Improving Fares and Funding Policies to Support Sustainable Metros

Abstract

Data from 27 metros show that while 63% require some form of operating subsidy, levels of support vary greatly between metro operators. The ability of a metro to meet rising customer expectations and to provide a sustainable level of service quality in the medium to long term depends crucially on its funding regime and the fares policies that underpin it. Dependable funding is required to provide stable levels of renewals and enhancements. Yet, for the majority of European and American metros, in recent years fares have been decreasing in real terms, labor productivity has fallen and subsidy requirements have consequently increased at a time when public funds are increasingly scarce. The objectives of this paper are to explore the extent to which fares cover metro operating and renewals costs and the manner and degree to which any shortfalls in income are met by other commercial sources and by public funding. The paper then compares the variation in metro fare levels and how they are changing over time before discussing how fare setting policies can be improved to better reflect the true economics of urban metros. This paper argues that metros in many cities require a much more robust and principled approach to fare setting and regulation to achieve economic sustainability. In particular, fare adjustments must be applied regularly and systematically, better reflect the costs of inputs and affordability, support the imperative to renew assets and enhance service quality and, through differential pricing, more closely reflect the variable cost of travel.

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