CTA Ridership and Peak pricingProject by: Xiaoqian RuanSteve PageShimolee Nahar

Importance

CTA is country’s second largest public transit system consisting of rail and bus transport systems. Ridership1.6+ million rides per dayprovide services to over 35 surrounding suburbs. 1,781 buses, 11,493 posted bus stops ,19,709 trips/day

23

/4/1

2

Funding and OperationsCTA is funded public funding and system generated revenue as displayed below. CTA along with pace and metra is required to recover 50% of its operating costs from fare box and other system revenue.

23

/4/1

2

Fare RevenueIn Jan 2013, prices ranging from 16%-74% for various types of rides. The increase was expected to bridge the $165 million dollar deficit for 2013

In 2012:Operating revenue-expense =$596,499,000 - $ 1,672,428,000 = -$1,075,929,000

The average fare= $1.01 CTA should fund $1.16 for each trip

23

/4/1

2

Customer AnalysisDemographicsUnder the age of 30 (35%), Above the age of 60% (14%)Full time worker (55%) , Part-time worker(10%), Students (8%)

House Hold Income1.The average customer income ranges from $40,000 and $59,999/year2.Customers making less than $15,000 per year (21%). 3.Low income (<$25,000 per year) pay their fare by a 7-Day Pass or cash rather than more economically priced monthly passes

Trip Characteristics1.61% respondents use CTA to go to work. 2.Other trip purposes such as school, medical appointments and personal business account for 15% of the trips.

Customer Dependency on TransitDependent customers (41%)Discretionary customers (44%): substitutes-car, walking, bike74% users take CTA at least 5 days a week , while 29% use it 7 days a week

23

/4/1

2

Problems facing CTA Problems

1.Safe, clean, reliable and comfortable service2.Less overcrowding

HAVE DONE1.Reconstruction 2.Better fleet and cars3.Expansion of bus rapid transit miles, 4.Remodelling stations, 5.Installing cameras on stations 6.Real time train tracking systems 7.New fare mechanism to name a few

Mission•Deliver quality, affordable transit services that link people, jobs and communities.•Ensure all customers can board during opening hour•Increase performance: efficiency, safety, cleanliness, timeliness

Our Focus1.De-crowding2.Improving customer experience

Measures

One of the initiatives by CTA to improve customer experience De-crowding Initiative (Approved by the CTA Board in Sep. 2012)

Launch a plan to reduce uncomfortable crowding, meet growing ridership needs and add bus and train service on high-demand routes across the entire CTA network

23

/4/1

2

Ventra Card – Decrowding mechanism

Overview Smart Card-Ventra1) Adopt a universal fare system by 20152) Outdate fare system, equipment and technology, requiring much

more ongoing maintenance and repair3) Ventra card allows less fare collecting and money handling

businessVentra card use Near Field Communication (NFC) technology.

Communication is effective and exchange data when two devices within few centimeters distance. It allows:

1. A single payment medium2. Differentiated fare options (open loop system): distance-based

pricing and time-of-day pricing

Similar SystemsHong Kong has implied NFC contactless smart card for 10 years, known as “Octopus”. Octopus can be used to make payments on public transport and some identified retailer and facilities, such as schools and office building. The Octopus system allows government offer discounts or special offers to the customers without any extra systems, which enhance efficiency and decrease expense. The success of Octopus in Hong Kong attract more cities, for e.g. Shanghai, in mainland China to use similar system

Problem Statement and Goals

Background• CTA started "De-crowding plan" in 2012

Goal for peak pricing• Reduce ridership during peak hour by 19%• decrease fare on weekends to increase ridership• Improve social equity• Support "de-crowding plan"

Peak Pricing• A time based pricing system where the price is increased when

demand and cost are highest.

• An increased price will incentivize users to use a product during off-peak times when the price is lower.

• In the CTA peak times are during rush hour: 6 – 9 am and 3- 6 pm. These trips are characterized by overcrowding and long waits and higher marginal cost.

• Three major benefits: increased revenue, increased social equity, and more efficient transit system.

04

/12

/23

Price Elasticity of Demand• The change in demand of a product as the price changes; as price

increases, demand decreases.

