V/Line’s 20% fare cut of 2007

In the past decade V/Line patronage has exploded, with millions more passenger journeys being made each year. What is the driver behind it – improved services, or regional sprawl? There is also another factor – the 20% fare cut of 2007.

VLocity 3VL19 on a Melbourne-bound service passes new housing developments outside Waurn Ponds station

The battleground was the 2006 State Election, and the elimination of Zone 3. From The Age:

Both parties promise ‘fare go’ for public transport
Stephen Moynihan and Farrah Tomazin
October 27, 2006

More than a million Melburnians will have cheaper public transport fares in 2007, no matter who wins next month’s state election.

Within hours of each other, the Opposition and State Government yesterday announced plans to abolish Zone 3 on the metropolitan transport system.

Opposition Leader Ted Baillieu fired the first shot, saying the creation of simpler fare structure would reduce ticket prices and increase public transport patronage.

Four hours later, Premier Steve Bracks announced the same promise but trumped the Opposition with a pledge to cut V/Line fares by up to 20 per cent.

The Liberals costed their plan at $84 million over four years, with Labor costing theirs at $94.1 million over five years.

Labor won the election, with their fare changes introduced on 4 March 2007 – removal of Zone 3, and a 20% cut in V/Line fares.

What happened to V/Line?

The 2006-07 V/Line annual report had this to say.

The Victorian Government reduced fares across regional Victoria by an average of 20 per cent from 4 March 2007. Zone 3 was removed from the metropolitan system at the same time.

As a result, a new regional fare to all outer regional locations was set at a discounted rate (30 per cent off the full fare). On some key services, prices were reduced by almost 50 per cent due to re-scheduling of some outer regional services away from the premium peak period up to 6pm to deliver this benefit.

The fare reduction drew an immediate and dramatic response, with patronage growing to levels not seen since World War II. Patronage in May 2007 exceeded last year’s record set during the Commonwealth Games when a $10 return ticket was available to and from regional Victoria.

Patronage growth remained consistent to the end of the year, even allowing for seasonal variation and changes

And this:

Patronage in 2006–07 climbed to its highest level in more than 60 years, with nine million passenger trips – 29 per cent more than last year. This followed the introduction of the new timetable in September and October 2006 and the government’s 20 per cent reduction in fares from March 2007.

The patronage trend continued – from the 2007-08 annual report:

While the 29 per cent increase in passenger numbers in the previous financial year may have been seen by some as an anomaly associated with the introduction of cheaper
fares, a further 23 per cent increase this year is confirmation that we are indeed experiencing a new era in rail travel.

Nearly 12 million passenger trips were made with V/Line in the past year, almost doubling our patronage of just three years ago. With the likelihood of continuing high fuel prices and increasing congestion on metropolitan roads, we expect patronage to grow to more than 13 million passengers in 2008–09.

This increase in patronage initially has a positive impact on revenue – as the 2010–11 annual report states:

The farebox has risen 57 per cent from the $49.3 million recorded in 2006, almost entirely due to the rapid rise in patronage as ticket prices were cut on average by 20 per cent in 2007. Price increases in 2008 and 2009 were at or below CPI, with prices held constant in 2010. A small increase of 3 per cent during 2011 was delayed until March and as a result had a minor impact on the overall farebox for the year.

As more people make the switch to public transport, V/Line has become a more efficient business. A key indicator of this performance is the subsidy per passenger trip, which dropped to $18.36 in 2011. This is the fourth consecutive year that V/Line has reduced this subsidy.

However this reduction in operating subsidy was short lived – by 2015-16 was already back at previous levels – around $22 per passenger.

One possible cause – the majority of these new passengers were commuters travelling at peak times, requiring extra services to be run into Melbourne each day and back home again at night.

VLocity 3VL31 and classmate depart the turnback siding at Wyndham Vale South, as a Sprinter consist arrives

Combine an increasing number of passengers and an increase in services run, the overall franchise subsidy – government funds to meet the gap between operating costs and farebox revenue – began to skyrocket.

This increase in overall subsidies to V/Line now appears to track patronage.

With an overall V/Line subsidy of $391 million in 2015-06, I wonder what the current explosion in suburban patronage from the likes of Caroline Springs, Tarneit and Wyndham Vale will do to this trend?

V/Line passenger board a VLocity train at Southern Cross platform 2

Source data

Here you can find my spreadsheet tracking V/Line’s franchise subsidy and subsidy per passenger year-on-year.

