Summary

Fares can be described as the monetary charge for making a trip by public transport, e.g. the price of a rail or bus ticket. Fares can also be described as the main source of revenue for public transport operators. When fare levels change they influence the level of demand for public transport. In general, all other things being equal, an increase in fares will reduce patronage, whilst a decrease in fares will increase patronage. The size and direction of the change in demand following a change in fares can be expressed in terms of a fare elasticity. For example, if the fare elasticity of bus demand with respect to bus fares is –0.4, and all fares were to increase by 10% we would expect patronage to decrease by 4%. The fare elasticity is therefore a measure of the price sensitivity of bus passengers.

A wide range of factors influence the size of fare elasticities, e.g. current fare levels (the higher the current fare the more sensitive passengers will be to fare changes), size of the fare change (the larger the change in the fare the more sensitive passengers will be to the fare change), service quality (passengers may be less sensitive to fare changes if the quality of service is high) etc. Whilst these factors can be discussed in isolation it is likely that more than one of them will exert an influence at the same time.

Fare levels tend to reflect the costs facing operators. As such fare levels will tend to differ between modes and also within mode between different operators. Over time fare levels will tend to rise to reflect the rise in costs facing operators, however fare levels can also differ in the short run for the same service, for example peak and off-peak fares. This reflects a desire of the operator to maximise his profits by introducing price segmentation into the market place and charging what the market will bear. It also reflects a desire on behalf of the operator to spread their passenger loading throughout the day to ensure that every passenger who wishes to travel can do so, and that the level of service offered to those passengers is at least perceived to be of an acceptable standard. In some countries fares are highly regulated (France) and controlled by local government, whereas in other countries (UK bus industry) they are set by the operator. In the former subsidies tend to be high and in the latter low.

In the long run fare elasticities will increase, reflecting the greater range of responses open to passengers who have been affected by increases in fare. In the short run passengers facing an increase in fares can either switch modes or not travel. In the long run the number of options increases to include, switching destinations, changing jobs, changing homes, purchasing a car etc. Whilst fares are an important factor in a person’s choice of transport mode they need to be viewed as a policy instrument that works best with other complementary measures.