Connecting the dots between Asset Life, Route Optimization, & Ridership Demand
It’s no secret, efficiency is key in the transit world. Without it we spend more time and money to get less output, less ridership, and fewer community benefits. Thus, we can all agree that efficiency is good; but how we become efficient, or which investments we make in the name of efficiency is what can be a heavily debated topic.
If you search the web you will find countless data, articles, and commentary on transit efficiency. Some are focused on asset management, others on route management, and others on financial management – or uses of funds, subsidies, and demand management. Of course, there are many more. But here, we will cover these three areas.
Furthermore, we will discuss the entrenchment of all three; and try to take a holistic view into how each one affects and interacts with the other. More importantly though, how each one affects ‘us stakeholders’ is what we should hold to the highest standard. For greater efficiency at the city level (or the taxpayer level) is what translates into the most efficient use of transit services.
Now let’s briefly examine the asset lifecycle as it relates to a transit agency. Fleet operators have access to only so much capital funding, which varies significantly from place to place. And with this funding they can purchase new assets that they plan to last for x amount of time; let’s call it 12 years for this example (which is a general asset term for public agencies in the US).
Let’s say Fleet A needs 500 vehicles to create a successful operation in their area. And new vehicles have an average cost of $200,000.
500 x $200,000 = $100,000,000 in total capital costs for the vehicles.
Of course, this is an oversimplification because agencies don’t purchase all of their vehicles at once. So, let’s assume the fleet already has 500 vehicles, but is implementing the said 12-year lifecycle. We expect this agency to purchase 42 vehicles every year.
500 / 12 = 41.2 or 42. And 42 x $200,000 = $8,400,000 in capital expenditures for vehicles on an annual basis.
But is a 13-year-old vehicle that much worse than a 12-year-old vehicle? And what if we could extend the life of these vehicles to 15 years? 20?
Let’s check the math and see what that could do to the need for capital funding:
500 / 15 = 33.3 or 33. 33 x $200,000 = $6,600,000.
500 / 20 = 25. 25 x $200,000 = $5,000,000.
There’s $1.8M and $3.4M reductions in annual capital expenditures respectively – not bad. Ostensibly in pure dollars of Cap-Ex spending, extending a vehicle’s asset life makes a large impact. And we probably didn’t need all that math to make that point.
But then why do agencies replace their vehicles after 12 years? And are there any other reasons why we shouldn’t extend asset lives? The first point that comes to mind is how agencies are funded, and how they can recoup cash for new Cap-Ex purchases. The second point relates to safety – or in other words – how old can the average vehicle run before it becomes unsafe?
The first point needs to be made: transit agencies are somewhat incentivized to purchase new vehicles because after 12 years they’re eligible to receive replacement bus funding from the federal government. And the second point, which can be potentially abstract, is at what point are vehicles too unsafe to be on the road? A point that should most definitely be considered – but is this really a question of time? Or is this more related to the workload and condition of the vehicle?
How we came up with 12 years can be argued this way or that, but that’s not the point. The point is, how can we safely and effectively extend assets’ lives?
This question provides us an opportunity to shift gears into how a vehicle’s routes affect its condition over a 12-year span. Let’s consider some geometric facts to drive this conversation. Pun intended.
First, a simple and theoretical example. Then, a more complex and real-life one. Imagine an equilateral triangle with one-mile long sides. It would look something like this:
If this were a vehicle’s route, one roundtrip would be three miles long. If it made 10 roundtrips per day, five days a week, and 52 weeks per year, it would travel 7,800 miles per year.
With every additional segment added to this route, we would see an increase in miles traveled. And over a 12-year period those miles would bear some significance on the long term life expectancy of the asset.
Now let’s look at a more practical example. In the real world, buses don’t travel in equilateral triangles. Instead they’re making left turns, right turns, U-turns and everything in between. This is taxing. And it uncovers an important observation: with every added stop relative to passengers served, the bus becomes less efficient. And over a 12-year span this is extremely costly.
If we agree now that routes have an effect on a vehicle’s condition over time, then what’s next? Would straighter and more direct fixed routes have an impact? Of course. But how?
Enter the wisdom of the crowd. Mobile phones, IoT, and GPS applications now have the power to connect all of us (and our vehicles) in real time. With this location data, transit agencies can make smarter choices about how routes are actually serving their constituents. Then make thoughtful additions or subtractions that prove prudent.
Finally, the discussion of financial management, i.e. funding should always be a topic when discussing public transit. We’ve demonstrated some simple Cap-Ex examples, but now let’s include Op-Ex (Operating Expenditures) in the conversation. These are used to fund operator salaries, fuel, and other ongoing costs.
Agencies come up with these Op-Ex funds mainly through state’s sales taxes and fare-box recovery. Although it’s more complicated than that, let’s keep it simple for this dialogue. Fare-box recovery ratios are basically how much money transit agencies earn from passenger ticket sales.
For facts sake, the average fare-box ratios in the US range between 25-35%. This means that for every $1.00 of cost, transit agencies are earning $0.25 - $0.35 from ticket sales. Contrast that with Hong Kong, Osaka, and Tokyo who have ratios of 124%, 137%, & 119% respectively. Dense cities use transit more, but the point here is it’s possible to have demand pay for transit. Which is the last dot we want to connect here: the demand side.
Up until now, we’ve focused more on optimization. In other words, how can we make choices about the supply side to make it more efficient in terms of dollars spent. But now, let’s think about how we can incentivize more riders to take more trips – or earn more revenue for agencies.
Historically, the transit industry as a whole is not tech savvy. Nor does it adopt new tech quickly. For example, as of this article only 37% of fleet operators offer a mobile app to their riders. If we peel back the onion, the complexities of purchasing tickets and ticket books online are many.
It sometimes goes like this: Rider purchases passes online > process payment > mail ticket book to customer > customer hands pass to driver > driver hands pass to management > management verifies the pass and closes the loop.
All that for payments?! If you’re feeling dumbfounded, you’re not alone.
They don’t all work that way, but the point should be made, we make payments for transit agencies way too difficult. And that’s an inherent deterrent when competing against the ease of Uber. The industry can do a better job to adopt customer centric technology that allows customers to schedule, purchase, track rides, and more. This would be a necessary first step to promoting demand.
But let’s not stop there. While we’re on the tech topic, fleets can make better use of data to find a number of benefits. Location data helps find better routes. Realtime feedback makes passengers safer. Automated payments increase visibility into Op-Ex forecasting. Ridership data can help agencies fundraise. Vehicle data helps maintain and extend asset life. And of course, there’s more.
To conclude, it’s important to note that very few things in this world operate in a vacuum. When it comes to transit, a taxpayer subsidized form of transit, we should expect every measure taken to serve the public in an efficient, safe, and reliable manner. With the addition of technology, fleets can transcend to a new level of efficiency and customer service. Which is ultimately what we need transit to be: a good service for all of the constituents it serves.