Is a LOSS
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Inevitable?
Can Unremunerative Routes be Made to Show a Profit by Altering Timings, Using Different Vehicles, or by Some Other Means?
NVHETHER unremunerative services in certain districts could be made to show a profit is a problem often discussed in passenger-transport circles. Often they could, if the services, conditions of operation, reality of demand and so on were given consideration with a view to discovering means for improving them.
Often the need for a direct check on costs is overlooked. The returns from the service are seen to be poor as compared with those from other services, • and usually nothing is done to remedy matters. On the other hand, there are cases where the fact that a particular route is unprofitable goes almost unnoticed. This happens when the accounts department is content with overall or average figures of cost and revenue. There is no attempt made to check the earn
ings and -operational costs of individual services. It is assumed that the average cost per mile run or per seat-mile applies throughout.
That is a serious error. On a service where the frequency is high the cost per mile or per seat-mile is much less than on a similar route where the frequency is lower and the mileage per bus per day less. The cost on the high. frequency service is probably less than average, whereas that on the other is above. The former .is thus " carrying " the latter. , Roundabout's and Swings This omission to tackle what must be a common problem in the industry probably arises from the belief that in all passenger services there are one or two non-paying routes. That there must be such Cases is accepted as inevitable, and to be self-congratulatory on the overall returns, ignoring the loss on the unprofitable routes, is the attitude of many operators.
There is probably, top, the idea that the sorting of costs and revenues of different routes is likely to be a complicated and lengthy operation, and is accordingly shirked. Actually, the problem of analysis should present little difficulty, at least in its essentials. The solution turns on the recognition of the basic principle in road transport costing, namely, that, other things being equal, the cost per mile run diminishes as the weekly mileage increases, and vice versa.
The problem of unprofitable services becomes of pressing importance when, as the result, maybe, of the opening of a housing estate, a new service has to be instituted. It is then realized that to collect overall statistics of an organization may be adequate to give a broad and satisfactory picture of the progress of the company as a whole, but that such information is not sufficient if particulars be required to estimate the prospects of success of the new service. Something surely should be done (a) to check the probability of financial success of the new venture, and (b) to arrive at a basis for discussion as to whether, by variation of frequency of service or use of a different type of vehicle, an improvement might be effected.
Coming to the point that the weekly mileage per bus is an important factor, it may be as well to enlarge upon this aspect of the matter. The incidence of the standing charges —relating directly to the vehicles—and the establishment expenses and the way in which they are apportioned to individual vehicles, are the crux of the matter. These are the items which it is unsafe to divide over all vehicles and all routes. The running costs of the vehicles, assessed as is usual on a mileage basis, can be averaged with safety as not likely to vary much from route to route. There may be exceptions to this rule, of course, as, for example, if one or more routes in a district be in a particularly congested area or along a hilly road.
Apportioning Administrative Costs One thing that creates difficulty in dealing with individual services is the practice of totalling what are called working expenses, subtracting that total from the total revenue and treating the balance as available for administrative expenses and profit. The accountant who wishes to check any particular route thus finds himself confined to examination of the working expenses of the route and the gross revenue it brings. He has no information or guidance as to the particular share of the administrative expenses which the route ought to bear.
On the other hand, if the investigation must, by reason of the above limitation, be confined to those matters, it is correspondingly simplified. Confider a case in regard to the two factors (a and b) mentioned previously.
Take a six-mile route, with a new housing estate at its outward extremity and an industrial centre at the other, with houses all along the route.
In the beginning it is appreciated that there will be two peak-load periods for workers, from 8 a.m. to 9.30 a.m. and from 5 p.m. to 6.30 p.m. There will be a certain amount of traffic inwards in the evenings, taking people to the central area for cinemas, theatres and so on. On Saturdays, the peak loads will be in the morning and at midday, with the difference that the return traffic will be spread over a longer period, because a proportion of those working in the town will stay there, going to football or cricket matches in the afternoon, meeting their wives and families (who all have to come in by bus) for shopping and perhaps a visit to a cinema or theatre. • The reference to cinemas and theatres suggests a need for a comparatively late-night service throughout the week, of an extent which cannot be forecast. Furthermore, there will be a certain amount of traffic during the whole of the day, and this, again, will be difficult to assess before the service becomes known and begins to be popular.
Obviously, the first thing to deal with is the peak loading. In the absence of any alternative means for conveyance, peak loading is fairly easy to assess. It is practically certain that every household will yield one passenger, some more than one. If, therefore, there be 80 houses, it is reasonable to expect.100 passengers from the housing estate. Another 50 will be picked up along the route, so that our peak load traffic is 150 in 1 hours.
A Quarter-hourly Service The figures suggest the need for a 15-minute headway, the first bus leaving the outward terminal at 8 a.m. The journey will take, including lay-over, 374 mins., and the first bus must, therefore, leave the main depot-which, in the beginning at least, will be in the large central town-by 7.30, the driver's and conductor's starting time being 7.15 a.m. Only half an hour is needed for the outward run, as there will be little traffic.
