Fixing Fares for Public Transportation System

Two Approaches toward Fixing Fares for Public Transportation System: The Case of
West Bengal

Anupam Ghosh
Associate Professor
Indian Institute of Social Welfare & Business Management (IISWBM)
College Square (West)
Kolkata – 700076, India
Email: anupamiimt@gmail.com

Narayan Swaroop Nigam

Secretary, Transport and Managing Director
West Bengal Transport Corporation
12, R N Mukherjee Road
Kolkata – 700001, India
Email: nsnigam@yahoo.com

Abstract

Generally fares for public transport are fixed by state governments across India. With volatile
petroleum prices and a falling rupee, a rational approach is required towards automatic
increase in passenger fares that respond to market fluctuation of input costs; at the same time
do not put the general commuters to economic discomfort. This study develops a formula
and a passenger-km based methodology for fare fixation for public transport for the Indian
state of West Bengal. The formula shows the resultant change in fare for change in individual
or all of the input costs.

Key Words: Formula, Fare Fixation, Public Transport

JEL Classification: A1, C6
Topic: Public Policy Issues and Management

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 Fixing Fares for Public Transportation System

Introduction

Pricing public good is always a matter of debate, particularly in the developing world where a
bulk of the population depends on public transport for daily commuting. India, with a
population of 13.39 billion also faces similar situation. 29 states in a federal structure,
different economic and social conditions in different regions add to the complexity.
Operating cost of public transport comprises of fuel, repairs and maintenance, capital, and
staff and other related costs. With a falling rupee and increased cost of spares, the operating
cost for public transport is on the rise. This warrants an increase in fare for public transport.
But such an increase is not always possible - economic conditions of the population and
political compulsions being the reasons. This calls for a rational approach toward automatic
increase in passenger fares that respond to market fluctuation of input costs; at the same time
do not put the general commuters to economic discomfort.

The Indian state of West Bengal also faces similar situation. The price of fuel is on the rise,
price of spares and maintenance equipments are market determined, and the wages of the
staff are based on percentage of revenue received from the sale of tickets. There is constant
demand from the public transport operators to increase bus fares and the government
authorities have to strike a balance between economic jurisprudence and welfare of the public
at large. The purpose of this paper is to (a) study the cost patterns for different types of bus
transport and (b) provide a nomenclature for pricing public transport (i) by developing an
empirical model, and (ii) using passenger-km approach. The organisation of the paper is –
first, we present an overview of public transport in West Bengal, particularly Kolkata city and
highlight the need for a rational mechanism for fixing bus fares. We then review existing
models for pricing public transport. The subsequent section presents (i) an empirical model,
and (ii) a passenger-km approach for determining fares for bus transport.

Public Transport in West Bengal

Overview

West Bengal, with a population density of 1029 persons per sq. Km, is the most densely
populated state of India. With a population of 14.7 million, Kolkata, the erstwhile capital of
India is the most populous metropolis in the state (retrieved from
http://worldpopulationreview.com/world-cities/kolkata-population/, on 9th Sept 2016). The
economy of the state is trade, business and service. Kolkata is the “centre of business
activity”, not only serving as the centroid of trade and commerce for the state, but also for all
the seven north-eastern states of the country, and neighbouring country of Bangladesh.

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 Fixing Fares for Public Transportation System

Apart from the permanent residents of the city, every day approximately 2.6 million people
from suburbs travel to the city for office and business activities, mostly using public transport
services. The suburban split is as follows: 350 pairs of Metropolitan sub-urban trains carry
approximately 1.8 million passengers to the city, 8500 buses enter Kolkata from suburbs and
criss-cross the city carrying approximately 85000 passengers, 137 pairs of tube rails carry
600000 passengers, 150 trams carry 2000 passengers and river ferry services ferry 10000
passengers from suburbs or the terminal railways stations to the main city. Apart from these
means of public transport, a significant number of personal cars and 30000 private taxis are
on road every day in Kolkata (Ghosh et al., 2017).

The intra-modal movement of transport within the city of Kolkata is given in table I.

TABLE I – TANSPORT MODES USED IN KOLKATA FOR INTRA-CITY COMMUTING

Population Walk Bicycle Three-wheel Motorable vehicle Public Personal Personal Two-
(Auto-Rickshaw) Transport Car wheeler
14.7 19% 11% 4% 54% 8% 4%
million
Source: National Transport Development Policy Committee Report 2013; Vol 03; Part 2;
Chapter 5; Pp. 387-388

Of the movement in public transport, the modal split is as follows (table II):

TABLE II – INTRA-CITY MODAL SPLIT FOR PUBLIC TRANSPORT IN KOLKATA

Types of Transport Number of Passengers Per Day Percentage (%)
Metro (Tube) 550000 11
Private Bus 3800000 79
WBTC Bus 345000 8
WBTC Tram 50000 1
Ferry Service 40000 1
Total 4785000 100
Source: Various State Transport Undertaking (STU) data and independent estimates. Data
pertains to 2015; adapted from Ghosh et al., (2017).

