In Scotland, a large proportion of the population – people over 60, under 22 or those with disabilities – are eligible for free bus travel. You get given a card for this which you tap as you get on board a bus. This tap allows the bus operator to claim back money for the journey from the government.
The government pays back operators a percentage of their regular adult single fare. This percentage varies between passenger types but for 60+ travellers it’s 55%. The idea of paying less than a full adult fare is that it’s supposed to leave operators no better or worse off due to the scheme, taking account of the fact that the scheme encourages more people to travel by bus and not all adults would otherwise buy the adult single fare.
This system means that two operators who compete on a route may get entirely different reimbursements for an identical journey, depending on their regular adult single fare. There’s a logic behind this. If one operator charges adults more, they’re probably justifying it by offering a better service (otherwise adults wouldn’t travel with them), and hence it’s reasonable for the government to reimburse them based on that higher fare.
But what if most adults don’t actually pay the regular adult single fare? At that point, the operator can just increase their regular adult single fare to get paid more by the government for concession travellers, without putting off their fare-paying passengers.
It turns out this isn’t a hypothetical. This is how the market functions today.
For example:
- Many operators offer significant discounts to adults who buy return tickets or daily/weekly passes. [Note from 318266: a good example is the McGill's ClydeFlyer, where a return/day is cheaper than a single in all bar a few intra-Inverclyde journeys]
- Some operators, particularly those running long-distance routes, sell a huge proportion of their tickets online at drastically discounted rates compared to the regular adult single fare charged onboard.
The more an operator does one of the above, the more they get paid for concessionary travel without having to increase the price that most of their regular travellers pay – a win for the operator but a loss for the taxpayer.
We saw these loopholes from the day we launched Ember and flagged them up in the hope they’d get addressed. But we also took a conscious decision not to optimise our pricing to exploit them, instead offering simple pricing where a return is just two one-way tickets and on-board fares only incur a small fixed premium compared to online fares.
The result has been that Ember is currently paid significantly less for each concession traveller compared to direct competitors running on the same route. Consider a single trip from Dundee to Edinburgh. The other operator running a comparable service to Ember is Citylink.
- Ember: The standard onboard fare is £10.50. Ember receives £5.78 if a 60+ concession pass holder chooses to travel with them.
- Citylink: The standard onboard fare is £22.30. Citylink receives £12.27 if a 60+ concession pass holder chooses to travel with them.
However, with both Citylink and Ember very few people pay the standard onboard fare – instead the vast majority book online (for Ember, about 98% of fare-paying passengers book online).
Ember’s online fare is currently £8.30 (prior to tomorrow's small increase). With Citylink, there are lots of ways to book online at completely different prices. For example, it’s easy to book for £7.10 on almost every service tomorrow (as of 22 May).
The trick is that Citylink has set their onboard fare so they are earning far more money from concessions, without having to charge fare-paying adults any more.
We believe this system is fundamentally flawed. It represents poor value for money for the government and means we are not operating on a level playing field with the competition. No matter how much focus we put on optimising our costs to deliver better value for money, Citylink will not feel the competitive pressure because they are being paid so much more for taking each concession card holder. It’s a broken market.
To address this, we’ve also decided to update our pricing from 23 May so we’re no longer operating at such a disadvantage. As such, onboard fares will be increasing much more. The price changes will vary based on the exact journey but take Dundee to Edinburgh as an example:
- Current onboard fare is £10.50
- New onboard fare will be £19.90 [Note from 318266: an 89.5% increase]
We don’t love making this change. We’d be happy to revert it when the system is fixed and a level playing field is restored. And we have a practical suggestion for fixing the system – pay operators based on the average adult fare actually charged, not the theoretical onboard single fare. This resolves all of the issues identified, whilst not requiring the government to set fares on every route across the country.