Transport Ticketing and the Cost of Living: What Can Transit Authorities Do?

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By Sam Gazeley | 3Q 2022 | IN-6657

No sooner has the transport ticketing industry seen a marginal recovery from the woes of the COVID-19 pandemic, and another is setting in that, in many areas, will impact just as hard with the rising costs of living, fuel, and energy. Globally accelerating inflation rates are placing huge pressure on passengers and networks, hampering efforts to return to pre-COVID-19 travel ridership.

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Global Inflation Pressurizes the Transit Network

NEWS


Rapidly increasing prices are pressurizing ticketing markets in all regions and preventing a return to pre-COVID-19 levels of frequent and infrequent travel. Initial estimations from the World Economic Forum suggest inflation has peaked at a 40-year high, including 25% inflation in Israel, and nearly 80% in Turkey.

A side effect of general inflation increases in global economies has seen fuel prices rise rapidly, which are beginning to impact the motorist’s usage of cars for private travel. Some countries, such as Hungary, have limited the daily amount of gas each motorist can purchase, and Sri Lanka has placed a 2-week ban on non-essential fuel sales. The consensus in the global market is that economic growth will be weakened, and inflation rates will continue to grow. For the ticketing market, this means that there may be an opportunity to provide solutions that can capitalize on the movement away from private vehicles.

What Can Transportation Authorities Do to Weather the Blow?

IMPACT


Any degree of increased cost in public transit will lead to travelers reducing the volume of travel as it relates to both professional and leisure purposes. Workers are increasingly likely to revert to a home working scenario if they are able to do so, and with tourism likely to also take a hit. Transport networks are also not immune to the effects of increasing costs and may, in turn, experience a sharp increase in operational costs at the same time as sharp decreases in the number of travelers using the networks, resulting in a drop in ticket revenue shortfalls when it comes to long-term network investments. In spite of financial pressures, public transport can offer a solution to the increasing costs that are presented to travelers, and Transportation Authorities (Tas) have the opportunity to reinforce a positive message around public transit and the benefits it can offer in a time of increased economic pressure.

European TAs are already moving to offer competitive solutions and fare types to entice travelers back to the transport network. The most drastic has been seen in Germany, where between June and August 2022, travelers across the country could purchase a month’s worth of single-ticket travel for all modes of city and regional transport for €9. This offering has proven hugely successful with German travelers and has led to an uptick in travelers joining or returning to the transit network. From an environmental perspective, encouraging large numbers of travelers to use mass transit will also be preferable to individual private vehicles. However, TAs looking to employ a similar scheme should remain aware that, while under the scheme, profit margins will be extremely limited and, after the scheme ends, large price hikes are likely to be seen to compensate for the shortfall in revenue. Furthermore, this solution requires significant government backing, with the German government paying in the region of €2.5 billion in federal government subsidies to support it.

With the global increase of inflation unlikely to disappear in a short time span, TAs must consider not just short-term interventions, but longer-term and future-proofed strategies to help weather the blow over the next few years. A number of options to bring benefits to both travelers and TAs exist currently and will be adopted moving forward:

  • Consider Mobility-as-a-Service (MaaS): There is an opportunity for new mobility service offerings, such as bikes and scooters, to join forces with entrenched public transit modes, such as trains and buses, to offer two benefits: 1) providing passengers with a streamlined end-to-end transit experience, and 2) operating a ticketing ecosystem that removes complexity. This enables MaaS to fulfill each part of the traveler’s journey and meet the expectations of travelers by offering better value for public transport compared to car usage.
  • Fare Adaptability: Price hikes will always cause citizens to change spending habits and transfer their business in an effort to conserve their spending, which is mirrored in the ticketing market, as passengers become increasingly sporadic with travel patterns and demand flexible ticket offerings and transport modes. This places a pressure on transit networks to develop flexible ticketing solutions that finely balance passenger value and generate revenue for the network itself. Rigidity from TAs at the present time will close the door on new revenue streams being generated and will put off travelers from returning to the transit network altogether. Fare capping, for example, could also serve to limit the cost of journeys for the traveler through the cost-of-living crisis.
  • Be Fiscally Conscious: With a significant amount of attention being paid to the possibility of running an EMV-based ticketing ecosystem in a closed-loop by using white-label EMV, some transit authorities may consider the value of a closed-loop EMV system and the benefits offered to passengers. As well as providing a solution to underbanked populations, as rising costs of fuel and inflation pressure more passengers to reduce their expenditures, many may gravitate away from open-loop or PAYG ticketing solutions and may prefer to exercise financial self-determination by utilizing the network’s own ticketing solution, thereby enabling access to concessionary fares.

Are Open Standards the Way Forward for Transit Networks?

RECOMMENDATIONS


Transit networks are finding themselves without the capital to invest in upgrades or the footfall to generate such revenue, leaving little option besides conserving money as much as possible. It is possible for open standards, such as Calypso, to enable TAs to regain control over their networks and introduce efficiency into the ecosystem for the purpose of effective resource allocation, and to provide flexible ticket offerings to a ridership base that is becoming increasingly demanding about the agility and price of the services they are being offered. By reducing the chance of being locked in and reverting control to the operator, not only do open standard solutions decrease expenditures, but can also help deliver fare arrangements that can offer better value for the traveler.

With the chip shortage continuing to plague the smart card side of the market (another factor to consider, alongside the current macroeconomic and geopolitical issues), networks that have become entirely dependent on a single proprietary solution may find themselves unable to match passenger demand for new transit cards.

Fully developed open standards, such as Calypso, can enable transit networks to loop in Account-Based Ticketing (ABT) and card-based ticketing into their environments while closed- and open-loop solutions can synergize to provide accessible and secure ticketing for every traveler with the advantage of delivering simplified tariff structures or fare programs.

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