Bus Operators in Kolkata

Buses in the city are run by private operators and state government undertakings (STUs).
Prior to 2016, there were two primary government run operators – the Calcutta State
Transport Corporation (CSTC) and the Calcutta Tramways Co. Ltd. (CTC). However, there
was lack of coordination between the two operators and cases were plenty when buses from
CSTC and CTC were plying in the same route, thereby cannibalizing on each other’s
revenue. To reduce the infrastructure and other fixed costs, as also route rationalization,
CSTC and CTC were merged on June 8, 2016 to form West Bengal Transport Corporation
(WBTC). The river ferry service, linking Kolkata’s important road links with the suburbs,

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 Fixing Fares for Public Transportation System

was operated by West Bengal Inland Water Transport Corporation Ltd. In 1989, the same
was renamed as West Bengal Surface Transport Corporation Ltd. (WBSTC) and in addition
to waterways, WBSTC now gives license to private operators to ply buses on selective routes.
Thus, the bus system in Kolkata city is run by WBTC, private operators, and WBSTC. The
private operators are individual units, with owners of buses owning as less as one bus. As is
seen from Table II, about 80% of the bus commuters are carried by private operators and
about 10% by state run organizations.

There are different types of buses on road – from ordinary to air-conditioned. A snapshot of
the types of buses on road is given in table III.

TABLE III – TYPES OF BUSES ON KOLKATA ROADS

Private Buses Government Buses
Private Buses – ordinary - old WBTC – Ordinary – old
Private Buses – ordinary – WBTC – Ordinary – JNNURM*
JNNURM*
Private Buses – Mini Bus WBTC – AC Volvo
Private Buses – AC (Volvo) WBTC – AC Non-Volvo, mostly Ashok Leyland and a few
ordinary AC fitted buses
WBSTC – leased to private
operators
*JNNURM buses refer to those purchased under JNNURM scheme. The scheme is
applicable for buses purchased after 2010

Present Method of Fixing Bus Fares

Bus fares in the state have so long been fixed maintaining a balance between economic
jurisprudence and political compulsion. Private bus operators would prepare a statement
showing the percentage increase in cost of fuel, spare parts, and other costs since the previous
fare revision, and petition to the government for an increase in bus fare. The operators would
also present a proposed revised fare chart. While the increase in fuel price could be verified
very easily, there was little scope to verify the other component cost claims made by the bus
operators. Often, the government would feel that the claims of increased costs are inflated,
and after discussions, would reduce the claims a bit and come up with a new revised
(increased) fare chart. This exercise would normally be carried out once a year. The process
would start in September, and the revised fares would come into effect in November, after the
festival of Durga Puja.

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 Fixing Fares for Public Transportation System

Need for a Formula Based Empirical Method for Fixing Bus Fares

Prior to October 2014, the price of diesel (HSD) was fixed by the Ministry of Petroleum.
Since then, the oil companies were given the freedom to fix oil prices. Since then, the prices
dropped continuously for a significant period of time, and then increased gradually. During
the period when the fuel price started increasing, there was demand from the private bus
operators to increase bus fares. The common public opinion was – why was bus fare not
reduced when the fuel price fell? This called for a formula/model that would calculate the
change in bus fares given the change in prices for all the cost components, primarily fuel.

Literature Review

Researchers have studied the cost of providing public transport. Savage (1989) studies the
cost of public transport in UK and Australia. The six broad categories of cost identified by
him are - staff/crew cost, mileage related cost, vehicle ownership cost, variable overhead,
semi-variable overhead, and fixed overhead. Montalbo Jr. and Ishida (1997), while
determining the costs associated with public transport in Philippines, categorize the costs into
operating and non operating costs. The categorisation is similar to ones practised in Indian
scenario. Kumarage (2005) presents a cost index for public transport in Sri Lanka on the basis
of time period from 1958 to 2000. Criteria used for this purpose are: capital, fuel, repairs and
maintenance and staff costs.

