Unique Pricing system at RATP, a good idea or a bad one?

« The Navigo pass at a single rate of €70 was adopted by STIF on Wednesday. The single pass will be extended to include the Imagine R card currently used by 825,000 young people. For students, the price will be set at the zone 1-2 fare, excluding any aid for scholarship holders, after consultation with student organisations.

Social fares for the most disadvantaged (unemployed, beneficiaries of universal complementary health insurance, state medical aid, etc.) are also covered by the reform: the single monthly fare will be 17 euros, with a weekly fare of 5 euros.

The financing of this measure, estimated at 400 million euros per year, will be divided between companies, which will be subject to an increase in the transport payment, which should bring in 210 million, with the remainder to be borne by the Region ».

These figures are disputed by opponents, who expect the Region to contribute €300 million.

(source: 20 minutes)

What view might a Revenue Management & Pricing department take of this subject?

First of all, we would ask ourselves what the objective is: to simplify pricing grids for what purpose? To win customers? To make money? To make users spend less?

And why not all 3?

Objective: win customers

Assessing whether it is possible to win customers depends on a number of factors:

Is the network saturated? This is a bad start. The answer is yes. There’s not much room for new customers during office hours. So the new customers will have to occupy lines/schedules that are not very saturated. Otherwise, the benefit of a lower price will immediately be cancelled out by even worse customer satisfaction than today, unless more trains are added, which is an additional cost to consider.

Will lower prices encourage new Parisians to become users and buy a Navigo pass? This brings us to the eminently complex subject of price elasticity, which is very difficult to measure in practice, and which will give the additional volume of customers as a function of lower prices. This subject is made all the more difficult by the need to take into account the impact of funding from companies that currently bear all or part of the transport budget, and whose policies could change.

Will lower fares reduce the number of fare evaders? Why not, but fraud has to be dealt with by other means. A Revenue Integrity approach would be much more appropriate than a fare cut.

We would be interested to see STIF’s hypotheses on these issues.

Objective: earn money

We need to go back to the analyses above and add a dilution/induction dimension: for those who already use a Navigo pass costing more than the new price, this will mean a net loss for RATP: these users will still be there but will pay less. This is pure dilution. The amount lost should be set against the amount gained through induction, i.e. the revenue generated by new customers.

Objective: to ensure that users spend less

And so taxpayers and/or companies spend more. We will not enter into the debate on social justice, where each of us sets the cursor where he or she sees fit. The fact that ‘on average users will spend less’ will depend on the proportion of current users who are currently on a Navigo pass that is more expensive than the one announced for the single fare system, and the proportion of those who are on a cheaper pass. The figures can then be made to say whatever we want, depending on what we want to show: either we highlight the sum of the savings for some versus the sum of the additional expenses for others (which amounts to a price-weighted average), or we count the number of users who gain versus the number who lose (unweighted average).

In any case, here too we would have liked to see details of the assumptions made by STIF: they have announced losses of around 400 million (so we understand that the new users will not compensate for the losses due to dilution). History will tell us whether their calculations were correct.

One final question: if STIF was able to make this calculation and estimate that a single fare of €70 would cost €400 million to finance, why didn’t they base the single fare on a break-even system, with no additional cost? We hope one day to have the answer…

Keywords: Revenue Integrity, Elasticity, Unique pricing, RATP, Navigo, STIF