Fares 2015 and the Continuing Social Evolution

480 comments

Summarising the annual fares announcements has become something of an LR tradition. It is rare, however, that they carry the level of changes to TfL’s fare structure seen in the announcement of the latest fare increase. This year’s announcement represented not only a change in prices, but highlighted the acceleration of an evolutionary shift in the London fares structure that has been quietly under way for some time. Following on from Walthamstow Writer’s summary of the announcement itself, in this article we look not at its contents but the reasons that caused such sweeping adjustments to be made.

Why have discounted fares?

At the heart of London’s Fares lies a fundamental question: why do we have discounted fares – most noticeably season tickets?

From a public perspective this question is rarely asked but for some within TfL itself it is no doubt a permanently pertinent one – such as Shashi Verma, TfL’s director of customer experience, part of whose job it is to advise the Commissioner of Transport on the preferred fare structure. The Commissioner in turn, if satisfied, passes forward Mr Verma’s recommendations to the Mayor.

To many, the answer may seem obvious and the question not worth answering, having long since crossed the line into accepted wisdom. Before one can even think of applying a fares revision that is more than just adding a standard percentage to last years prices, however, it is a question that must be asked.

Back to Victorian Concepts

Historically, there have been many reasons for issuing season tickets and other discounted fares. In the old days, for example, the need to issue tickets for every journey was expensive, time consuming and a logistical nightmare. It was therefore felt necessary to offer tickets offering unlimited journeys between two specific stations for a period of time. For these to be taken up by members of the public it was necessary to offer a considerable discount, otherwise there would be no incentive for passengers to buy them.

Pricing of season tickets on the commercial railway seemed initially to be based on finding a balance between two requirements. The first was that the price had to be sufficiently attractive to make people buy them in preference to buying singles or returns. The second was to minimise lost revenue – so tickets were pitched as high as they reasonably could be in relation to the daily fare.

In those far off days it was not difficult to determine the tariff. The presumption was that people would use them six days a week and the rate would be generally set on that basis. So, initially, a weekly would probably not be justified for someone working five days a week so anxious were the railway companies not to give away more of a concession than necessary. This reluctance to give anything away extended to the point where very short journeys were priced on the basis that the season ticket holder would make four journeys a day because there would be a lunchtime journey back home.

Season tickets, as with other tickets, were strictly non-transferable. Again, allowing them to be used by more than one person was seen as a potential source of lost revenue. The principle of non-transferability has been absolutely fundamental to bus and railway ticketing for over a hundred years and, like a lot of other things, again passed into the territory of received wisdom. It wasn’t until the launch of pay-as-you-go Oyster in the dying days of the 20th Century that the general public finally had a means of buying a ticket payment card in London that was transferable – but even then it specifically does not apply to season tickets or, obviously, those who receive a specific discount such as with an 18+ Student Oyster Photocard.

The off-peak return

Another example of a discounted fare was the off-peak return. Again, it was a case of the railways wanting to maximise revenue. It was recognised that with off-peak trains generally running nearly empty it made sense to offer a fare to attract travellers who otherwise would not have made the journey. So as to not lose revenue from travellers making essential journeys, the off-peak return was priced marginally above the single fare – the logic being that anyone making a single journey was doing it through necessity and so there was no reason to offer a discount that undercut the single fare.

The reason disappears but the practice continues

The world of rail fares is full of perpetuated practices where the original reason for them has totally disappeared. A classic example is the printing of the month on modern tickets, such as One Day Travelcards. It was the railway’s practice to order special date stamps with non-standard letters for the three alpha abbreviations for some months of the year. This was done as a fraud prevention measure as it would be more difficult for fraudsters to get their hands on such a date stamp. As a consequence season tickets, when appropriate, would be stamped with JNR, FBY, MCH, JLY or DMR. When the world moved on to tickets printed on demand using APTIS or similar ticket issuing equipment this feature was perpetuated even though the reason for it had disappeared.

travelcard

A 2005 Travelcard with January abbreviated to JNR instead of JAN for no logical reason. Photo courtesy Wikipedia.