Others have researched on bus fare modelling. Yordon et al. (2001) presents a simple
regression model to determine city transit bus fares of USA. Variables used in the model are:
passengers per bus-mile, scale of operation, wage rate, and efficiency. Borndörfer et al.
(2012) presents a nonlinear optimization approach to fare planning for transport services in
Potsdam, Germany. The approach helps to analyze different fare structures and operational
scenarios, e.g. subsidies. Paulley et al. (2006) considers the influence of fares on the demand
for urban public transport in the UK. The results show that demand for public transport is
elastic, with different demand across regions for similar change in bus fare. Perdomo (2015)
presents an application of the Ramsey Pricing approach to determine the maximum price that
can be charged for a parking space in a metropolitan city. Applying the approach for the
Colombian city of Bogota, the model uses total fixed costs, total variables costs, average total
cost, and marginal cost for arriving at the fare ceiling. Similar approach may be adopted for
bus fare pricing.

Several cost calculation methodologies and formulas for fixing bus fares have been framed
by different states of India. Vasudevan and Mulukutla (2014) study the bus transport costing

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 Fixing Fares for Public Transportation System

methodology for Naya Raipur Development Authority (Chattisgarh). They list fuel,
operations and maintenance, staff and capital costs as the four major types of costs.
Bangalore Metropolitan Transport Corporation has developed a formula for fixing bus fares
in 2014 (retrieved from http://wricitieshub.org/online-publications/72-fare-setting, on 9th
Sept 2016). The formula breaks the cost of bus operation into fuel cost and staff and other
costs. The revised fare on account of rise in fuel cost is arrived at on the basis of cost per
passenger-km, and the present and earlier price of diesel. Similar methodology is used to
calculate the revised fare on account of changes in staff cost. Government of Orissa, in
developing a formula for fixing fares, has broken the costs into fuel, repairs and maintenance,
and other costs. Weight is applied to the cost components. The revised (new) fare is
calculated on the basis of percentage change over the earlier costs (retrieved from
http://www.orissapost.com/govt-okays-dynamic-bus-fare-mechanism/ on 24th September
2018).

The review of literature shows that several cost-based and formula based models for fixing
bus fares exist. Based on the review, we frame the objectives of the study.

Objectives

The objectives of this study are:

1. To study the cost patterns for different types of bus transport, and
2. To provide a nomenclature for pricing public transport (i) by developing an empirical
model, and (ii) using passenger-km approach.

Research Methodology

For the purpose of the study, the following information was necessary: (a) costs of operation,
(b) fuel efficiency of vehicles, (c) revenue generated, and (d) passenger-km travelled by
passengers in each fare slab.

To estimate the cost and revenue of bus transport, at first, a primary survey is conducted on
the private bus operators. The respondents are the owners of the buses. This survey is
corroborated with an independent survey with the bus drivers and bus conductors. The
opinion and estimates given by the groups differed on primarily three counts – the revenue
generated per bus, amount spent on repairs and maintenance, and amount of traffic fines paid
per month. To remove the anomalies, independent bus travels were undertaken, total number
of passengers on-board noted, traffic fines calculated, and revenue generated calculated. This

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exercise was conducted at different times of the day for a month. Similar exercise was
conducted at maintenance workshops (commonly termed as garages). The independent
survey helped to ascertain the inflated costs and deflated revenue figures provided by the bus
owners. It was found that the drivers and conductors of the buses had provided a fair estimate
of costs and revenue.

The number of kilometres a passenger travels is termed as passenger-km. The independent

bus travels were used to note the number of passenger-kms in each fare slab or fare stage.
This was corroborated with the number of tickets sold for each fare slab.

Based on the independent survey, it was found that the ratio of revenue to cost for JNNURM
buses and Mini Buses are similar. Hence, we distinguish the buses as Ordinary and Mini Bus.

The information generated was used to develop an empirical model and a passenger-km
approach to determining bus fares.

Analysis and Discussion

Developing an Empirical Model for Pricing Public Transport

In order to develop an empirical model, a step-by-step approach was adopted. This is

presented below:

Cost of Operation and Respective Weights for Bus Transport

Table IV presents the cost of operation for bus transport with their respective weights.

TABLE IV: COST OF OPERATION AND WEIGHTS

Sl No. Cost Components Ordinary Bus
A Fuel 0.50
B Operations and Maintenance 0.10
C Staff and Others 0.25
D Fixed Costs (Capital costs) 0.15

Fuel Price, Fuel Efficiency, and Fuel Multiplier

FuelNEW/FuelOLD represents how many times the fuel price has increased since the previous
fare revision.

