Public transportation in London achieves the sort of financial efficiency that most U.S. transit agencies can only dream of matching. Last year, Transport for London (TfL) spent 6.8 billion pounds operating its bus, rail, and metro systems, and generated 4.8 billion pounds in revenue (mostly through fares). In the parlance of transit wonks, that's a recovery rate of roughly 70 percent. In general terms, it means riders pay for most TfL operations, leaving taxpayers on the hook for only a slice.
The agency isn't stopping there. By the end of this decade, TfL expects to break even across its entire system—meaning it won't need any public subsidies for operations at all. (It will still require public support for major capital projects and some periodic maintenance.) TfL even plans to cover the cost of routes and services that lose money but provide valuable public services.
So what makes TfL so efficient? We posed that question to Shashi Verma, TfL's director of customer experience, in the hopes of gleaning some wisdom from our friends across the pond. Since 2008, says Verma, TfL has made a "relentless push" to reduce operating costs while increasing revenue. Our chat revealed five big lessons for U.S. agencies to consider—with a recurring theme being that transit should operate more like a private business than a public service.
"Improving productivity and reducing cost is something that the private sector does every day," he says. "Why people in the public sector think this is not part of their job is beyond me."
Make Fare Increases Routine
In U.S. cities, politicians often defer fare increases until there's a funding crisis too big to ignore. That leaves a bad taste in everyone's mouth about the transit agency's ability to manage its finances. It also leads city residents to believe that fare hikes are only something that should rarely occur.
In London, on the contrary, TfL fares rise every year—the only question is by how much. There are loud objections over there just as there are here, but the critical difference is that TfL has set an expectation in the minds of travelers, not to mention politicians, that fares must rise on an annual basis to meet costs. "That's the way we keep the system properly funded year after year," says Verma.
It probably helps that TfL has an extremely complicated fare structure. Unlike in New York, for instance, where every bus or subway ride costs the same price, London riders pay different fares across all modes based on how far they're going and what time of day they're traveling (with daily caps to limit how many any one rider pays in a single day). So when TfL raises fares, the public must crunch some serious numbers to determine just what that means.
Improve Service in Cost-Efficient Ways
What makes the fare hikes more palatable is that riders get clear service upgrades for their money. For instance, TfL recently announced that 24-hour weekend service will be coming to the Tube in 2015. Verma says officials expect the service to be financially neutral at worst and revenue-generating at best.
What's critical to remember, says Verma, is that service improvements must be efficient to be effective. Right now the Tube's Victoria line runs trains with great frequency—34 an hour at times, or one every 107 seconds. Determining whether or not to increase that total is not just a question of scheduling and track logistics, but also of whether the resulting increase in ridership will offset the additional cost. A new service that becomes a financial liability hurts system, rider, and taxpayer alike over time.
Rider information is one area where low-cost interventions can have a major impact on customer experience, says Verma. To that end, TfL recently installed digital signs with live bus information at a range of public locations, and launched a new mobile site with real-time travel information — an upgrade enhanced by the fact that every underground Tube station will have WiFi connection by the end of 2014. TfL makes its travel data open to app developers, too.
TfL is way ahead of most U.S. transit agencies when it comes to ticketing technology. In addition to its Oyster card, a pay-as-you-go smart card that reduces the need for ticket transactions, TfL has implemented contactless credit and debit payment on its bus network (and will soon expand the service to the Tube). By deducting fares directly from a bank account, contactless payment means riders don't need to buy a ticket at all.
The obvious advantage to ticketing technology is cost reduction. Verma says TfL once spent 14 percent of its expenditures on fare collection, but that figure is now closer to 9 percent, and falling. In bigger news, the agency plans to close down all its ticket windows within the next year, an initiative that will save 60 million pounds annually.
Such initiatives improve service, too. Quicker payment means quicker boarding, which in turn means faster buses, which in turn means more riders. "It's change of this kind that we're talking about with reducing operating expenditures," says Verma. "But to be clear, this kind of intervention also increases revenue, because we are reducing the impediments for people to use the public transport network."
Train drivers are becoming obsolete with technology, too. TfL recently announced a plan to make its subway fleet fully automated in the coming decades. Again the benefits are twofold: In addition to saving labor costs, service improves with a driverless system, as computers can control and operate high-frequency trains with a precision that human drivers lack.
Find Secondary Revenue Sources
Fares made up about 86 percent of TfL's revenue in 2014—the lion's share, but not the entirety. Secondary revenue also played a key role.
Advertising is one of the biggest secondary sources of income. (Verma says TfL is the "biggest advertiser in the U.K.") But unlike U.S. agencies, TfL also generates considerable revenue through its real estate holdings. Part of that revenue comes from developing land owned by the agency. Another part comes from renting out shops and concession space to vendors in and around the stations. Rents brought in more than 61 million pounds in 2014.
TfL also generates secondary revenue through London's congestion charging scheme. That plan charges drivers for entering a zone in the core of the city during certain times in the work week. In 2014, these charges amounted to roughly 235 million pounds, or nearly 5 percent of TfL's gross income.
Congestion Pricing Won't Solve Everything
Some U.S. transit experts believe congestion pricing may be the key to boosting rail and bus ridership in American cities. Verma isn't sure that's been the case in London. He says the impact of congestion charging on transit ridership is "marginal," in part because most of the trips through the central city are already made by public transport, leaving few car trips (he estimates 8 percent) up for grabs.
"Yes, there is an incentive to switch out of cars into public transport, and it is there because of a solid public transport policy," he says. "But the actual impact on the public transport network is pretty small."
Congestion pricing may well have more of an impact on transit in American cities. Ridership rates are lower in the U.S. and driving is cheaper compared to London, so there's greater potential for people to switch modes as the cost of car ownership goes up. But the lesson is worth heeding anyway because, at least at the moment, no U.S. city seems serious about congestion pricing. Far better for U.S. transit agencies to rely on changes within their own power than to wait for those outside it.