Why are bus services not cross subsidised?

[Simon75]

Why is it nowadays, each bus route has to make money, but I'm sure years ago they cross subsidised loss making with profit making?

 

[Bletchleyite]

Why is it nowadays, each bus route has to make money, but I'm sure years ago they cross subsidised loss making with profit making?

Because bus companies exist to make money. They don't have to cross-subsidise so they don't.

 

[TheGrandWazoo]

Why is it nowadays, each bus route has to make money, but I'm sure years ago they cross subsidised loss making with profit making?

Because you also denied investment on good routes whilst losing a fortune on unremunerative services.

 

[johncrossley]

Why is it nowadays, each bus route has to make money, but I'm sure years ago they cross subsidised loss making with profit making?

There are a lot of routes where cross-subsidy still exists. For example in London, Northern Ireland, Republic of Ireland, Jersey, most of western and northern Europe and North America.

 

[Mcr Warrior]

There are a lot of routes where cross-subsidy still exists. For example in London, Northern Ireland, Republic of Ireland, Jersey, most of western and northern Europe and North America.

Interesting comment! Which bus routes on Jersey do you reckon are the loss making ones and so need cross-subsidising?

 

[Dai Corner]

Why is it nowadays, each bus route has to make money, but I'm sure years ago they cross subsidised loss making with profit making?

How many years ago are we talking about?

Pre-regulation?
The NBC era?
Post-deregulation?

Does anybody outside the operators' commercial departments and senior management really know how much cross-subsidy goes on?

 

[47444]

There are a lot of routes where cross-subsidy still exists. For example in London, Northern Ireland, Republic of Ireland, Jersey, most of western and northern Europe and North America.

Many commercial deregulated services still contain elements of cross-subsidy. At an individual journey basis, many journies do not even cover their fuel costs, but are essential to get the bus from one place to another. Equally within a, say ten minute headway, service, there will be certain trips at certain times of day that don't wash their face, but a retained, not only for operational ease, but also to maintain the generla headway offering.

Commerical operators may also continue to operate some services that only cover their direct operating costs, but contribute to depot overheads, or would not save a bus (for example, because they fit between school services). They might help make a maintenance workshop more efficient of help support the cost depot operation/management staff that would not be saved by cessation of operation of that service.

Competition law does not, in theory, permit a commercial operator to cross-subsidise a loss making service if there is an anti-competitive effect as a consequence (whether intended or an unintended consequence). But establishing this is rare and, post-covid, likely to be almost non-existent

 

[johncrossley]

Interesting comment! Which bus routes on Jersey do you reckon are the loss making ones and so need cross-subsidising?

Jersey has a subsidised, franchised network where all routes are run by one company, so presumably some routes are more profitable than others, or you could say that some lose less money than others.

 

[RT4038]

There are a lot of routes where cross-subsidy still exists. For example in London, Northern Ireland, Republic of Ireland, Jersey, most of western and northern Europe and North America.

These areas are heavily subsidised by external money from the state (in one way or another) and also have a monopoly - I don't think any (possibly a few small exceptions) are otherwise profitable networks which practice cross subsidy between routes as the only means of subsidy. I expect in many of these environments none of the routes make any genuine profit, so cross subsidy cannot exist at all.

Jersey has a subsidised, franchised network where all routes are run by one company, so presumably some routes are more profitable than others, or you could say that some lose less money than others.

The same (some routes are more profitable than others) can be said about commercial bus networks in the deregulated environment of the UK.

 

[PG]

Basically IMO it comes down to a regulated or unregulated environment:

• in the former one controlling entity decides when, where and how often routes run;
• in the later case quite a few different entities decide the same

There are a lot of routes where cross-subsidy still exists. For example in London, Northern Ireland, Republic of Ireland, Jersey, most of western and northern Europe and North America.

I believe all of those places fit in to the regulated category.

​

 

[RT4038]

Basically IMO it comes down to a regulated or unregulated environment:

• in the former one controlling entity decides when, where and how often routes run;
• in the later case quite a few different entities decide the same

I believe all of those places fit in to the regulated category.