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 Fixing Fares for Public Transportation System

[4/fuel efficiency] represent the fuel efficiency of a vehicle. Based on our independent
survey, it is seen that an ordinary city bus has a fuel efficiency of 3 kmpl. The newer
JNNURM buses have a fuel efficiency of 4 kmpl. Since more and more ordinary buses are
being phased out, and new JNNURM buses taking their place, a standard fuel efficiency of 4
kmpl is considered.

{FuelNEW/FuelOLD }{4/fuel efficiency} is the Fuel multiplier. If a bus has a fuel efficiency of
4 kmpl, the value of the second part of the formula is 1. Then the multiplier is
FuelNEW/FuelOLD. If the fuel efficiency is less, say 3 kmpl, the fare should increase at a higher
rate, and the second part of the formula takes care of this aspect.

An illustration: Present fuel Price: Rs.10, fuel price at the time of last (previous) fare
revision: Rs.8; fuel efficiency: 3 kmpl. The Fuel Multiplier is: {10/8}{4/3} = 1.66 times.

Operations and Maintenance Cost and the WPI Multiplier

A typical bus has over 10000 components. Some of these have a short to medium life span,
while many others may not require any maintenance cost over the life of the bus. Yet some of
the spare parts are purchased as ‘second-hand’ or ‘used’. It is noticed that prices of spares
vary from workshop to workshop. It is thus, not possible to generate a list of 10000+ spares
and their prices, particularly since they differ from workshop to workshop. Hence a standard
practice of considering Wholesale Price Index (WPI) of Transport Related Equipments is
considered for the purpose of ascertaining repairs and maintenance cost. To this end, WPI
Base 2011-12 is considered. Considering WPI for purpose of econometric analysis is the
standard practice in other states of India as well as other countries. The average of WPI
consists of the following: Lube Oils, Medium & Heavy Commercial Vehicle Tyre, Medium
& Heavy Commercial Vehicle Tube, Manufacture of Motor Vehicles, trailers, and semi-
trailers (all components). The Multiplier, WPINEW/WPIOLD, represents how much times the
WPI has increased since the previous fare revision. If for example, the present WPI
[WPINEW] is 100 and the earlier WPI [WPIOLD] was 80, the Multiplier is 100 ÷ 80 = 1.25
times.

Staff and Other Costs and the CPI Multiplier

The staff members of the buses – the driver, the conductor and the helper cum cleaner should
be paid a salary that is based on the cost of living. To this end, Consumer Price Index (CPI)
(Rural + Urban) Base 2012 for the state of West Bengal is considered as an indicator.
Considering CPI to determine the cost of living is a standard practise in other states of India
as well as abroad. Just like Fuel Price and Operations and Maintenance Cost, the Multiplier

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 Fixing Fares for Public Transportation System

will be = CPINEW/CPIOLD. If for example, the present CPI [CPINEW] is 100 and the earlier CPI
[CPIOLD] was 60, the Multiplier is 100 ÷ 60 = 1.67 times. If however, the CPINEW is lesser
than CPIOLD, the multiplier should be considered as 1. Reducing the multiplier would mean
lesser savings and a lesser economic growth.

Investment Cost and the Investment Multiplier

We consider the base (standard) cost of a bus at Rs.2.5 million. This includes the necessary
permit and license fees etc. The Investment Multiplier is given as:
Investment Costin million/2,500,000

If the actual capital cost of a bus is Rs.2,500,000, the multiplying effect will be [2,500,000÷
2,500,000] = 1. If the actual capital cost of a bus is Rs. 5,000,000; and the standard cost is Rs.
2,500,000, then the bus fare should take into account the extra spending. Hence the value of
the multiplier should increase. In this example, the multiplying effect will be [5,000,000÷
2,500,000] = 2.

Applying Weights and the Bus Fare Multiplier

Once all the above computations are done, the respective weights for fuel, operations and
maintenance, staff and other costs, and investment costs are to be provided. The Bus Fare
Multiplier now computed is the SUMMATION of the separate weighted multipliers of fuel,
operations and maintenance, staff and other costs, and investment costs.

