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MetroCard Discounts

by Bruce Schaller, Apr 21, 2004
 
 

The transit system’s fare discounts helped produce rapid increases in subway and bus ridership in the late 1990s. But has the success of the fare incentives, which include 30-day and 7-day passes and discounts on bulk purchases, become too much of a good thing

That was the implication last month as Metropolitan Transportation Authority board members discussed a projected $500 million-plus deficit next year. Channel 2 reported that “transit sources” say the MTA is considering another fare hike, which would take effect in January 2005, less than two years after fares rose last May. Channel 2 reported that 30-day unlimited MetroCards could be going up $3 to $73 per card, and weekly passes by $3 to $24.

The MTA has promised not to touch the $2 base fare until 2007 at the earliest. But the promise of a stable $2 base fare leaves room to increase the cost of discounted fare cards.

The news reports last month may have been a trial balloon to test public reaction to an increase in the price of unlimited ride passes. If the base fare stays the same, how do riders and the press react to an increase in just pass prices?

Press reports on this development focused on the average cost per ride. The MTA expected the average cost per ride to increase from just over $1.00 before the fare increase to $1.30 after the fare hike. Because more riders moved to discounted fare cards than the MTA expected, the average cost per ride increased to only $1.25 instead of $1.30. The MTA had to adjust downward its projection of fare revenue for 2004 and subsequent years as a result.

But the terms of this discussion about the fare are as antiquated as the token since riders no longer pay by the ride. The “per ride” in these costs include every time riders board a bus or swipe through a turnstile. Counted this way, “free transfers” are not free at all but are “costing” $1.25 each. And anyone who borrows a family member’s unlimited ride card for a weekend trip is not getting a “free ride” at all but is “paying” $1.25 per swipe.

An example illustrates how the per ride figure can be distorted by the way people take advantage of the fare incentives. Take a rider who normally makes 21 round trips a month using a bonus per-ride card and then switches to the 30-day card and makes 25 round trips a month. The cost per ride drops from $1.67 to $1.40. But MTA revenues? No change.

In the big picture, the MTA may be better off signing up as many 30-day card users as it can. Many New Yorkers are more and more orienting their life to use the subway and bus, not only to work but also for shopping and leisure trips. Most of the gains in ridership in the 1990s came on the weekend, not weekdays. Those folks are seen walking the streets in SoHo and shopping at the new big box retailers on Sixth Avenue instead of hopping in the car and going to New Jersey. This has all the look and feel of building a loyal customer base.

These loyal customers may produce benefits for the city as a whole in other ways as well. In 2002, the number of cars registered in the city experienced its largest decline in a decade. Isn’t that a good thing?

The new fare policy question, then, is what someone who has unlimited use of the transit system should pay in fares, as compared with those who buy a la carte. There are issues of equity and fairness here, as the frequent-users include some of the more affluent people in the city and the per-ride folks include students and part-time low-income workers.

There are also issues of cost. It matters when the new trips are taken. If you ride in the off-off-peak when the trains are relatively empty, the additional cost imposed on the transit system of that trip (the “marginal cost”) is nearly zero. If you ride at the peak when the MTA runs as many trains as it can, the marginal operating cost is about zero to the MTA, although there is a pretty fair price in crowding to others on the train or bus. If you ride in the “shoulders” when the MTA adds service as ridership expands, then the marginal cost of riding is well above zero.

Finally, there is the issue of to what extent riders should pay versus the general taxpayer. The MTA has loaded up on debt to finance rebuilding the transit system, buying new trains and buses, etc. That is forcing upward pressure on fares. Should riders pay, or should the city government, Albany or the feds be more forthcoming with dollars.

Results of the Fare Increase:

The MTA set the relative prices of passes and other parts of the new fare last May to encourage riders to “buy up” to 7-day and 30-day passes, and to move away from small-value MetroCard purchases. The proportion of fare revenue from 30-day passes increased to 22.5 percent of fares paid in January 2004 compared with 12.0 percentearlier. That is a big change, and more than the MTA expected.

The fare increase not only made the 30-day pass more attractive, it also made boosted use of the pay-per-ride bonus by increasing the size of the discount from 10 percent to 20 percent, reducing the threshold purchase amount from $15 to $10. As the graph below shows, the 30-day pass and bonus card increased market share, while the 1-day pass (which increased greatly in price) lost share and the token was eliminated.

Bruce Schaller is head of Schaller Consulting, which provides research and analysis about transportation, and is also a Visiting Scholar at the Center for Transportation Policy and Management at New York University.


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