Level of tariff adjustment

The subsequent adjustment of the tariffs should seek neither to advantage nor disadvantage the operators, unless there is a coincident change in external support. The adjustment should therefore be made formulaic, based on a proper understanding of the cost profile of the sector. This may prove problematic, though, where service provision is made by a mixture of formal and informal operators with very different cost bases.
An alternative approach is to base the adjustment on an external index, such as general inflation in the cost of living. This has the advantage of transparency to users, and tends to reflect one of the major costs in a labor-intensive industry should wages follow prices. However it may not prove to be sufficient when specific input costs, such as fuel, rise rapidly and exceptions may then need to be made under such circumstances.
In either case, the tariff adjustment formula may include an incentive for operator efficiency whereby the full effect of the cost increases is not passed through to passengers and part must be compensated for by productivity gains: - Price Index-x%. This approach can be useful where there is no downward competitive pressure on costs, particularly under gross-cost tendering regimes. Conversely the adjustment may exceed inflation when this might be required in order to support additional investment for system expansion or up-grading.
Whatever the method used in computing the tariff increase, it is most unlikely to result in fares that are convenient to apply in local currency terms. As such, increases would be rounded to the nearest convenient unit and / or the fare bands adjusted so as to serve fare collection efficiency objectives. The opportunity might also be taken at that time to rebalance the pricing structure of the different fare products to support other fares system objectives, for example raising the single-trip fare by more than periodic passes so as to encourage greater take-up of the latter.