Estimating additional capacity requirements due to free bus travel

The UK has recently seen a spike in interest in the issue of what the appropriate level of operator reimbursement should be for the carriage of concessionary bus passengers. This has come about largely as the result of the introduction of a national entitlement to free bus travel for elderly and disable passengers, first in Scotland and Wales, and more recently in England. This area is also receiving growing interest more widely at European level since the publication of EC Regulation 1379/2007, which states that operators must not be overpaid for public service obligations. However, concessionary travel has received limited attention in the academic literature, especially given the proportion of the bus market it represents and the volume of public funding it now channels to the bus industry. In England alone, concessionary passengers make up over a third of total demand with in excess of €1.2bn flowing to operators in compensation. Although the estimation of the appropriate level of reimbursement is a challenging technical area, recent empirical research (ITS Leeds, 2010) has made substantial progress in addressing a number of key issues. However, a particularly difficult outstanding problem is the estimation of the additional capacity that operators are required to put into place to carry those new passengers generated by concessionary travel schemes. Some authors have argued that the theoretical framework initially put forward by Mohring (1972) to study the relationship between demand and frequency under welfare maximising conditions is appropriate to deal with generated concessionary demand. Indeed, this view is supported by current reimbursement guidance from the UK Department for Transport. In this paper, we attempt to demonstrate that in the profit maximising context dominant in the deregulated UK bus market Mohring’s framework and empirical results do not necessarily hold. In the first part of the paper, we adapt the theoretical framework developed by Mohring and others to deal with generated concessionary passengers. We then use our model to show that, subject to the constraints set out by EC Regulation 1379/2007, a profit maximising operator should only provide additional capacity where passengers generated by the travel concession decrease the utility of revenue generating passengers. In the second part of the paper we propose a method, based on an analysis of crowding levels on a route by route basis, which allows the impact of generated concessionary passengers on revenue generating passengers, along with additional capacity requirements, to be estimated. This method is then applied to comprehensive passenger survey data from three English metropolitan areas. The results suggest that the additional capacity required by generated concessionary passengers is likely to be substantially lower than that suggested by Mohring under welfare maximising conditions