Oyster: A ticketing revolution in the making

It should be reasonably obvious that once one introduces ticketless means of paying fares such as Oystercard or Wave and Pay then the historical reason for season tickets and the discount they attract potentially disappears. We’ve looked at just how much Oyster shook up the world of rail fares before. As John Bull wrote back in 2011:

A significant part of Oyster’s success has obviously been due to the massive take up of the scheme by the public at large. For the vast majority of Londoners, the Oyster card has become their key to London’s transport network – indeed it’s an apt metaphor as there are probably few commuters out there who haven’t, at some point, tiredly tried to Oyster into their house. Much of the speed and size of that takeup can be attributed to the fact that Oyster was trumpeted as a system that would meet two clear goals:

1) It would be simple to use
2) It would always find its users the cheapest fare.

That Oyster met these goals is to be lauded, but that these two basic objectives had become such revolutionary ideas is a damning indictment of the fares and ticketing to be found on Britain’s Railways.

Oyster laid bare many of the problems with the established fare structure both for TfL and for the railways at large. It also highlighted that change was needed. Of course, huge fundamental changes cannot take place overnight. There is the problem of introducing an appropriate fare structure so that regular travellers are not subjected to a sudden massive fare hike or, conversely, occasional travellers are not given substantial discounts with the downward impact that would have on overall revenue.

The desire to adjust the fares structure has long been an aim of TfL and this is something they have had some limited success with over the years. The move to encourage people away from season tickets is not new. Even now the relative price of a weekly compared to a daily return on Oyster is such that for a tube-only return journey 5 days a week it is cheaper NOT to buy a weekly but use Pay As You Go. The benefits are even greater if one of the journeys is made off-peak.

This year’s announcement, and it’s accompanying documents, made it relatively clear that if TfL had a free hand on fares policy then they would have taken this desire to reduce season ticket discounts further and raise their prices relative to the weekly fare.

multiplier table

A proposal to increase the season ticket “multiplier”

The above documentation taken from this report in 2008 shows a failed attempt by TfL to increase the “multiplier” that determines monthly and annual season ticket rates based on the weekly rate. This was obviously deemed politically unacceptable and not implemented.

The part-time worker issue

In recent months the subject of travel for part-time workers has been something of a political hot potato. Part-time workers get no travel discount compared to a full-time worker, and in the modern world the logic of this is hard to see, especially when working less than full-time is quite usual and many people do not have sufficient job security to be reasonably sure that they will be working 5 days a week for the next year.

In a way this issue probably suited TfL as it enabled them to tilt the balance a little more away from the season ticket holder in favour of encouraging Pay As You Go. The solution to the problem was delightfully simple – just cap the daily Pay As You Go rate at one fifth of the weekly rate. Instead of headlines bemoaning the lack of a discount for weekly and longer period season ticket holders, the change is instead applauded as being of benefit to part-time workers. If nothing else this should demonstrate how important part-time workers are perceived to be in London. It probably also shows how London recognises that part of its success depends on a flexible adaptable workforce and the transport fares must therefore reflect this.

The Importance of the Weekly Cap

One of the consequences of the above announcement is that, for journeys within zones 1-6, once the weekly cap is determined then the daily cap can be calculated by, subject to rounding adjustments, dividing the weekly cap by five. Furthermore you can also determine the monthly rate (multiply weekly cap by 3.84) and the annual rate (multiply by 40). With the logic for offering a discount for a return over the price of two singles also disappearing, there are in effect only two fundamental fares that need to be priced – single tickets and weekly tickets. Everything else is a derived fare.

We have already seen TfL’s desire to increase the monthly and annual rate relative to the weekly rate. In many way this makes a lot of sense as both give quite a considerable discount, yet with the historic reasons now absent there is no real benefit to TfL in doing so. Even the argument that TfL gets the money in advance is a little hollow given how cheaply TfL can borrow money on the open market. It does look like politically they will be quite unable to change things in this area though.

What is perhaps more interesting though is the alternative of going the other way. What if the daily cap was set at one sixth the weekly cap? Obviously there would be a revenue issue that would mean the weekly cap would have to get relatively more expensive.

From January 2015 the deal basically is that if you travel to work for 5 days a week then there are two ways to travel for free at the weekend. The first way is to decide in advance that you may wish to do so and buy a weekly ticket that is loaded on your Oystercard. The second option is to simply use Wave & Pay and you will automatically get your weekend journeys for free. The beauty of this is that you don’t need to decide in advance what to do.

In the past there would be a good argument for allowing travel for free at the weekend because you would simply be using spare capacity. In other words, the marginal cost of providing this would be absolutely minimal. Since that philosophy was espoused the world, or at least London, has changed and providing capacity on Saturdays is definitely not done at almost zero marginal cost. We are experiencing situations whereby on some tube lines the frequency for much of the day on Saturdays is only marginally below the Monday to Friday peak. In such circumstances making 6 or 7 day a week users pay for more than 5 days travel would not seem at all unreasonable.