The Formula

Based on the above, the formula for determining fare for public transport is given in table V
as under:
TABLE V: EMPIRICAL MODEL FOR PRICING PUBLIC TRANSPORT
EMPIRICAL MODEL FOR PRICING PUBLIC TRANSPORT
Number of times the fare is to be increased
=
[{0.5 x FuelNEW/FuelOLD}{4/fuel efficiency}]
(+)
[{0.1 x WPINEW/WPIOLD}]
(+)
[{0.25 x CPINEW/CPIOLD}]
(+)
[{0.15 x Investment CostIn million/2,500,000}]

OLD = at the time of last fare revision; NEW = at the present point in time

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 Fixing Fares for Public Transportation System

An Illustration

Fuel Price as on 24.05.2018 (approx): Rs.71

Fuel Price during the last fare revision: Rs.58
Fuel Efficiency: 3.5 kmpl
Cost of Bus: 2,500,000
WPI in September 2014: 111.8
WPI in May 2017: 107.5
CPI (West Bengal) in September 2014: 148
CPI (West Bengal) in April 2017: 129.5

The illustration is presented in Table VI below:

TABLE VI: DETERMINATION OF BUS FARE ON THE BASIS OF EMPIRICAL MODEL

FORMULA APPLICATION

Number of times the fare is to be increased = Number of times the fare is to be increased =

[{0.5 x FuelNEW/FuelOLD}{4/fuel efficiency}] [{0.5 x 71/58}{4/3.5}]

(+) (+)
[{0.1 x WPINEW/WPIOLD}] [{0.1 x 107.5/111.8}]
(+) (+)
[{0.25 x CPINEW/CPIOLD}] [{0.25 x 129.5/148}]
(+) (+)
[{0.15 x Investment CostIn Lakhs/25,00,000}] [{0.15 x 2500000/2500000}]
= 1.154 times

Therefore, New Fare of the earlier fare slab of Rs. 6 will be :: Rs.6 x 1.154 times = RS.6.92
New Fare of the earlier fare slab of Rs. 8 will be :: Rs.8 x 1.154 times = RS.9.23

Tables VII and VIII present the change in stagewise bus fares for changes in the
multiplier for ordinary buses and mini buses.

TABLE VII: CHANGE IN BUS FARE FOR ORDINARY BUS WITH CHANGE IN MULTIPLIER
Bus Fare Multiplier
Fare (Rs.) 1 2 3 4 5 6 7 8 9 10 11 12
Stage Resultant Change in Stagewise Bus Fare (Rs.)
I 6 6.05 6.10 6.16 6.21 6.26 6.31 6.36 6.41 6.47 6.52 6.57 6.6
II 8 8.07 8.12 8.21 8.28 8.34 8.41 8.48 8.55 8.62 8.69 8.76 8.8
III 9 9.08 9.15 9.23 9.31 9.39 9.47 9.54 9.62 9.7 9.78 9.85 9.9
IV 10 10.1 10.1 10.3 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.9 11

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 Fixing Fares for Public Transportation System

TABLE VIII: CHANGE IN BUS FARE FOR MINI BUS WITH CHANGE IN MULTIPLIER
Bus Fare Multiplier
Fare (Rs.) 1 2 3 4 5 6 7 8 9 10 11 12
Stage Resultant Change in Stagewise Bus Fare (Rs.)
I 7 7.06 7.12 7.18 7.24 7.3 7.36 7.42 7.48 7.54 7.6 7.66 7.72
II 9 9.08 9.15 9.23 9.31 9.39 9.47 9.54 9.62 9.69 9.78 9.85 9.93
III 10 10.1 10.17 10.3 10.3 10.4 10.5 10.6 10.7 10.78 10.9 10.9 11.0
IV 11 11.1 11.19 11.3 11.4 11.5 11.6 11.7 11.8 11.85 11.9 12 12.1

The above empirical model can be applied for fixing fares for any types of buses – ordinary,
JNNURM, long distance, AC, and the like. The uniqueness of the model lies in – any
modifications in base price can be done without disturbing the formula per se. However, the
stages of bus fare are given as sacrosanct, and realignment of the stages will require field
survey to estimate passenger-kms travelled in a bus.

We now present the nomenclature for bus fare pricing using passenger-km approach.

Developing a Nomenclature for Bus Fare Pricing Using Passenger-km Approach

To arrive at a nomenclature for pricing bus fares using the passenger-km approach, we first
need to estimate (i) passenger-km and (ii) fare per passenger-km for each stage or slab of bus
fare. The revised fare per passenger per km is then calculated based on the increase in cost of
bus operation. This is subsequently used to calculate the revised stagewise bus fare.

Table IX presents a snapshot of details of buses plying in Kolkata city. The route length for a
city-based bus is 18 kms. Based on the independent survey, it is found that, on an average,
the total number of passengers travelling per single (one-way) trip in an ordinary bus is 100
and for a mini bus, it is 80. The break-up of passengers for each fare stage or slab is in the
ratio of 40:30:15:15. The fuel efficiency of the ordinary buses is 3 kmpl, and mini buses is
4.5 kmpl. On first glance, this seems less, but buses move at slow pace within the city, gets
entangled in traffic jams, and has to frequently apply brakes. This reduces the fuel efficiency.

