TAS Senior Consultant, Matthew Moll mulls over the implications of GMCA’s proposed approach on franchising and considers an alternative approach of a shared risk partnership

After being told countless times that franchising is the only way forward for buses, I was a bit taken back at the graph in Greater Manchester Combined Authority (GMCA) consultation which clearly demonstrates the significant patronage decline under a franchised regime that is anticipated. Yes, there will be the initial bounce or rather increase, like a new manager taking over a football team (with its associated costs), but the poor form soon returns. So is it really worth getting rid of the existing manager? Throwing money at a problem for an initial gain but no actual solution feels endemic of modern leadership, but when it comes to our public transport network or any fundamental national infrastructure, can we afford to let the ‘look what I achieved in a few years, now I am off to do something else’ approach fly?

 Figure A: GMCA Franchising Consultation Patronage Forecast

The glut of manager changes in the Premier League in November and December is timed to allow the new manager in charge to shop for new players who will hopefully bring a lasting change in performance to the January transfer window. GMCA’s equivalent, taken from their consultation ‘Doing Buses Differently’: “Further investment to improve the quality of the system is likely to be required to help stabilise the market. This further investment is collectively referred to as ‘Phase 2’ interventions and does not have committed funds at this time.”

This intended second phase of funds for the franchised network is telling! A very public emphasis on the affordability of franchising and how little tax payers will have to contribute to create a world class bus service has been prevalent. However, how likely is it that the second phase of interventions actually involves tax payers having to stump up extra cash? Also what is the strategy: what could these interventions be and what effect would they have? And why can’t they be planned for or undertaken now? There are three main options as far as I can see.

Fares reduction –

Reducing fares (or making the bus ‘more affordable’ as some see it) is a political winner, just like signing the on form striker – however like that striker it comes with a hefty price tag. Greater Manchester Mayor Andy Burnham has cited the benefit of £1.50 flat fare on London’s buses in the past. Research for TAS’s National Fares Survey 2019 shows the average single fare for a three mile journey in Greater Manchester to be £2.73, but we’ll say £2.70 to keep it simple. Dargay and Hanley (1999)[1] give a bus fare elasticity factor in metropolitan areas as -0.21 in the short term and -0.43 in the long term.

Put simply, for every 100 passengers at present, the fare reduction will attract nine more in the short term and a further ten (19 overall) in the long term. This means that whilst those 100 passengers at present generate £270 of revenue, in the short term the 109 will generate £164 and the 119 in the long term £179 giving an overall revenue reduction of 39.3% and 33.8% respectively.

Frequency increases on key routes –

If it isn’t cheaper, then it’s got to be better, a more frequent service tends to be the number one demand. This is slightly ironic given that GMCA have identified six of the heaviest used corridors in the Greater Manchester area as being ‘over bussed’. Balcombe et al (2004)[2] state that changes to bus service frequency have an elasticity of 0.38 in the short term and 0.66 in the long term.

If we take Stagecoach service 9 Wigan – Leigh – Higher Folds as an example. This currently runs every 12 minutes Monday to Saturday daytime with a Peak Vehicle Requirement of 10 Enviro 200 midi-buses. Increasing the frequency to every 10 minutes would thus increase patronage by 7.6% in the short term and 13.2% in the long term. However the cost would increase by 20% for the two extra vehicles alone, without taking into account the extra driver, fuel and maintenance costs.

Reduced Journey Time through Greater Priority –

Arguably one of the best ways to boost public transport use is to get motorists out of their cars and using it out of choice rather than necessity. Bus priority over cars through major junctions and more direct routes to reach traffic generators is key to this. This would also help environmental performance as fewer cars on the road will create less pollution. It is understandable that highway authorities might be more willing to invest in bus priority if the state sees a financial benefit from it, rather than this solely going to private operators. The operator would generally see a double benefit through increase in patronage and reduction or at least stabilising of resources needed to provide a service.

Balcombe et al (2004) quote a journey time elasticity of -0.4 to -0.6, say -0.5 as a halfway house. Service 163 takes up to 71 minutes from Heywood to Piccadilly Gardens in the morning peak and 52 minutes in the off peak. Reducing the peak journey time by 10 minutes would increase patronage by 1.07% whilst matching peak to off-peak running time would increase patronage by 1.13%. That might seems small however it is likely that the resource saving in the latter scenario would allow the peak frequency (currently every 12 minutes) to match the off peak frequency of every 10 minutes, which as shown earlier would see a further patronage increase of at least 7.6%.

Sharing the Risk and Reward

So if phase 1 of franchising isn’t going to reverse patronage decline in the long term but will still cost £134.5m by 2025, is there a better use for the money? Could you keep the same manager and spend the money saved on redundancy and attracting a new boss on new players? In this scenario commercial operators would then continue to use their decades of experience to provide a largely deregulated service, potentially under an Enhanced Partnership framework, or another model not yet considered in the debate. One that allows Transport for Greater Manchester (TfGM) to have a say on the quality and level of service provided. But how would you do that?

Low Fares –

As part of its ‘A better deal for bus users’ published September 2019, the Department for Transport (DfT) states that: “The government is actively looking to work with local authorities and operators to identify ways to encourage operators to implement multi-operator tickets and fares caps, either in relation to the price paid for individual journeys or a daily or weekly cap.” Given that GMCA’s plan for fares under franchising would see the multi-operator System One product reduced to the same price as the current cheapest operator only network product it would seem sensible for this to be undertaken as part of the DfT trial before a potentially irreversible alteration to the current system is made.

Increased Frequency and Reduced Journey Time –

These are best dealt with together as reducing the journey time can make increasing the frequency more viable, especially where there is a partnership approach between the operator(s) and local transport authority. However the commercially viable frequency may not be up to the level that GMCA or TfGM wish.

The key part of either an Advanced Quality Partnership or an Enhanced Partnership is that operators sign up to provide a certain quality of service in exchange for infrastructure improvements. However it still relies on the service being financially viable for the operator thus, as shown with service 163 earlier, a frequency of every 10 minutes all day might be the limit of what is a sustainable level of resource commitment.

However using a de minimis contract TfGM could pay the operator (currently Diamond Bus North West) to provide a frequency of every 8 minutes all day; the de minimis contract covering the cost of the extra resources required. The contract could be reviewed every year with a target patronage level growth set around 7.6% in the short term and 13.2% in the longer term. If the target is exceeded the de minimis payment would be reduced. This means the revenue and cost risks are shared.

Conclusion

As with any manager under fire it seems like the whole world is against them. In Greater Manchester the local media has come down on the side of the pro-franchising politicians and it seems that no one supports the existing set up. This is understandable considering even the government bastions of free enterprise seem to support franchising for political rather than ideological reasons. But can that change? Some football managers have seen a good run of results just at the right time to save them and crucially save their club some money which could be better spent on players.

The aim of my suggestions (a partnership between commercial operator and Local Transport Authority where the risk and reward of lower fares, higher frequencies and more bus priority are shared between parties) is to show that there is another way to attempt to reverse a critical aspect of the poor form without changing the manager. If implemented properly it could deliver service improvements that people want and save the council tax payers of Greater Manchester the cost of franchising Phase 2.

This of course only covers a small aspect of the franchising debate. In the end if GMCA and, crucially, the tax payers of Greater Manchester are willing to pay for it then franchising can be a success. However the aim of this article is to point out that there is a more affordable way to meet many of the goals of franchising bus services.

[1] The Demand for Public Transport: the effects of fares, quality of service, income and car ownership

[2] Bus fare elasticity, a report to the Department of the Environment, Transport and the Regions