This solution for part time workers also has a bonus for people who sometimes work from home. Another failing of the rigid season ticket was that there was generally no incentive, fareswise, to avoid making a journey that may be unnecessary. Here there is probably also a bit of politics. Not only is the measure seen to assist those who sometimes work from home, and reduce peak period crowding, it is also something visible that TfL and the mayor can show to the treasury as a measure that has been introduced to provide a pricing mechanism for discouraging unnecessary travel.

Daily capping

One feature of the new fares structure which has caused some anger is the elimination of the off-peak cap from Zones 1-6. This means that the only cap in place is what was formerly the peak cap. This will be set at £11.70 in January 2015 if all zones 1-6 are travelled in.

Within the rail industry it has long been recognised that the off-peak Travelcard fare was probably set unduly low but it has been difficult to increase it much beyond inflation due to the political storm that this would produce. Ironically it is often easier to eliminate something than increase the cost of that thing by a disproportionate amount due to the adverse criticism that the latter will inevitably create. There is always the thought present in the former case that one is no longer comparing like with like.

There are various reasons why the rail firms and some within TfL think the off-peak cap was set too low. One problem was that it was disliked by the train operating companies who saw what they considered as insufficient revenue paid for a journey.

The way the cap typically worked on Oyster was that the individual journeys were identified and costed and each operator responsible for a journey would be proportionally paid their share of the capped fare for that day. It would easily be possible for an operator to get only around a half the non-capped fare. This would mean London Buses only getting around 75p in revenue for a journey.

The above, in part, provides the answer to one of the questions that many Londoners confronted by a busy four-car train in the off-peak will at some point in their lives have internally asked – just why do operators run shorter trains in the off-peak?

At least in part the answer is due to the effect the above fare proportioning has on the train operating companies – because looking at the revenue received for a crowded “loss-making” off-peak train it is easily possible for them to come to the conclusion that (even ignoring the issue of maintenance threshold levels) adding more carriages would just increase their loss even if it meant that they attracted more traffic.

One can have one’s own views on how the railways should be financed but, given that we have the infrastructure that we have, it seems madness to get into a situation where revenue received by the train operating company is so little that they have no incentive to add the carriages that they already have available in order to reduce off-peak overcrowding.

Another problem is, as one commenter pointed out on our summary of the changes, the relative cheapness of the Travelcard produces disproportionate differences in the cost of a Travelcard between the last station within zone 6 and the first station outside where it becomes an add-on to the standard rail fare (presumably to central London). As the National Rail fares have not yet been announced, we cannot yet say for certain that this difference will be reduced as a result of eliminating the off-peak cap in 2015 – but it is entirely possible.

Is there any justification for an off-peak cap?

Clearly some people think removal of the off-peak cap is just wrong. But when one looks for the logic to justify an off-peak cap that is substantially below the peak cap it is hard, in 2015, to really see that a case can irrevocably be made. On the other hand there are many arguments that can be made to show that the current setup is completely perverse.

One of the fundamental problems of the off-peak cap was that the rules were a bit complicated and counter-intuitive. Between 4 p.m. And 7 p.m. peak fares are charged (there are exceptions which will broaden in January 2015) yet the journey counts towards the off-peak cap. This confuses some people – and even TfL’s own Oyster telephone staff who arrange refunds have been known to get this wrong and not understand it.

A further fundamental problem is that the off-peak cap just produces a whole load of anomalies. How can it be right that someone who travels in the morning peak but avoids the evening peak does not qualify yet someone who travels in the morning after peak hours but in the evening peak does qualify? Maybe 20 years ago one could have argued that the morning peak is the critical peak and the evening peak is less busy. That is probably less true now but in any case the evening peak tends to be only slightly less busy, but is spread over a longer period of time. The effect of this is that both peaks tend to equally determine the number of trains required and so are both critical in determining infrastructure costs.

The night bus anomaly

Another problem with the off-peak cap is that it can effectively give a discount at times when costs are highest. Most notably costs are high at night and it was not that many years ago that bus users were charged double between midnight and 4.30 a.m. The reason this was abandoned was partly as a matter of policy, because it was felt this hit the poorest hardest (night buses being almost exclusively used by poorly paid night workers then) and partly because the doubling of fares tended to lead to confrontations. With the Oyster mechanism in place a case could be made for more expensive night bus fares. Part of the justification for this could be that journeys on night buses tend to be much longer than on daytime buses. Also some night buses are as busy or busier than buses in the peak periods.