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 Fixing Fares for Public Transportation System

TABLE IX: STAGES FOR BUS FARES IN KOLKATA AND SUBURBAN AREAS
ORDINARY BUS
Stages I II III IV
Distance First 4 kms Next 8 kms Next 4 kms Next 2 kms
Cumulative Distance 4 kms 12 kms 16 kms 18 kms
Fare 6 8 9 10
Number of passengers in the Stage 40 30 15 15
Fuel Efficiency: 3 kmpl

MINI BUS
Stages I II III IV
Distance First 4 kms Next 8 kms Next 4 kms Next 2 kms
Cumulative Distance 4 kms 12 kms 16 kms 18 kms
Fare 7 9 10 11
Number of passengers in the Stage 24 32 16 8
Fuel Efficiency: 4.5 kmpl

Calculation of passenger km and fare per passenger per km

We now calculate the passenger km and fare per passenger per km for Ordinary Bus (table X)
and for Mini Bus (table XI).

TABLE X: CALCULATION OF PASSENGER KM AND FARE PER PASSENGER PER KM FOR ORDINARY BUS
ORDINARY BUS
Change in
Number of Passenger- Fare Per Fare Per
Stage of Total Additional Avg Km Passengers in Km Fare Passenger Passenger
Fare Km Km Travelled the Fare Slab (6) Rs. Per Km Per Km
(1) (2) (3) (4) (5) = (4)*(5) (7) (8) (9)

Stage I --
first 4 km 4 4 2 40 80 6 1.5 1.5
Stage II --
next 8 km 12 8 8 30 240 8 1.75 0.25
Stage III -
- next 4
km 16 4 14 15 210 9 2.00 0.25
Stage IV -
- next 2
km 18 2 17 15 255 10 2.50 0.50
TOTAL 100 785

Explanation of Average Km Travelled:

A passenger who is travelling in stage II, has travelled 4 kms of stage I and half of the
distance of stage 2, i.e. 4 km + ½ of next 8 km = 4 + 4 = 8 kms

Explanation of Fare Per Passenger Per Km:

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 Fixing Fares for Public Transportation System

For Stage I, Fare is Rs.6 for a journey of 4 km; hence Fare Per Passenger Per Km = Rs.6/4km
= Rs.1.50
For Stage II, Fare is Rs.1.5 for Stage I and Rs.0.25 per km [Rs.2/8km] for stage II =
Rs.1.5+0.25 = Rs.1.75

TABLE XI: CALCULATION OF PASSENGER KM AND FARE PER PASSENGER PER KM FOR MINI BUS
MINI BUS
Change in
Number of Passenger- Fare Per Fare Per
Stage of Total Additional Avg km Passengers in Km Fare Passenger Passenger
Fare Km Km travelled the Fare Slab (6) Rs. Per Km Per Km
(1) (2) (3) (4) (5) = (4)*(5) (7) (8) (9)
Stage I --
first 4 km 4 4 2 24 48 7 1.75 1.75
Stage II --
next 8 km 12 8 8 32 256 9 2.00 0.25
Stage III --
next 4 km 16 4 14 16 224 10 2.25 0.25
Stage IV --
next 2 km 18 2 17 8 136 11 2.75 0.50
TOTAL 80 664

Explanation of Average Km Travelled:

A passenger who is travelling in stage II, has travelled 4 kms of stage I and half of the
distance of stage 2, i.e. 4 km + ½ of next 8 km = 4 + 4 = 8 kms

Explanation of Fare Per Passenger Per Km:

For Stage I, Fare is Rs.7 for a journey of 4 km; hence Fare Per Passenger Per Km = Rs.7/4km
= Rs.1.75
For Stage II, Fare is Rs.1.75 for Stage I and Rs.0.25 per km [Re.2/8km] for stage II =
Rs.1.75+0.25 = Rs.2

Nomenclature for incremental change in bus fare for incremental change in cost

Tables XII and XIII shows how the fare per passenger per km at every slab/stage will change
for every one rupee change in fuel cost. The cost can be only fuel cost, or repairs cost, or
other costs; or a combination of all of them. Different possible changes in fuel price are
presented – from Rs.1 to Rs.12. WPI and CPI values, as is seen from the empirical model,
have remained unchanged. Hence, we consider only fuel cost.

