence choice for each part of their journey (for example, should I walk to the office from the station or take the tram?).
Removing Melbourne’s free tram zone
Consistent with our research, and in line with Principle 1 that `all modes, routes and parking are priced’, Infrastructure Victoria recommends the immediate abolition of the free tram zone to improve safety and access for those who need it most.
While people tend to prefer simple fares, this is only one of the factors that influences decisions, behaviour and satisfaction. Comfort, overcrowding, safety and reliability are also relevant factors. Any gain from simplicity may be outweighed by a worsening of these other factors even before the equity of the free tram zone is considered.
The free tram zone includes the busiest tram corridor on the largest tram network in the world – a corridor that is already at capacity – running a service in each direction every 60 seconds at most times of the day (Langdon and Degnan, 2017).
Yarra Trams’ submission to the Parliamentary Inquiry into the Extension of the Free Tram Zone showed that patronage increased by 30% in the first year of its introduction, resulting in significantly increased crowding and discomfort – despite adding over 60 new large trams and a small number of additional platform stops (Keolis Downer, 2020).
Dwell times increased significantly at stops, from 7% to 38% depending on location. Any additional trips in the zone will need to be accommodated by more rolling stock (which on some routes cannot be accommodated) or new infrastructure.
Crowding on trams in the free tram zone hinders access for older Victorians, people with a disability, pregnant women and parents with prams and young children – the same people that have the greatest need to access trams in and around the CBD (Travellers Aid, 2020). The need for pricing in this zone is reinforced by the recent impacts of COVID-19, where even moderate levels of crowding on trams are undesirable.
Most people travelling to CBD jobs and services live outside the free tram zone and, if they have already used public transport to get there, extra trips within the zone would already be free. This means the main beneficiaries of the zone are those who drive into the CBD and those who live in the CBD. People who drive to the CBD have above average incomes (Terrill et al., 2019) as do residents of the Melbourne, Port Phillip and Yarra local government areas. It is inequitable that one small proportion of society is benefiting from the free tram zone paid for by all Victorians, while others do not.
Further, there is some evidence to suggest that the free tram zone has encouraged more driving to the outskirts of the CBD where parking is cheaper, and then taking a free tram for the remainder of the journey, increasing both road congestion and crowding on trams (Keolis Downer, 2020). The free tram zone also encourages people to substitute tram trips instead of using active transport, such as walking or cycling. Overall, this may lead to a negative effect on both congestion and the health of individuals.
While some argue the zone benefits the tourism and retail sectors, there is no evidence to suggest that public transport costs deter tourists from staying in Melbourne or that the free tram zone has boosted tourism. International evidence has also failed to find that free public transport attracts tourists or even that general public transport performance substantially affects destination selection (Thompson and Schofield, 2007; Le-Klähn et al., 2014). Any retail benefits to businesses within the free tram zone disadvantage those retail centres outside the zone, and provide CBD businesses with an unfair advantage.
Our ticketing reforms will help make the whole public transport network more accessible for visitors and locals alike. For example, by opening up the ticketing system to accept credit or debit cards directly, as well as lower priced myki cards. Ease of use is more important than cost, and this is evidenced by international tourists being more affected by ease of use than anything else (Thompson and Schofield, 2007; Le-Klähn et al., 2014). Research also showed that international tourists were content with the relatively high price of trams prior to the introduction of the free tram zone (Yang et al, 2016).
 This is from the 2016 Census as reported by LGA