Despite the above, it is not the case that night buses attract a premium. They can be the busiest buses but we now have the situation here where something that is busy and expensive to provide currently attracts a discount by means of qualifying for the off-peak cap. It is hard to see how this can be logically justified.

We also have the case of Sunday, and to a lesser extent Saturday, travel which due to extra staff costs is more expensive to provide. This is just not taken into account. When the Travelcard was launched there was spare capacity on existing services so it made sense to provide these at off-peak fares. With the Piccadilly Line actually running a slightly more frequent service on Saturday afternoons than on Monday-Friday peak hours it is hard to see why this should attract off-peak fares or, more particularly, off-peak caps. The Piccadilly Line is a little bit exceptional but some other tube lines are not far behind in the need to provide an off-peak service almost as good as a peak service.

You lose an anomaly and you win some

The 2015 fares structure has extended the concept of evening peak travel to zone 1 (i.e. against the direction of peak flow) being treated as off-peak. This was already the case on London Underground but has now been extended to National Rail. Clearly this will do a lot for some people to lessen the financial pain of losing the off-peak cap. Some people will actually be better off than they were before. Whilst making a lot of sense as a transitional measure, it introduces a new inconsistency as it is hard to logically accept this concept in the evening peak period but not in the morning. Of course in the evening peak period this contra-flow traffic may be largely leisure traffic whereas in the morning it is probably commuter traffic, but this still raises the question as to whether it is right to treat these two flows differently and upon what principle this is done.

The pragmatic case

Another reason that can be put forward to justify an off-peak cap is the pragmatic reason. This basically says that by removing the cap one has undesirable consequences.

Top of the list of undesirable consequences is that there is no incentive for leisure travellers or other to avoid the morning peak. Of course this should more accurately stated that there is no financial incentive to avoid the morning peak. There is always an incentive to avoid the morning peak as the trains are generally very crowded and a lot of services are actually much slower in the morning peak period.

As a contrast to the fear of more people travelling in the morning peak we currently have the well known phenomenon of the 9.30 a.m. spike. Generally the first train after 09:30 is exceptionally crowded as people chose to use it due to it being the first train for which off-peak fares are valid and the fare counts towards the off-peak cap. Indeed this choice isn’t always a conscious one – pass through a terminal well-used by tourists or occasional travellers between 09:00 and 09:30 and you’ll see staff shooing plenty of confused people away from the gatelines with the explanation that their ticket is not yet valid. By removing the off-peak cap you remove the incentive for some people (those that would qualify for the new daily cap) to wait until 9.30 a.m. It would still be the case that most people would still have a financial incentive to wait until 9.30 a.m. What the single daily cap may do then is smooth out this totally artificial peak where often the trains that are running a few minutes earlier are less crowded than the off-peak trains that follow.

As London heads for further overcrowding on its transport network, with Tube travel rising at a fast rate and numbers expected to top 1.3bn Tube journeys for 2014, it does start to appear that the idea of encouraging people to make what may be additional quite trivial journeys for no cost needs a bit of rethinking. As does the fact that the cost of a journey should in some way reflect the cost of providing it. That said, it is recognised that the idea of a daily cap is a good one and one that goes down well as a marketing concept, as people can travel knowing that in the worst case scenario their travel costs for the day will not be more than the daily capped rate.

What of the future?

Predictions are bound to be wrong but we can see the direction that TfL fares are going. TfL continue to be keen to move as many people as possible to Pay As You Go and make that the most attractive option. They will clearly continue to push for a higher “multiplier” for monthly and annual tickets in future if they feel it has a chance of succeeding in it being implemented.

It is understood that it is the intention that weekly capping will be extended to work on Oystercard, but Oystercard works in a fundamentally different way from Wave & Pay so implementation is not trivial. The algorithms for weekly capping are incredibly complex and it is unlikely the concept could be extended to monthly capping on either Wave & Pay or Oystercard.

Although the restrictions of paper tickets are largely gone, the objective in setting the fares are probably very similar to 150 years ago – making it sufficiently attractive so that people will travel but at the same time avoiding unnecessarily losing revenue. The 2015 fares structure will probably be heavily scrutinised both internally and externally to see how well it succeeds.

Written by Pedantic of Purley