TABLE XII: CHANGE IN BUS FARE PER PASSENGER PER KM DUE TO CHANGE IN FUEL PRICE FOR
ORDINARY BUS
Stages in Fare per Change in Fuel Price (Rs.)
Bus Fare passenger per 1 2 3 4 5 6 7 8 9 10 11 12
km (Rs.) Resultant Change in Bus Fare Per Passenger Per Km (Rs.)
Stage I --
1.5 1.51 1.52 1.52 1.53 1.54 1.55 1.55 1.56 1.57 1.58 1.58 1.59
first 4 km

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 Fixing Fares for Public Transportation System

Stage II --
0.25 0.26 0.27 0.27 0.28 0.29 0.30 0.30 0.31 0.32 0.33 0.33 0.34
next 8 km
Stage III
-- next 4 0.25 0.26 0.27 0.27 0.28 0.29 0.30 0.30 0.31 0.32 0.33 0.33 0.34
km
Stage IV
-- next 2 0.50 0.51 0.52 0.52 0.53 0.54 0.55 0.55 0.56 0.57 0.58 0.58 0.59
km

Explanation of change in ordinary bus fare per passenger per km:

If change in fuel price is Re.1 per litre, change in fare per passenger per km for stage I or slab
I (First 4 km) will be:

Change in Fare Per Passenger Per km = Present Fare per passenger per km in the fare slab (+)
[Change in Fuel Price per litre (x) Litres of fuel required for the journey] /Total passenger
kms in the Journey = Rs.1.5 (+) [Rs.1 x 6]/785 = Rs.1.50764331 ~ Rs.1.51.

For Stage II (next 8 kms): Change in Fare Per Passenger Per km = 0.25 (+) [1 x 6]/785 =
0.25764331 ~ Rs.0.26.
TABLE XIII: CHANGE IN BUS FARE PER PASSENGER PER KM DUE TO CHANGE IN FUEL PRICE FOR MINI
BUS
Stages in Fare per Change in Fuel Price (Rs.)
Bus Fare passenger per 1 2 3 4 5 6 7 8 9 10 11 12
km (Rs.) Resultant Change in Bus Fare Per Passenger Per Km (Rs.)
Stage I --
1.75 1.76 1.76 1.77 1.78 1.78 1.79 1.80 1.80 1.81 1.82 1.82 1.83
first 4 km
Stage II --
0.25 0.26 0.26 0.27 0.28 0.28 0.29 0.30 0.30 0.31 0.32 0.32 0.33
next 8 km
Stage III
-- next 4 0.25 0.26 0.26 0.27 0.28 0.28 0.29 0.30 0.30 0.31 0.32 0.32 0.33
km
Stage IV
-- next 2 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50
km

Explanation of change in mini bus fare per passenger per km:

If change in fuel price is Re.1 per litre, change in fare per passenger per km for stage I or slab
I (First 4 km) will be:

Change in Fare Per Passenger Per km = Present Fare per passenger per km in the fare slab (+)
[Change in Fuel Price per litre (x) Litres of fuel required for the journey] /Total passenger
kms in the Journey = Change in Fare Per Passenger Per km = 1.75 (+) [1 x 4.5]/664 =
1.75677711 ~ Rs.1.76.

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 Fixing Fares for Public Transportation System

For Stage II (next 8 kms), Change in Fare Per Passenger Per km = 0.25 (+) [1 x 4.5]/664 =
0.256777 ~ Rs.0.26

Revised Bus Fare Based on Passenger-km Approach

Tables XII and XIII were used to calculate the revised bus fares per passenger per km based
on the increase in fuel price. Different possible changes in fuel price were given – from Rs.1
to Rs.12. This is multiplied by the distance travelled to get the stagewise revised bus fare.
Tables XIV and XV show the revised (new) bus fares due to possible changes in fuel prices.
TABLE IX: STAGEWISE REVISED BUS FARE WITH INCREMENTAL INCREASE IN FUEL PRICE FOR
ORDINARY BUS

Bus Fare Change in Fuel Price (Rs.)

