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CRPY F &) N CANADIAN TRANSPORTATION RESEARCH LE GROUPE DE REDIERCHES SUR LES TRANSPORTS AU Canadi

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CRPY F &) N CANADIAN TRANSPORTATION RESEARCH LE GROUPE DE REDIERCHES SUR LES TRANSPORTS AU Canadi .„_ CRPY F &) n CANADIAN TRANSPORTATION RESEARCH LE GROUPE DE REDIERCHES SUR LES TRANSPORTS AU CANADi 21st ANNUAL MEETINL PROCEEDINGS VANCOUVER, B.C. MAY 1986 A 149 THE IMPACT ON THE INTERCITY BUS INDUSTRY OF POLICY CHANGES IN AIR AND RAIL PASSENGER TRANSPORTATION by D. M. Cape 1.0 Introduction Passenger modal substitution capability is becoming an increasingly important issue as deregulation continues, the initial impact analyses of which concentrated on intramodal carrier substitution. This paper addresses the intermodal substitution and modal reaction issues with particular reference to the intercity bus industry. 2.0 Canadian Policy Background At time of writing, March 1986, the Government of Canada is in the throes of implementing their "FREEDOM TO MOVE" document, which has had wide circulation since the summer of 1985. The sub-title "a framework for transport- ation reform" connotes the contents which are proposals for economic regulatory reform in the transportation sector. The proposals in "FREEDOM TO MOVE" will likely have been embodied in a new National Transportation Act by the time of presentation of this paper. On surface passenger trans- portation issues, "Freedom" is deafeningly silent. The concept of deregulation discussed precludes any weakening of safety constraints, but concentrates instead on entry, exit, and pricing. One other piece of legislation is in the mill, Bill C-97 The National Rail Passenger Transportation Act. As the major thrust of current policy in all modes is ward market reliance to determine the industry direction, it seems useful to assess how regulatory easing in other modes might be expected to reflect on the intercity bus industry. Unfortunately, hard data is sparse. One may presume that passenger rail travel is preferable to intercity bus travel where both are equally available. This presumption is re-inforced by the fact that the bus industry typically undercuts rail prices, and by the ability of passengers to readily stretch their legs and Perhaps obtain refreshments at their convenience en route. Quality differentials in intercity surface passenger trans- 1 CAPE 150 port were discussed in Cape, 1984 [11. On the same basis, on aggregate, air travel is presumed to be preferable also to intercity bus. 3.0 Canadian Modal Perspective 3.1 Railway Policy Changes-Canada Perhaps the first major competitive jolt inflicted by the railways on the intercity bus industry in Canada was the introduction of demand based pricing by Canadian National Railways in the late 1960's when they introduced their Red, White and Blue fare plans as a form of price discrimination/differentiation and market segmentation. Such pricing strategy was designed to flatten peaks and troughs in rail passenger demand. In off-peak periods the new low rail fares would generate additional demand, persons who would not otherwise travel would now do so. Additionally this action would divert some traffic from the competing modes as the price differentials among rail, air, automobile and bus would have moved in favour of rail in the off-peak period. It is significant that the peak periods for all intercity modes are contemporaneous. This action leads to a deepening of the off-peak trough in the non-rail modes. Similarly in the high peak period, the swing in traffic would be away from rail and toward inter- city buses and the other modes, again aggravating the peaking problem in the intercity bus industry. At this time, the bus industry was in a developmental, even if not growth, phase. The construction phase of major inter-city highways was almost complete, and the technological change within the bus industry in the form of air suspension, more efficient air conditioning, reclining seats and on board toilets was continuing to make the bus a more appealing alternative than previously. These concurrent changes would tend to mask the impact on the bus industry of changes in the other modes. Reschenthaler, in 1981 [21 estimated the overcapacity supplied by the intercity bus industry to satisfy peaking and to ward off potential entrants to be of the order of 25% of total equipment. No doubt the rail pricing policy changes have been responsible for some of that additional capital investment in rolling stock by the bus industry. A second incursion into the revenue base of the inter- city bus industry was taken on a much smaller scale by VIA Rail Canada in 1981 in Southwestern Ontario when, for a few weeks, VIA [31 offered its "Way-to-Go" fare structure with 40% reductions in off peak periods, ostensibly to combat the severity of unemployment and decline in travel in that region. The intercity bus industry, determined not to lose market share, reduced its fares on competitive