What if

We sold transit fares like cell phone minutes?

Smart Fares

Adam Davidson, MCPPhD Student, Geography

CUNY Graduate Center, NYCADavidson@gc.cuny.edu

Goal

� Encourage transit use as much as possible through a fiscally

solvent fare mechanism

Problem� Transit fares tend to come in 2 flavors: single ride or

unlimited. This leaves a huge middle ground where

people could choose transit but don’t because the

marginal cost is too high and the sunk cost is

too low.

Solution

Implement ‘Smart Fares’ that decrease the marginal price

of rides while maintaining or increasing the average

revenue. Simplify the process as much as possible for the

consumer.

Got a cell phone plan?

� Peak and off peak pricing

� Add-ons

� Bonuses

� Family Plans

Why not a transit plan??

Cell Phone Plan :: Transit Plan

A transit ride could be a like a cell minute:

•How many do you use in a month?

•How much during the day? Night? Weekend?

•Do you trip-chain?

•Do you travel on other transit systems too?

•Do you want to share your rides with your family?

Sprint Cell Phone Plan

Smart Fares

Are: Are Not:

� Technologically enabled

� Flexible – enable market

segmentation

� Encouragement to buy/use

more transit

� Fair – designed to provide

value to the user

� Presented transparently

� General fare increases

� Price gouging

� One-size-fits-all

� Opaque to the consumer

Obstacles

Assets

� Lack of fare equipment at many agencies that can handle

SmartMedia

Operations

� Lack of a robust Customer Service Teams in transit enterprises

Political

� Lack of discretion in setting fares. Fares tend to be set by a

political process, giving the transit agency little space to engage

in marginal pricing.

Policy Solution

Governing agency approves the averagefare pegged to ridership expectationsrather than the final fares.

This Allows for:

� Selling transit in various bundles� Cell phone model; Vacation bundling; Bundling with rent, etc

� Promotions & Sales

� Best Pricing Guarantees / Services

�Group/Enterprise pricing

� Social pricing for good causes

Operations Solution

Fare sales are contracted to a marketing and sales organization whose job is to find and maintain customers at optimal revenue

This Allows for:� A customer-service approach to transit sales rather than a user/engineering approach� The contractor manages and employs the CSR team

� Fare media that can be linked to a personal or enterprise account, then managed over a website, kiosk or with CSR representatives� Expertise and flexibility in adjusting fare bundles to reach customers and average fare targets

Old Way

The way fares are sold in NYC, using 2009 numbers as an example

2009 NYC MTA Example

2009 Totals

Average Fare collected $1.41

Overall Fare Discount 34%

Ridership 2.304 billion

Fare Revenue $3.249 billion

2009 Fare

Structure

Jan 1 – June 27 June 28 – Dec 31 Yearly Average

Base Fare $2 $2.25 $2.125

MetroCard bonus 15% for top-ups over $7 15% for top-ups over $8 15% for top-ups

MetroCard ride after

bonus

$1.70 $1.91 $1.81

Monthly Unlimited $81 $89 $85

Weekly Unlimited $25 $27 $26

Various discounts such as the

Metrocard bonus and the unlimited

ride passes brought the effective fare

down 34%.

When asked the cost of a subway trip

riders cite the base fare despite

typically having used the bonus.

Sample NYC Rider Profiles

Travel pattern

Very Infrequent(no MetroCard) Infrequent Casual Rider Regular Rider

Daily Commuter Unlimited

Round trips / week 0 0.5 1 3 5 8

Rides/month 1 4 8 24 40 64Real Cost per Month $2.125 $7.23 $14.45 $43.35 $72.25 $85.00Value per Month (Sticker Price) $2.125 $8.50 $17.00 $51.00 $85.00 $136.00

• Most users will only get the pay-per-ride MetroCard

• Mental cost calculations tend not to include the 15% bonus

• Marginal cost feels like $2.12; is $1.81

• Some “Daily Commuters” may get the Unlimited out of habit

or in case they travel extra during a particular period

Smart Way

They way fares could be sold using SmartFares to reach an average

fare metric

Pick your Transit PlanTravel pattern

Very Infrequent Infrequent Casual Rider

Regular Rider

Daily Commuter Unlimited

Plan Name Single ridePre-Paid Independence Freedom Liberty Unlimited

Price $2.75 $9 $22.50 $60 $85 $100

Regular

Rides 4 10 30 45 UnlimitedOff Peak Bonus Rides 8pm-7am & Weekends N/A 10 30 45 UnlimitedBONUS! Free NYCT rides to/from non-NYCT transit N/A 2 6 9 UnlimitedOverage Cost $2.25 $2.25 $2.00 $2.00 NA

Expires Same day Never expiresNever, if topped up in 60 days 30 days 30 days 30 days

Customize Your Plan

Trip ChainerTurn your MetroCard into a 3hr Unlimited with

Each Swipe! Add 10% to base plan

Family PlanShare your plan with another family members

MetroCard! Add 20% to base planThe Complete Package

Add both the Trip Chainer and Family Plan, then get a discount! Add 25% to base plan

Sample MetricsPlan Name

Very

Infrequent Infrequent Casual Rider

Regular

Rider

Daily

Commuter Unlimited

New Revenue $2.75 $9 $22.50 $60 $85 $100

Peak Rides 1 4 10 30 45 60

Avg Peak Fare $2.75 $2.25 $2.25 $2.00 $1.89 $1.75

Avg all likely

used fares $2.75 $2.25 $1.61 $1.43 $1.35 $1.25

Avg fare if all

used $2.75 $2.25 $1.02 $0.91 $ 0.86 N/A

Old Revenue $2.125 $7.23 $14.45 $43.35 $72.25 $85.00

Old Rides 1 4 8 24 40 64

Other SmartFaresPromotional | Bundling

EARN FREE RIDES

Upgrade your account

Promo code: SMART

“Spacious One Bedroom apartment includes

granite countertops and Unlimited MetroCard”

ROUND TRIP

TO THE GAME

SmartFare Goals• Interim Sales-points are added between Pay-per-Ride and Unlimited

• Riders are treated like customers – if they are offered value they will spend and utilize the service more

• The expenditure converts from marginal to sunk cost

• Experts at pricing and marketing manage the process, with discretion to adjust packages, bundles and promotions to reach an average fare target

• Equity is maintained or enhanced as the transit dependent can be actively encouraged to find a package that offers them the most value. Special pricing can be enhanced.

Next Steps

Conduct a pilot project with a transit partner

� Create a web service to manage accounts

� Offer Smart Fares to a sample population

� Try different bundles, promotions and plans

� Report results

� If successful, advocate for the political regulation of average

fare rather than fare prices.