Deep Discount Group Pass Programs as Instruments for Increasing Transit Revenue and Ridership

Transit properties in the USA have historically experienced loss of market share and low levels of farebox recovery. They resorted to service expansion to maximize subsidies. Experience suggests that: (a) fare increases have not had the desired effect; (b) fare reductions can boost ridership but can also reduce revenue and increase subsidies. The challenge lies with the adoption of such strategies as deep discount group pass programs that can produce more marginal revenue than cost. Deep discount transit pass programs provide groups of people with unlimited-ride transit passes in exchange for a contractual payment for or on behalf of pass users by an employer or other organizing body. Although successes of deep discount group pass programs are documented, there is substantial skepticism toward their wide-scale deployment because transit management perceives them as “special treatments” or “favors” to participants. Management fears such perception could raise questions about equity because they fail to see the fundamental difference in the fare structure of the “group pass” from individual ticket purchases. Group passes operate in a manner analogous to insurance programs. The deep discount program cases studied consistently revealed either higher revenues per boarding than the system-wide average or higher total revenues from target markets with the program than without it. Employment-based programs yielded the highest net revenues to operators. Although agencies recognize the factors for price determination, research reveals that no systematic methodology exists and pass prices are largely determined by watching what others have done. This dissertation has developed a methodology to aid operators in determining deeply discounted but favorable pass prices. The methodology considers: revenue lost from existing riders at prevailing fares; level of patronage in the primary location of transit use; any additional costs necessitated by the program; attractiveness of program terms to participants; and a policy goal of increasing operating revenue. The methodology permits the investigation of alternative objective functions and thus can serve as a common tool for transit agencies, employers and other constituents who may choose to maximize or minimize either the price of the pass or the number of participants subject to sets of constraints.