El Pollo Diablo wrote: ↑Wed Feb 22, 2023 11:36 am
Fare elasticities on most GB lines are such that decreasing fares would increase revenues.
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The idea that reducing fares could benefit people isn't being thought about after such a long time of fares going only one way.
I would be interested to know what evidence you have for the first point, because I can't find any.
On the second point, certainly the idea that reducing fares could benefit people is something that has been very little thought about, and was very much a focus of my writing on the subject. DfT have been above all concerned to maximise income, rather than passenger benefit. And they tend to devise things in a way that means that passenger benefit can fail to be delivered, even when it is available. For example, they promote a capital scheme, whose appraisal shows passenger benefit. But then they fail to ensure that the fares consistent with that are charged, and instead the TOC takes best revenue advantage regardless of passenger benefit.
The rest of this post is about the evidence on elasticities.
While franchises were still on revenue risk, I'm pretty sure that TOCs would have been reducing fares if that was how they would increase income, because that is what franchised TOCs are good at. Now they are all off revenue risk and do what they are told and what's the point in arguing. So it is plausible that they are now being perverse on fares.
I only have sight of PDFH up to V5.1 (2013). For other readers, PDFH is the Passenger Demand Forecasting Handbook - Government's official method of rail demand forecasting. It's not a public document and I was no longer working for a subscribing organisation when V6 came out in 2018, nor had sufficient reason to have sight of it after that point. I do know quite well the contact mentioned on
this page which talks about the PDFH, but I don't wish to abuse my relationship with him by asking him to slip me an illicit copy.
In PDFH 5.1, most fare elasticities are (ignoring the sign) less than unity, mostly quite a lot less than unity. The exception are the leisure and "other" which are at or above unity. The evidence underlying that is a 2004 study, Review of Fare Elasticities in Great Britain, by Mark Wardman and Jeremy Shires
available at this link. That's almost 20 years old now. But since then there has been a lot more discounting fares to leisure passengers to make the more money out of them, as those elasticities imply was possible. And it doesn't imply that commuters, business travel, etc which is a lot of travel, would travel sufficiently more if fares were reduced to make money. But that is 20 years old and fares are in a different place now, so maybe they are now different. In particular, I would expect leisure elasticities reduced at actual fares charged since 2004.
I don't know what evidence on fares elasticities was used by PDFH 6, nor have I found any more recent papers on it. I see there is a 2016 report for DfT, Rail Demand Forecasting Estimation, by ITS, LeighFisher, Rand and SYSTRA,
available at this link. I guess this is a major part of the evidence for PDFH 6. Annoyingly it was not the aim of that study to consider fare elasticities. Where they quote elasticities from PDFH, those figures are redacted. But they can't estimate the other elasticities without putting fare in the model, so we see quite a lot of estimations in Chapter 4 which spit out fare elasticities for various markets, using 5 different models. And nearly all those elasticities are quite a lot less than unity, in all 5 models. Then in Chapter 5, they do some backcasting, and all the elasticities in their preferred models are less than unity.
So even as late as 2016, there is some considerable evidence that elasticities in most markets - as aggregated to some level - are less than unity.
But you may be right that Covid changed everything, and now there are bits of market around with elasticities above unity, where reducing fares would increase demand more than proportionately and income would go up. I would be grateful to know what evidence you are able to quote of that.