Balancing value and cost priorities

A transport authority will seek to balance the interests of passenger and operators, as it is not in the long-run public interest to discriminate in favor of either one. If fares are set without due regard to production costs, operators will either withdraw services or these will then deteriorate to an unacceptable quality. However if there is automatic cost recovery from authorized fares, then there is no incentive for efficiency in production and costs can become bloated.

Fortunately, as the fare structure required to reflect the value of the service to the user and the cost of production to the operator is the same – distance related, with some degree of taper – balancing their priorities has no impact in this respect.

However increasing the speed of service has diverging impacts, in that the value of the service increases whilst its operating costs reduce. One possible response under these circumstances is to retain standardized fare levels, and thus pass on the time savings to passengers without any additional charge, but capture the gain to the operator through the tender process for the route service (whether operated under net- or gross-contact).