services to 2 CAPE 151 return to a point one dollar under those offered by VIA Rail, a fare structure that has "stood the test of time". Mathematically, this change has to be a fare reduction i n excess of 40% given the smaller base price. The bus industry voiced its protest against predatory pricing by a crown corporation, certainly informally if not formally. "Way-to-Go" fares went away. A third incursion arose in the early 1980's with the increasing reliability of VIA's modern LRC rolling stock, providing what some would assess as improved travel quality. That the intercity bus industry did not completely disregard this development is reflected in the adoption by Voyageur Colonial Coach Lines of a demonstration project involving articulated intercity equipment. As will be discussed later in the paper, the adoption of higher quality equipment by the intercity bus industry in the United Kingdom in 1980 was an effort to match quality improvements being offered there by British Rail in the form of widespread introduction of High Speed trains. With close substitutability between the bus and rail mode, and in Canada basically one intercity bus carrier competes head-to-head with the one rail carrier, VIA, the economic description of the intercity surface public pass- enger industry has to be that of an oligopoly - small number of suppliers, each heavily interdependent. The standard economic outcomes in such an environment are either that of sticky prices upward or of the presence of a price leader. The examples above suggest that, in Canada, ;rail has been the price leader, at least up to now. There are, however, other opinions of the substitut- ability between bus and rail. Gormick [4] notes that "buses and passenger trains serve different markets. 'The competing bus line even admits it had no success in attracting local passengers left without service when the [Toronto-Havelock] train was chopped in 1982". Notably Trentway-Wagar Bus Lines offered to provide the same service as VIA on this route for the same amount as the VIA subsidy $5.8 million and charge no rider fees, or alter- nately charge rider fees and return part of the subsidy. As an operating carrier on this line, this action alone would seem to suggest that Gormick's claim is only partly correct. Voyageur's testimony [5] eives a very real threat to the survival of the bus industry if the rail is to continue and step up its penetration of the intercity market, leaving the local collector services to the bus. The new National Rail Passenger Transportation Act does have implications for increased cost recovery by VIA Rail Canada Inc. At this stage 100% of specific costs In [Windsor-Quebec] Corridor service; 60% in Transcontinental service; and 40% in Regional service. The first and third 3 CAPE 152 are likely to result in rail price rises to the advantage of bus. 3.2 Air Policy Impacts-Canada To date, Canada's intercity bus industry probably has not felt much impact of air policy changes. The development of third level air services in the early 1970's as a result of efforts by the Government of Ontario in the development and extension of its norOntair network probably had minimal effect. This network was designed to serve low volume routes, primarily serving communities such as Timmins, Earlton, and Sault Ste. Marie. Of itself this network would not divert a large volume of the intercity bus industry's ridership, but this short haul air technology was bound to have incursions on the higher volume routes. Other demonstration projects followed on such higher volume routes such as Ottawa - Montreal. Now "City Express" is providing a well-regarded Short Take Off and Landing service among Montreal, Ottawa, Peterborough, and Toronto and recently upgraded to full Dash-7 service. General Aero- space currently provide STOL service from Toronto's down- town Island Airport to Buffalo, a link that up to now has been the preserve of Gray Coach. Such efforts being priced between air and rail are bound to draw, as well, from the bus not only for business travel but for the VFR (visiting friends and relatives) category also. A more significant incursion into the VFR category for longer hauls has arisen since the acceptance in 1978 by the Canadian Transport Commission of Charter Class Canada fares which allowed air carriers to offer fares within Canada at prices comparable with those being offered on "charter" services to destinations outside Canada. Again, this pricing policy would have attracted ridership from other (cheaper) modes as well as having generated new traffic. As little data is available publicly on a link basis for the bus, one can only draw inferences. 4.0 U.K.Perspective 4.1 Rail Policy Impacts-U.K. In the U.K., it might be said that the intercity motor coach industry (as the bus industry is known there) became frozen in time from, essentially, the mid-1930's to 1980 with perhaps the only improvement being the building of the motorway network (the U.K.
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