Fare (Rs.) 1 2 3 4 5 6 7 8 9 10 11 12
Stage Resultant Change in Stagewise Bus Fare (Rs.)
I 6 6.02 6.05 6.07 6.09 6.12 6.14 6.16 6.19 6.21 6.23 6.26 6.28
II 8 8.11 8.18 8.25 8.32 8.39 8.46 8.53 8.60 8.67 8.74 8.81 8.88
III 9 9.05 9.15 9.24 9.33 9.43 9.52 9.61 9.71 9.80 9.89 9.99 10.08
IV 10 10.18 10.29 10.39 10.50 10.60 10.71 10.81 10.92 11.02 11.13 11.23 11.34

Explanation: For stage I: the bus fare will be Rs.1.51 x 4 km = Rs.6.02 (approximated)
For stage II: the bus fare will be Rs.6.02 + Rs.0.26 x 8 = Rs.8.11 (approximated)
TABLE X: STAGEWISE REVISED BUS FARE WITH INCREMENTAL INCREASE IN FUEL PRICE FOR MINI BUS

Bus Fare Change in Fuel Price (Rs.)

Fare (Rs.) 1 2 3 4 5 6 7 8 9 10 11 12
Stage Resultant Change in Stagewise Bus Fare (Rs.)
I 7 7.03 7.05 7.08 7.11 7.14 7.16 7.19 7.22 7.24 7.27 7.30 7.33
II 9 9.08 9.16 9.24 9.33 9.41 9.49 9.57 9.65 9.73 9.81 9.89 9.98
III 10 10.11 10.22 10.33 10.43 10.54 10.65 10.76 10.87 10.98 11.08 11.19 11.30
IV 11 11.11 11.22 11.33 11.44 11.55 11.65 11.76 11.87 11.98 12.09 12.20 12.31

Explanation: For stage I: the bus fare will be Rs.1.76 x 4 km = Rs.7.03 (approximated)
For stage II: the bus fare will be Rs.7.03 + Rs.0.26 x 8 = Rs.9.08 (approximated)

The advantage of the passenger-km approach is that it provides a ready-reckoner for the
operators and the government agencies which can be used to decide on when to increase the
bus fares. From the table IX and X, it is seen that if the fuel cost increases by Rs.9, an
increase in fare to the tune of Rs.1 at every stage can be effected. Thus, Ceteris Paribas, the
bus fare monitoring agencies need to know only one value – here – Rs.9. If the increase in
fuel price reaches Rs.9, fare can be increased by Rs.1 for every stage.

However, this method considers some factors as given – the fuel efficiency, and the capital
cost. Any change in these two values will warrant going back to the drawing board and
starting over with all the calculations.

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 Fixing Fares for Public Transportation System

Conclusion and Directions for Future Research

Pricing public transport is a sensitive task, particularly with rising fuel prices. This study
presents an empirical model and a passenger-km based approach to estimate fares for public
bus transport in the Indian state of West Bengal. A ready-reckoner and a fare table is also
presented. The approaches can be individually or jointly used to determine transport fares.
The approach can also be applied for inland water transport, long distance bus service and
air-conditioned bus service. Future research may look into studying the same.

References

1. Borndörfer, R., Karbstein, M. & Pfetsch, ME. (2012). Models for Fare Planning in
Public Transport, Discrete Applied Mathematics, 160(2012), 2591–2605.

2. Ghosh, A., Mitra, D., & Sarkar, A. (2017). Dynamic Fare Pricing: An Application for
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4. Paulley, N., Balcombe, R., Mackett, R., Titheridgeet, H., Preston, J., Wardman, M.,
Shires, J., & White, P. (2006). The Demand for Public Transport: The Effects of
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5. Perdomo, JA. (2015). An Economics Approach to Fixing the Fare of the Parking Lot
Service in Bogotá Using Price Cap Regulation, Journal of Cost Analysis and
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6. Savage, I. (1989). The Analysis of Bus Cost and Revenue by Time Period
Methodology, Transport Review, 9(1), 1-17.

7. Vasudevan, P. and Mulukutla, P. (2014). Bus Karo 2.2: Case Studies from India,
EMBARQ-WRI, India, 113-114.

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8. Yordon W.J. (2001). Regulation of Intercity Bus Fares: The Problem of Cost
Analysis, Land Economics, 44(2), 245-253.

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 Fixing Fares for Public Transportation System

About the Authors:

Anupam Ghosh is Associate Professor at Indian Institute of Social Welfare & Business
Management (IISWBM), India. He has Masters Degrees with specialisations in accounting,
transportation and logistics, marketing and econometrics. His PhD is in the domain of
information sharing in supply chains. He was a Visiting Scholar to Bentley University, MA,
USA. His primary area of research is supply chain operations, and supply chain analytics.

Narayan Swaroop Nigam is Graduate in Electrical Engineering from Indian Institute of

Technology Kanpur. He qualified the prestigious Indian Administrative Service examination
and is a 1998 batch IAS. Presently, he is Secretary, Transport, and Managing Director - West
Bengal Transport Corporation.

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