​

I don't think it is as simple as that. Even in a deregulated environment, a bus company can use the profits of one route to cross subsidise another if it wishes, subject to this not being predatory. And it is frequently done, just like supermarkets have 'loss leading' products. However, do this too much and your profitable routes will be vulnerable to competition (due to higher fares or lower frequencies etc than justified which are generating these excess profits in the first place).

Philosophically, there is an issue with 'taxing' passengers on profitable Route A to pay for loss making passengers on Route B, especially as in practice Route A will likely have a large proportion of passengers from lower socio economic groups to whom using the bus is less of a choice.

 

[johncrossley]

I believe all of those places fit in to the regulated category.

Ireland has some services designated as 'commercial'. A company can apply for a licence to operate a bus service without subsidy and the National Transport Authority decides whether to grant that licence. This primarily concerns longer distance routes, but there are also some more localised bus services that come under this category.

 

[RT4038]

Ireland has some services designated as 'commercial'. A company can apply for a licence to operate a bus service without subsidy and the National Transport Authority decides whether to grant that licence. This primarily concerns longer distance routes, but there are also some more localised bus services that come under this category.

'a few small exceptions'

 

[GusB]

I'd argue that there is still an element of cross-subsidy going on. My local operator is a Stagecoach subsidiary that runs a one bus per hour service on my local route. Much as it pains me to say this, I don't think it's profitable. At best it's probably breaking even, but it must be making just enough for it to remain viable.

The evening and Sunday services have gone because the Council no longer wish to fund them.

 

[johncrossley]

'a few small exceptions'

The list of licences is surprisingly long at nine pages in small font.

https://www.nationaltransport.ie/wp-content/uploads/2022/02/220128-Web-Current-Licences-List.pdf

But, yes, the vast majority of local buses are directly subsidised, mostly run by the state owned company with some routes tendered out.

 

[Bletchleyite]

Philosophically, there is an issue with 'taxing' passengers on profitable Route A to pay for loss making passengers on Route B, especially as in practice Route A will likely have a large proportion of passengers from lower socio economic groups to whom using the bus is less of a choice.

In practice this happens anyway because bus companies tend to have standardised fare levels across routes rather than making specific routes cheaper (unless there is on-road competition on a small number of given routes, in which case spending the time to differentiate can be worthwhile).

 

[RT4038]

In practice this happens anyway because bus companies tend to have standardised fare levels across routes rather than making specific routes cheaper (unless there is on-road competition on a small number of given routes, in which case spending the time to differentiate can be worthwhile).

Yes, because bus operators are not legally required to cross-subsidise services, so the amount of cross-subsidy is kept to the minimum required by commercial considerations.

 

[JonathanH]

A very obvious cross subsidy that does happen is the use of new vehicles on the prime routes in a given location and cascade of older ones to less remunerative routes.

This happens within the large bus groups as well. While Metrobus in Crawley justifies new single deck vehicles for its key services, all the double deck vehicles are secondhand from Brighton routes.

 

[TheGrandWazoo]

There are, of course, forms of "cross-subsidy" that do exist. As has been stated, you will have routes that can justify investment in new vehicles and those vehicles are then cascaded to other routes. In addition, you may well have individual journeys that were they to have 10% of the day's fixed costs allocated to it, simply be justified but can be run at a marginal cost.

However, too much marginal costing or cross-subsidy begins to adversely affect the good services as investment is reduced. We are seeing that with Arriva, we have seen it with First, and more pertinently, we had 30+ years of declining passenger numbers in the regulated world prior to 1986.

Jersey has a subsidised, franchised network where all routes are run by one company, so presumably some routes are more profitable than others, or you could say that some lose less money than others.

Some losing more than others isn't really cross-subsidy. It's just differing amounts of subsidy.

Interestingly, you'd think that with a £1 flat fare on Guernsey and a similar model, then people would be eschewing their cars - they don't and buses are not that busy except in high summer.

 

[Deerfold]

In the late 90s and early 2000s, London Buses made a small profit. Bus operators kept the fares they took. Some routes were subsidised as normal, some routes operators would pay to run.