Tarification #1: Encouraging passengers back on the railways through targeted fare products

Our series of 5 articles about tarification starts this week with the analysis of Fitsum TEKLU, Director Rail Advisory de SYSTRA UK & Ireland, who discusses the topic of pricing from the perspective of different user profiles and their needs.

Mobility as a Service, referred to as Maas, cannot be developed without addressing the issue of transport pricing, or mobility in general. This is not a new issue, but it is even more pertinent in the context of the health crisis, with operators hard hit, user behaviour becoming both more demanding and unpredictable, and mobility less routine. So what fare policy should be adopted? How can profitability and efficiency, flexibility and sustainability be reconciled? Can a pricing policy be a lever for managing crowds in transport networks? Can pricing have an impact on urbanization and the shape of the city?

We asked our experts these questions. From Australia to Brazil, via Asia, the UK and France, our international network of consultants worked together to answer them. For a month, we shed light on the subject, informed by local experiences.

A fall in the use of public transport

The Covid pandemic and national lockdowns caused rail passenger numbers to plummet to below 10% of typical levels in the UK and other countries. This has resulted in a significant impact on railway finances and governments across the world have had to step in to fill the gap.

In parallel, the pandemic may have resulted in significant behavioural changes in terms of how passengers travel that may mean that, even with successful vaccination campaigns and significant improvement in transmissions rates, railway revenues will be depressed for longer.

There is some evidence that commuters may not want to work from offices as much as previously. Employers may not require them to do so too. Some rail passengers, particularly those that are not frequent users of the railway, may feel unsafe travelling by rail, especially in crowded services. Business passengers may feel that video conferencing technologies are sufficient and may think that they may not need to travel by rail as much as before.

In this context, where it is important more than ever to ensure the sustainability of the railways, fares products, and ticketing systems should be designed to ensure passengers get back to the railways quickly and safely. One of the main lessons from the recent stakeholder consultation undertaken by the Rail Delivery Group* in 2019 was that passengers want value for money, flexibility, greater personalization and an easy-to-understand offer and tickets that are simple to buy.

In this blog, we look at how we can interpret these needs particularly in the short-term in order to ensure that railway finances are strengthened, considering the different passenger groups.

*Rail Delivery Group is a UK association of companies that work on the railways, including operators, network rail, rolling stock leasing companies, ticket vendors, local authorities and consultancieshttps://www.raildeliverygroup.com/files/Publications/2019-02_easier_fares_for_all.pdf

Commuters: looking for more flexibility

Before the pandemic, this passenger group mainly used Season tickets that were designed to give them discounts for travelling by train frequently. In the UK, weekly Season tickets give passengers ~20% discount on their travel cost which is equivalent to travelling for free one day per week.

But these tickets were losing value even before the pandemic due to the increasing trend in flexible working – i.e. more part-time working (e.g. people only working 4 days a week) and working from home – as employees looked to redress their work-life balances.

The consensus amongst industry analysts seems to be that the COVID pandemic has accelerated this trend, and employers are going to be content to let their employees work more flexibly in the future.

Research indicates that a significant proportion of rail commuters are mainly looking to travel to work 2-3 days per week. The plan now is to introduce a flexible Season ticket that allows passengers to travel on any eight days in a 28 day period, and give them about 15% discount than the walk up tickets for peak travel. In most cases, these tickets would be easy to purchase and can be put on smartcards to provide a contactless travel experience and allowing passengers to avoid queues.

This flexible Season ticket is mainly designed for peak travellers, and there may be a need for designing a similar product that encourages commuters to travel in the off-peak period more often. This could take the form of a rebate that is given back to passengers for using the flexible Season ticket to travel in the off-peak period. One of the operators of the commuter services into London implemented this product on smartcards, a key feature of which is that the rebate was put back on the smartcard automatically without the passenger needing to put a claim in. There may be a need to introduce such products more widely.

Leisure Passengers: a need for reassurance

For discretionary leisure travellers, the main issue is to rebuild passengers’ confidence in travelling by rail. For most of the time since the start of the pandemic, the message from governments has been for their citizens to stay at home and not travel unless it is essential.

That message would need to be reversed as soon as it is safe to do so and supported by marketing campaigns such as buy-one-get-one-free offers and flash sales.

An example here is a campaign run by an operator in Northern England last year where tickets were sold for 10 pence. Such schemes would need to be time-limited in order to reduce any adverse impacts on rail revenues and would require a cap on passenger numbers to safe levels. They have been proven to attract passengers back to the railways, including those that have previously not considered travelling by rail.

Particularly this summer, when international travel is likely to be limited, such strategies have the potential of accelerating the transition to normal conditions by reassuring passengers that it is safe to travel by rail.

Other strategies that have been successful in the past include railcards that give targeted passenger groups discounts. In the UK, railcards are available for 16-17 year-olds, 16-25 year-olds, 26-30 year-olds, couples, seniors, and those travelling in groups of 4 or more and others. Typically bought for an annual fee of ~£30, these railcards offer a third off the price of tickets giving passengers greater value for money – they have been financially successful, and largely shown to be revenue generative. They are also available digitally, on mobile phone Apps for easier access.

Separately, there is some momentum around the world in implementing MaaS – more integrated and seamless door-to-door experiences, allowing passengers to buy tickets for the whole journey, and combining multiple modes into a single platform.

Such systems would simplify the ticket purchase and seat reservation processes and are particularly relevant over shorter distances in and around cities. MaaS is still in its infancy in the UK and there are not a lot of use cases, and most of the work to date has been in simplifying the fare structures.

To that end, one of the main issues in the UK has been the existence of more than one price for travelling between a pair of stations at a specific time of the day. Depending on whether a passenger bought a Single or a Return ticket, the effective price paid for a single ticket may be only £1 cheaper than that for a return ticket, making the return journey on some Single tickets more than 90% more expensive. This is an issue that has led to passenger groups perceiving the fare structure as being complicated and unfair.

To address this, the industry has, in recent years, been making a concerted effort on Single Leg Pricing, a system in which the price of a Single ticket is 50% of the Return fare, and allows passengers to more readily mix and match their tickets. Along with the recent decision by the UK government to end the fragmented system for setting fares, and bring the responsibilities under one organisation, Great British Railways, Single leg pricing should make it easier to integrate train tickets into MaaS platforms and provide user-friendly and fairer systems to passengers.

Business Passengers: expecting quality of service

The issues raised above in relation to MaaS are also relevant to business passengers. Considering that these passengers are less price sensitive, the main focus should be in providing more choice in terms of travel times, modes, service (e.g. class of travel, a table and socket) and, of course, prices.

Providing technological solutions that allow these passengers flexibility (e.g. changing their seat reservations at short notice) are going to be valuable.

To conclude, fare strategies are key in ensuring passengers and rail traffic and revenues return to normal levels safely, quickly and in a way that is adapted to the different passenger groups. SYSTRA’s experts are at your disposal to help you define and implement them with you.

See you next week with the article by Chris Ayles and Nicolas Siaud from SYSTRA Asia: How to increase revenues through fares?

Don't miss anything, follow us on social media !