• The new fares will lead to a net loss of $3.0M in Bus Fare Revenue and $2.7M in Rail Fare Revenue.
• Bus fare revenue is paying a much higher percentage of bus operating costs than rail fare revenue is for rail costs  This means that for every $1.00 a Wellington bus user pays in fares, 9 cents will be going towards the cost of rail services.
• Excluding the predicted revenue changes from the new fares reveals an underlying fall of $4.4M in bus fare revenue but an increases by $3.6M for rail fare revenue.  The major fall in bus revenue is not reported by the GWRC yet is the major reason why the bus Farebox Recovery Ratio remains (just) within the 55% – 60% policy range.
• The GWRC has never reported these 5% – 10% predicted PT revenue and cost changes in any report including the 2018 Fare Review.  The public is therefore unaware of this information for the GWRC 2018/19 Long Term Plan.

This analysis continues from the “What do you mean you saved $18M on Buses but spent it on the Trains ?” post that revealed major changes in Wellington’s Public Transport (PT) service costs from mid-2018.

Fares are set by the Farebox Recovery Ratio

We need to start by briefly explaining how the Greater Wellington Regional Council (GWRC) sets fares using the Farebox Recovery Ratio. The 2014 GWRC Regional Public Transport Plan requires:

Sustainable funding arrangements that balance user contributions (fares) with public funding

Farebox recovery measures fare revenue as a proportion of direct operating costs.

The GWRC PT policy states that user fares for bus services; user fares for rail services and user fares overall must fund between 55% and 60% of the direct operation costs.  The way this policy works is, if costs rise such that the Farebox Recovery Ratio will fall below 55%, then a fare increase is required to ensure that the ratio rises back to 55%.

Further information explaining the GWRC Farebox Recovery Policy is here.

New Fares mean lower Fare Revenue

In late 2017, the GWRC announced that the new Better Metlink Fares would introduce a range of additional discount fares from 2018/19.  These new discount fare changes lead to a fare revenue loss of $7.5M but the GWRC also plans a 3% fare increase to recoup $2.3M to help compensate for this revenue loss and ensure the 55% Farebox Recovery Ratio minimum is met.

The GWRC 2018 Annual Fare Review

The GWRC 2018 Annual Fare Review (Report 2018.71) confirmed the need for a 3% Fare Increase and provided the following details with respect to 2018/19 bus and rail cost changes:

By mode, the figures show quite a divergence from the 2016/17 actual figures – with rail well below past actuals and bus above past actuals. This can be explained by:

• the move to gross-based contracts for bus (no net contracts)
• the changes to commercial services (some commercial services will be contracted and some will be exempt)
• significant increase in forecast rail expenditure, including: network track access charges, passenger service fee, network renewals
• savings from new bus contracts.

Yes, that is all the details the GWRC has provided about 2018/19 bus and rail costs and revenue … no actual cost or revenue figures but just a few short non-descript phrases.

The following are the overall Wellington PT Fare Recovery Ratio figures for 2017/18 and 2018/19 and these appear, on the surface to be reasonable and supportive of the GWRC claim for a 3% fare increase:

Wellington Public Transport Farebox Recovery Ratio Calculation

But this analysis of the 2017/18 Fare Review, the 2018 Better Metlink Fares Review; the 2018/19 Fare Review and their supporting Farebox Recovery calculation spreadsheets raises serious questions about the detailed bus and rail amounts behind these totals. As explained in the previous post, the following Farebox Recovery Ratio calculation information was released under LGOIMA after the intervention of the Ombudsman.

The Actual Bus and Rail Amounts for 2018/19

The key analysis was to compared the 2017/18 year to the 2018/19 year as this identified the planned changes in both cost and revenue for both bus and rail services.  The previous post outlined major changes in both bus and rail costs, but the GWRC also plans major changes in fare revenue as revealed in the following tables:

Wellington Rail Farebox Recovery Ratio Calculation

Wellington Bus Farebox Recovery Ratio Calculation

Bus Users are to Subsidise Rail Users by Millions

The first outcome of the this analysis of the GWRC Farebox Recovery Ratio calculations is the realisation that bus fares are contributing nearly the maximum percentage of 60% of bus operating costs while rail fares are contributing much less than the minimum percentage of 55% of rail operating costs.  This essentially means the GWRC is planning to have bus users contribute $4.5M towards rail operating costs in order to ensure the overall average Fare Revenue fare revenue is 55.1%. In other words, for every $1.00 a Wellington bus user pays in fares, 9 cents will be going towards the cost of rail services.