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10 Responses to “V/Line’s 20% fare cut of 2007”

  1. Adam Ford says:

    This is ABSOLUTELY BONKERS. This says that V/Line faces declining profitability with each incremental customer, and literally the only thing that can possibly indicate is bad management.

    It’s a VERY finite set of infrastructure. Your cost curve is basically inelastic to output. This makes literally NO SENSE whatsoever. You posit that extra services need to be run, but your data says that in that case any new services are somehow being operated on a LESS profitable basis than the existing ones. Profitability worsens as output increases.

    The people at the helm of any business incapable of capturing an explosion in demand of this quantum as even fractional profit all deserve to be sacked.

    • Adrian says:

      Adam,
      As Marcus said: “One possible cause – the majority of these new passengers were commuters travelling at peak times, requiring extra services to be run into Melbourne each day and back home again at night.”
      Infrastructure expenditure like RRL isn’t funded by V/Line, so their costs are pretty indicative of the cost of operating services. And if the extra demand is at peak times then that means more trains to operate, maintain, etc. If the growth in patronage had been evenly spread across the day, then your point would be valid. But costs largely reflect peak growth.
      So what’s the lesson?
      Well, it shows that if you want to decrease the V/Line subsidy per passenger then you need to carry more passengers at off-peak times where capacity is already available or where you can increase capacity at lower cost (e.g. operate a six carriage train rather than three).
      But I believe it was Jesse James who was asked why he robbed banks and replied ‘because that’s where the money is’. The growing demand for V/Line is mainly at peak times and that’s going to be a consistent trend as V/Line is now effectively Melbourne’s second metropolitan rail operator. Tarneit, Wyndham Vale, etc. are major suburban stations that are more likely to have peak centric demand than a regional station.

    • Marcus Wong says:

      Bit rough to call V/Line a business – “government instrument to buy country votes” could be another name.

  2. Tex says:

    Hello,

    Great article, thanks for putting this together.

    I had one thought, do we know what the subsidy per passenger trip is for Metro Melbourne?

    I did a quick Google search but nothing obvious came up.

    Thanks you

    Tex

  3. Leigh says:

    Did the 2007 fare cut include the cheaper first class upgrades? I believe first class tickets used to be pretty exspensive, but now you just have a 7 or 8 dollar upgrade. Is this correct Marcus?

    • Marcus Wong says:

      Correct:

      https://web.archive.org/web/20070306073302/http://www.viclink.com.au:80/fares_tickets/v_line_fares_tickets/your_fare_questions_answered

      The 2007 change dropped first class fares to economy plus $3 upgrade on commuter journeys, or a $6 upgrade for 100km+ journeys.

    • Adrian says:

      I introduced the changes to the first class fares and I thought people might like some background to them. First class fares were sold at a 40% premium to the normal ticket price. This caused a number of interesting issues:

      – It meant that the further someone was traveling, the less likely they would be able to afford first class – which is kinda weird as you actually want people in first class who are travelling long distances. It wasn’t particularly desirable for first class carriages to empty out at, say, Bendigo and then have First Class practically empty to Swan Hill

      – Because it was 40% on the price, it meant that many first class passengers were travelling on concessions (or to put it another way, we had people travelling in first class who were paying less than people who were travelling in economy). Again, you want to encourage people who are paying more to travel in First Class.

      – Having first class empty and economy full costs the taxpayers money (eg. having to add an economy carriage when there are unused seats in first class isn’t a good idea). Fares cover such a small proportion of the operating costs, the key is to make the most of every seat. Reducing crowding in economy stimulates more patronage.

      I think people tend to forget that before the changes were made first class was pretty much the domain of free pass holders (including staff passes), free voucher holders, concession passengers, etc. – and that occupancy was incredibly low – particularly for passengers travelling long distances. I haven’t seen the first class figures for some time, and of course the number of trains with first class continues to fall.

      Interestingly, one of the main reasons that people like first class was to ‘get away from people drinking on the train’ – but that’s been largely resolved with the removal of alcohol from V/Line trains (which I know people complain about – but they complained more about people boozing).

  4. […] then saw a politically motivated 20% cut in V/Line fares in 2007, resulting in an explosion in patronage, especially on the Geelong […]

  5. […] promoting further growth in the commuter market wasn’t such a good idea given a politically motivated 20% fare cut pushed patronage through the roof from 2007, so in 2007-08 V/Line changed […]

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