• For public transit price elasticity is based on six factors. 1. User Type2. Trip Type3. Mode and Route4. Geography5. Type and Price Range6. Type of Public Transport

04

/12

/23

Elasticity of Public Transit• In the study by Taylor et al. (2009), the aggregated price elasticity of

public transport in US urban areas was found to be -.51%.

• A 1% decrease in price causes a 0.51% decrease in ridership.

• An increase of around $0.83 will decrease the peak ridership by 19%. To increase weekend ridership and improve equity, a $0.50 decrease in price was used that would increase ridership 11%..

04

/12

/23

23

/4/1

2

Financial Analysis

23

/4/1

2

Assumption Assumption 1: A slightly fare increase won’t affect total ridership on weekdays but decreasing fare could increse ridership on weekends

The figure (Clements, 1997) illustrates that riders can be divided into two types: dependent and discretionary riders. Depended riders are less price-sensitive than discretionary riders.

Weekdays: Dependent riders

Weekends: discretionary riders

23

/4/1

2

Assumption• Assumption 2: The fare has linear relationship with ridership Ridership is a scalar dependent variable Y Fare is explanatory variable X. • Assumption 3: “Choice users” during peak hour are willing to c

hange behavior and ride in off-peak hours

23

/4/1

2

Peak Pricing Model

• The model assumes that the formula is:

│(Xn-Xm)/Xn│*1%=│(Yn-Ym)/Yn│*0.51%

• Xn: Peak Pricing• Xm: Current Price

• Yn: Affected ridership• Ym: Current ridership

• Xn, Xm, Yn, Ym>0

Time Peak hour Off peak Weekends

Price $3.1 $2.25 $1.75

Estimate ridership 95,080,752 97,351,452* 237,883,016

*ridership of off-peak hour= current total ridership on weekdays-Ym

23

/4/1

2

Model Analysis

Step 1: Focus on affected groups

Free rider: 1%; U-pass: 9%; Reduced fare: 6%In 2012, the total ridership is 5,455,779,178So the ridership without subsidy is 406,741,229

Model willy affect payment with cash(10%) or tickets(19%).

23

/4/1

2

Model Analysis

Step 2: Categorize time periods and ridership

Periods

Peak hour(6:00-9:00 AM a

nd 3-6:00 PM on weekdays)

Off peak Weekends

Equivalent days 155.55 99.45 111

Ridership 117,383,645.5 75,048,560.24 214,309,023.7

23

/4/1

2

Model Analysis

Increase/ Decrease of fare box revenue:∑ [Fare (n)*ridership (n)*29%–Fare (m)*ridership (m)]N: the situation when congestion price has applies

M: stands for current situation The total earning of project is estimated at $4,326,398.389.

Divided by total ridership, the average fare is $1.0175.

23

/4/1

2

Challenges• Based on Matthew’s study in 2009, it found that riders in peak

hours are heavily depended on the transit and most of them are non-discretionary users. In addition, peak price can only effect on users by tickets or cash payment, which accounts for 29% of whole. Consequently, the actual decrease in peak hour ridership may be less than estimated.

• If the bus or rail is delay especially nearly 3:00 pm, it may cause customer extra cost and increase backlash.

ESG matrix - Environmental• Benefits

• Lower vehicle Emissions• Less noise and light pollution

• Cost• Risk of alienating choice customers

Social• Benefits

• Increased social equity • Shorter trip times• Less crowding during peak hours

• Costs• Adjustment Period• Lower income peak time commuters

23

/4/1

2

Governance• Benefits

• Lower risk• More ethical• More efficient trips i.e. lower costs and higher revenue

• Costs• Difficult to market to customers

23

/4/1

2

Shortcomings• It is difficult to predict change in user behavior. For e.g.,

recently CTA reported $10 million deficit this year. The deficit is driven by incorrect revenue forecasts mostly involving the use of passes. The biggest miscalculation involved a nose dive in the use of the 7-day pass since pass prices were increased in January. Seven-day pass sales were below budget projections by $7.5 million in the first six months of 2013, the CTA reported.

• Users may strongly oppose the peak pricing system

Thank you!

23

/4/1

2