As the first bus will not return to the outer terminus until 9.15, it follows that four buses will be needed to cope with peak-load requirements. The capacity must be sufficient to accommodate, in the early days of the enterprise, 150 people in li hours, so that, subject to the condition that the traffic will be spread evenly over the whole period, four 32-seater vehicles will fulfil requirements. That state of affairs is unlikely, but inequality of loading may, with a little ingenuity, be met by varying the headway-for example, by running the first three buses at 8.0, 8,10 and 8.20.
At any rate, I will assume that it is found practicable to run the service and satisfy the clientele with four 32-seaters.
Between the peak periods two such buses at least will be necessary, for, even with two, a headway of 40 mins, is all that can be attained and that hardly constitutes a bus service. The full service of four will be needed again, of course, from 5 o'clock until 6.30. Two buses will serve for the rest of the day, with the last bus leaving the inner terminus at 10.30, reaching the outer one at 11.5 p.m., returning at 11.10 p.m, to be garaged at 11.45.
Time and Mileage Figures On the assumption that two buses run throughout each day, seven days per week, aad that an additional two are required for the rush-hour periods, the time and mileage figures can be shown to work out approximately as follow: Two buses run 125 miles per day for seven days per week, a total of 875 miles per bus, or 1,750 for the two. Two buses run 50 miles per day for six days each week, 300 miles per week per bus, or 600 for the two. The total weekly bus mileage is thus 2,350. Similarly, the total of hours worked is 260. Two buses are run 16 hours per day for six days each week, a total of 192 bus-hours. Each of two buses for the peak periods runs four hours per day for six days-48 hours. Two buses each run 10 hours on Sunday, a further 20 hours.
Now for the operational casts, assuming £2,000 per vehicle as the purchase price. The standing charges (tax £I 3s. 3d.; rent and rates, 12s. 9d.; insurance, £1 5s.; and interest, £1 5s.) total £4 6s. per week per bus, or £17 4s. per week for the four vehicles needed for the job. The running costs I assets as follow:-Petrol, at Is. 8d. per gallon, 84 m.p.g., 2.35d. per mile; oil, 0.15d.; tyres, 1.50d.a. maintenance, 1.80d.; depreciation, 2.00d. The total is 7.8d. per mile. The last item is the wages of the crewthe driver and conductor-which I shall take to be 4s. 3d. per hour.
We can now assess the total operational costs of the service. They comprise standing charges as above, 1.117 4s. per week; running costs (2350 miles at 7.8d. per mile), £76 7s. 6d.; wages of crew, 260 hours at 4s. 3d., £55 5s. The total of all these items is £148 16s, 6d.
Assessing Potential Revenue Now for the potential revenue. First, there are the workpeople who make the journey over the full distance of six miles each way six times per week. On the basis of lid. per mile and assuming that there are no workman's fares the fare is 9d. each way, or Is. 6d. per day per person. That gives us £45.
Then there are the further 50 workpeople picked up on these peak-period journeys. Suppose I take a mean and assume that the average fare collected from the 50 rush-hour travellers is 5d. each way. The revenue from them will be £12 10s. per week. Then we have the miscellaneous travellers who are certainly not likely to average more than 150 each way. If they pay an average fare of 4d. each, that is , £5 per day, £35 per week, so that our total revenue is no more than £92 10s. per week.
Definitely, then, this is a non-paying route. Moreover, unless conditions radically alter, it is difficult to see how it is to be improved. The natural reaction in a case like this is to try to attract a greater number of passengers. Perhaps the service times during the day could be improved. Say,
for example, instead of a fixed headway of 40 mins., a couple of buses be run at a doses headway in the morning at 10 o'clock and 10.15 to catch the early-morning shoppers, returning at noon and 12.15 p.m. Similarly, buses will be run in the afternoon at 2.0 and 2.15, returning at 4.30 and 4.45. That is to be done without involving extra mileages, simply by bringing forward the time of the second bus by 25 mins. in each case.
That might ease the position, but only to a negiibile extent, perhaps by 100 passengers each way per week-say, an additional revenue of £5 per week. The receipts need to be doubled if the service is to pay its way, for there is no provision for administrative expenses, let alone profit, in the above £148 16s. 6d.
Never Likely to Pay Actually, a brief calculation will demonstrate that it is hardly lately that the service can ever become paying. Experience has shown that the average expectation of traffic on such a service as this is one-third of the bus capacity. Consequently, taking the service day in, day out, the average of seats occupied will be 10. Now, the revenue for that traffic at lid. per mile is is. 3d. per mile, which is, within a small fraction, the operational cost per mile of these vehicles.
The only hope is that the neighbourhood will grow sufficiently to justify the employment of 56-seaters. Then, again, assuming the ratio of one-third bus capacity, the revenue per mile should run to 2s. 3d. The operational cost will not rise in the same proportion. The standing charges will rise by only about 30s. per week, equivalent to less than id. per mile; the wages will be unaffected and the running costs will increase by lid. per mile, approximately, so that the total operational cost will hardly reach. Is. 6d. per mile.
However, the day for that change has not yet arrived, and until it does it seems as though this particular service will remain a non-paying one, subsidized by the rest of the company's routes.S.T.R.