I was just wondering, what benefits do the private companies that run
the bus routes in London get, is the price of a travelcard divided
between all the potential journeys it could make, and what about single
tickets?

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On Fri, 04 Nov 2005 21:56:47 GMT, Joe Patrick
wrote:

I was just wondering, what benefits do the private companies that run
the bus routes in London get, is the price of a travelcard divided
between all the potential journeys it could make, and what about single
tickets?

They are paid on the basis of a performance adjusted contract fee for
each contract. They do not retain any on bus revenue and not get a slice
of travelcard revenue based on usage.

There are two basic forms of contract that have been used for London Bus
contracts. One is called gross cost where all the cash and revenue goes
to TfL and the operator runs the buses to a contract spec and gets a
contract payment subject to how well the route runs against the
specified contractual criteria. Therefore the operator's incentive is
about performing well to the contract and they have no direct farebox
related incentive.

The alternative is called Net Cost and this is where the operator does
retain the cash revenue and is entitled to a slice of travelcard
revenue. Being able to allocate the pooled T/Card monies to route level
was one of the original reasons for Smartcards on London's buses. With
Net Cost contracts there is more pressure on TfL to allow the operator
to introduce innovation which TfL may or may not have an issue with.
With Net Cost contracts routes that are profitable are bid on the basis
of providing a return to the operator with any extra profit being shared
between TfL and the operator. Thus TfL gains from good performance as
does the operator. On routes which need subsidy then the bid would be on
the basis of lowest subsidy - hence incentivising lower cost operation
but balanced by a desire to grow revenue from good performance. If you
aim to minimise subsidy but still have a well funded budget you can
argue that extra routes could be funded as more budget will be leftover
if the core network is basically profitable or run at low subsidy
levels.

If you have growing patronage and the economy doing well then you
unlikely to get pressure from Net Cost operators about revenue risk.
However if things go badly then it is possible that a profitable route
with no subsidy may move to a position of needing subsidy which places
uncertainty on TfL's budgets. In terms of reasonable certainty with
respect to payments for operators and TfL the Gross Cost regime provides
more certainty and is less risky.

When TfL took over from TL the policy was changed away from a move to
Net Cost back to Gross Cost. The new form of gross cost contract called
Quality Incentive Contracts took over which provides for contract
extensions from 5 to 7 years and bonuses for good performance. As some
of the performance levels that trigger the bonuses are set quite low on
some routes this is one reason why bus contract budgets have risen so
much. The other is that operators "padded out" their early QIC bids to
provide for more running time and more buses thus increasing the
certainty of performing well. While that gives a good quality service to
the public the real question is whether TfL is getting value for money
for the given service quality and operational performance.

There is no doubt in my mind that bus service quality is better than it
was but there are numerous examples of excessive provision while areas
that could gain from new or better services are not getting them because
TfL have run out of money. In addition there is a creeping series of
cutbacks going on as TfL try to cut out the "padding out" on contracts
which may start to imperil service quality.

The choice of contract regime is essentially polticial - those on the
right would prefer Net Cost while those on the left would prefer Gross
Cost contracts.

Hope the helps!
--
Paul C


Admits to working for London Underground!

"Paul Corfield" wrote:

With Net Cost contracts routes that are profitable are bid on the basis
of providing a return to the operator with any extra profit being shared
between TfL and the operator. Thus TfL gains from good performance as
does the operator. On routes which need subsidy then the bid would be on
the basis of lowest subsidy - hence incentivising lower cost operation
but balanced by a desire to grow revenue from good performance. If you
aim to minimise subsidy but still have a well funded budget you can
argue that extra routes could be funded as more budget will be leftover
if the core network is basically profitable or run at low subsidy
levels.

(snip)

Interesting, thanks for posting.

Which are the most 'profitable' routes, and which require the largest
subsidy?

Chris

On Sat, 5 Nov 2005 13:13:28 +0000 (UTC), "Chris Read"
wrote:


"Paul Corfield" wrote:

With Net Cost contracts routes that are profitable are bid on the basis
of providing a return to the operator with any extra profit being shared
between TfL and the operator. Thus TfL gains from good performance as
does the operator. On routes which need subsidy then the bid would be on
the basis of lowest subsidy - hence incentivising lower cost operation
but balanced by a desire to grow revenue from good performance. If you
aim to minimise subsidy but still have a well funded budget you can
argue that extra routes could be funded as more budget will be leftover
if the core network is basically profitable or run at low subsidy
levels.

(snip)

Interesting, thanks for posting.

Which are the most 'profitable' routes, and which require the largest
subsidy?

It's very hard to know because the contract fees are not related to
revenue. I am unaware of any data that shows how much money any one
individual route takes (including apportioned revenue from permits and
prepaid tickets).

I would guess though that very popular routes like the 2, 6. 8, 9, 10,
11, 12, 29, 24, 38, 36, 73, 176, 68 / 468 would all easily make a profit
even at TfL fare levels. There are countless other examples of routes
with high and sustained demand. However they would do amazingly well if
commercial fare levels applied because even if some people decided not
to use them due to high fares there is enough of a core demand to bring
in the money. Of course, in a deregulated environment there would be
huge levels of competition on all of the above routes - at least in the
short term until the dominant operator won out.

Routes like mobility and school services have high subsidy levels
because they have earn next to no revenue but still have to run at peak
times (for schools that is). There are numerous other examples of small
scale routes that serve a purpose but are not exactly money spinners -
W12, W13, W14, 395, 273, R8, B15 are all examples that would fit the
bill.

The other thing to bear in mind with London's bus market is that it is
so big that I'm pretty convinced that anyone who could run a decent and
reliable service would probably be able to make money. They'd not be
millionaires but the demand for travel is so high that it would be hard
to fail if you picked either a good corridor or else provided a good
niche type service with a regular clientele.
--
Paul C


Admits to working for London Underground!

Don't know what use is made of the data, but the conductor/driver does
click a button on his ticket machine for every travelcard customer
boarding, so a passenger count is available.

wrote:
Don't know what use is made of the data, but the conductor/driver does
click a button on his ticket machine for every travelcard customer
boarding, so a passenger count is available.

The number of times the Travelcard button is pressed doesn't always seem to
bear much correlation to how many people board using a Travelcard.

Raoul