Fare Strategies

A fare is money paid by a customer for transit service. Transit fare policies can accomplish a number of goals, including increase or decrease ridership levels, diversify funding streams, and provide a rich data stream. Fares have one main goal—to share the cost of providing the service with the people benefitting from the service.

The simplest fares are cash fees. More advanced fare strategies use variable pricing (determined by time of day, distance of travel, number of rides, or a combination), multiple payment technologies/mediums, free transfers, and sometimes no fare at all (fare-free systems that derive revenue from sources other than passengers).

Variable Fares
Peak-Time/Congestion Pricing: Higher fares are often charged during peak travel times (rush hour) to cover the increased cost of operation (more vehicles, more staff, greater wear on infrastructure, etc.). However, to combat congested roadways, many transportation scholars recommend peak-period fare discounts to reduce roadway congestion and increase reliance on transit and other modes. In this case, the regional increase in productivity makes up for the potential for lost revenue.

Distance of Travel: A discount for short-distance travel encourages people to use transit to get to the central business district (CBD), removing cars from congested areas. Sometimes there is no fare charged to passengers in downtowns where employers or economic development districts subsidize service.

A discount for long-distance travel encourages transit commuting from suburban, exurban (beyond the suburbs), and rural areas. With this strategy, a commuter may face sticker shock arriving at the CBD to find higher local fares. However, most CBD commuters usually do not need to travel within the CBD during the work day.

Service Type
Smart Fare Cards: Smart cards are permanent, rechargeable plastic cards used to pay transit fares like a debit card. The chip embedded in the card allows for quick fare payment and regional connectivity. By using the same fare medium across systems, a rider can travel throughout a region and transfer between various systems while using one method to pay the fare. This strategy may eliminate transfer passes and multiple fare types. Smart cards require high-tech back-office functions and transit vehicles equipped with smart card fare box technology.

Employer-Sponsored Passes: Some employers offer subsidized transit passes to employees at either no direct cost or a heavily discounted rate. Reducing the cost of transit encourages employees who would otherwise drive to their job to use transit.

Fare-Free Systems: Some transit systems provide service without charging a fare. This strategy can eliminate the wait time associated with fare payment and encourage increased ridership at all times of the day. In a fare-free system, the agency must get funding elsewhere (often through local taxes, such as on tourism or hotels).

Analyze Current Fare Policy
Before a new fare strategy can be adopted, a transit provider must analyze its current policies to determine what is working well, what can be improved, and what the public thinks of it. Agencies should draft a list of fare goals. Examples include equity, administrative ease, simplicity, and efficiency. Next, agencies should evaluate different fare options (service type, distance-based, transfers, etc.).

Develop a New Fare Strategy
Based on the findings of the fare policy analysis, transit agencies develop new fare policies that address the opportunities for improvement and customer needs/concerns. This process also includes research on the cost of potentially needed new fare technology.

Communicate with and Educate Customers
The transit provider should inform community stakeholders (riders, employers, health or human services agencies, etc.) about its plans for a new fare strategy and give them the opportunity to participate in the decision-making process. Stakeholders are ultimately those most affected by changes in fare policy.

Also, before changing fare prices, transit agencies must comply with Title VI Civil Rights and other environmental justice requirements mandated for federal grant recipients.

Invest in New Technology
If the new strategy requires updated fare technologies (such as smart cards or automated fare vending machines), the transit provider must obtain funding and purchase the technology following the appropriate procurement processes.

Pushback from Riders
Transit riders often push back when fares increase or other changes are made. Also, updated fare technologies (such as those that use proprietary smart cards or cell phones) require upfront one-time personal investment, which can cause pushback from transit riders and potential equity issues.

Cost Barriers
Transit agencies that want to upgrade fare technologies have to invest substantially in the technology (such as new vending systems, new or upgraded on-vehicle fare collection devices, and back-office systems to manage the fare technology). Depending on the agency and the available revenue, such improved fare technology may be cost prohibitive.

Who Is Responsible?

Transit providers are responsible for fare strategies and policy.

Data Needs

An analysis of fare strategies requires detailed ridership information, current costs of operation, demographics of the service area, and planned service changes.

Project Time Frame

The timeline for adjusting fare strategies depends on the scope. Small systems making minor changes will likely need about six months to study the current fare policy, develop new options, and obtain approval from the relevant boards, commission, and the public. Larger agencies and broader changes will likely need a minimum of one year. Extensive technological upgrades can take two or more years. All timelines should include time to educate the public on the new policy and pricing.

Cost

The costs of adopting new fare strategies vary based on the fare medium used, number of vehicles in the fleet, types of service operated, and infrastructure modifications required, among other factors. Adjusting a fare policy—which can require hiring a consultant to study and propose options, performing community outreach, and getting approval from necessary stakeholders/boards—could cost $35,000. This cost does not account for lost fare revenue as a result of fare policy changes, only the cost to study and implement the updated fare strategy. Larger changes, especially those that include updated fare payment technologies, will cost significantly more. Without exact details, cost is difficult to predict reliably.