The uneven and unfair fare contribution between bus and rail users towards the cost of their PT service is not mentioned in any published GWRC report.

Why are there underlying Fare Revenue Changes ?

One of the great things about obtaining the background calculation spreadsheets is one can adjust the figures to check if there is anything else going on.  As outlined above, the Better Metlink Fares Review introduced new discount fares that reduced overall fare revenue.  The 2018/19 Fare Review background spreadsheet included the revenue changes due to these new fares which were:

• Bus fare revenue to be reduced by $3M
• Rail fare revenue to be reduced by $2.7M

If we add these amounts to back to their respective fare revenue total we can examine if there are any other underlying fare revenue changes in GWRC plans:

Wellington Rail Farebox Recovery Ratio Calculation

Wellington Bus Farebox Recovery Ratio Calculation

The above adjusted fare revenue totals reveal there are other underlying changes in both bus and rail revenue apart from the new fares (whose this effect is removed).  So what else is causing the underlying rail revenue to increase by $3.6M (7%) and the underlying bus revenue to fall by $4.4M (8%) ?

The other logical candidate for a major loss of fare revenue is a change in patronage.  Below is the GWRC Long Term Plan PT patronage predictions from “Supporting information to the 10-year plan consultation document” (page 209):

Wellington PT Patronage Growth Prediction

So the GWRC predicts both bus and rail patronage to increase in 2018/19.  The 4.5% rail patronage increase might explain the underlying increase in rail revenue of $3.6M but the 1.4% bus patronage increase makes the $4.5m fall in bus revenue even more difficult to understand.  It is as if the GWRC simply removed $4.4m in bus revenue from their Farebox Revenue Calculation.

Reduced Bus Revenue is needed for the Fare Increase

It is worth noting at this point that these underlying bus and rail revenue changes have a significant impact on the respective Farebox Recovery ratios.  With the calculation spreadsheet it is possible to recalculate the Farebox Recovery Ratios assuming the bus and rail revenues changed by the same amount:

The underlying reduction of $4.5M in bus fare revenue is especially significant because this hidden reduction is the reason why the Bus Farebox Recovery Ratio is under the 60% maximum permitted by GWRC PT Policy. If the underlying bus fare reduction was any less than $4m, then the Bus Farebox Recovery Ratio would be at least 60.1% breaching the maximum permitted under GWRC policy. The impact of exceeding the 60% maximum is stated in the GWRC 2014 PT Plan:

Any increases in fares above those provided for in the farebox recovery policy (Appendix 5) and GWRC’s Long Term Plan” … “will always be considered ‘significant’
GWRC 2014 Public Transport Plan Section 6.1 page 79.

This means the GWRC must undertake a formal public consultation as part of any fare increase when the Fare Recovery Ratio is above 60%.  Any such consultation would require the GWRC outlining the above information and much more in order to justify why Wellington bus users must pay a much higher proportion of the operating cost of their bus service than rail users.

However, the $4.5M fall in 2018/19 bus revenue total means the Bus Farebox Recovery Ratio is reduced to (just) under the 60% maximum.  Is it a lucky coincidence that this hidden and unreported fall in bus revenue means the GWRC avoids having to include the 3% fare increase as part of their Long Term Plan review as a “Significant decision” ?

Conclusion

This analysis based on information released by the GWRC reveals the major changes in the underlying 2018/19 bus and rail fare revenue of Wellington PT service and highlights the following serious issues:

• The apparent transfer of $4.5M in bus fare revenue to support rail service cost increases seems unfair.
• Bus fare revenue is missing $4.4M that is the amount that coincidently ensures the bus Farebox Recovery Ratio is below the 60% permitted maximum seems suspicious.
• The failure by the GWRC to inform the public or, it seems, even its own councilors about major bus and rail fare revenue changes is very concerning and contrary to the principles of open transparent government the council claims to support.

In the next and final post the analysis will look more closely at the Rail Costs used in the Farebox Recovery Calculation and is titled “The Fare increase is only needed because the GWRC added Rail Costs“.