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Mass Transit after COVID-19

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Credit: Image from Bloomberg

Importance of transit systems

Mass transit services serve millions of people by bus, train, and rail for work, education, and business purposes, among others. Throughout history, a reliable and accessible means of public transport, via its means of enhancing connectivity, has often led to economic returns, employment gains, and increases in productivity. The ease of movement also allows people to easily travel for leisure or social reasons. Take away the ease of mass transit and you get an implosion of traffic congestion, decline in jobs, and overall economic devastation.

Transit System Crisis: COVID-19-Induced Low Ridership

Well, not exactly. In our ‘new normal’ –  a result of COVID-19 – it is possible for telecommunication to replace important meetings that previously took place in-person. Under such circumstances, webcams have replaced travel subscription costs, and an hour-long ride into the city for an 8AM meeting has now been replaced by a 7.50AM alarm. While work was able to continue virtually (for those fortunate enough to retain employment) and the picture could even be seen as better for some employees, the mass transit sector sees a different story. Ridership declined significantly not just due to health concerns and lockdowns, but also for the fact that jobs and even schools were able to be replaced online, reducing the need to travel. However, this has led to repercussions for the mass transportation sector worldwide. Across various countries, major transportation systems have reported large losses, with bankruptcy highly likely. Metro Vancouver’s TransLink reported losing 75 Million CAD per month[1], and Singapore, despite having handled the crisis relatively well, has had its ridership decline to only 60% of pre-COVID 19 levels[2] as of September 2020.

While the prevalent projection is that the Work-From-Home (WFH) trend will continue into a post-COVID-19 future, the long-term sustainability of such a model remains to be seen. Furthermore, even if a majority of businesses choose to retain the WFH model, we are likely to see a resumption of travel and passenger movement in a post-COVID-19 world for non-work related purposes. However, how will this pan out, should transit services scale back their operations due to the loss of profits? This brings us to the main issue at hand: how can we ensure the continuance of mass transit businesses as per pre-COVID circumstances, despite the losses incurred as a result of COVID-19? Preserving the mass transit system is important, due to its pros: it is relatively low-cost and environmentally-friendly compared to private transport. Should mass transit services fail to survive the crisis, the resumption of passenger mobility post-COVID-19 will translate to an increase in usage of private vehicles. On a per person basis, that would mean an increase in gasoline usage and carbon emissions. Individually, one would incur a higher cost too. Therefore, the survival of mass transit is essential for environmental reasons, on top of economical ones.

Cost-based Solutions

The losses faced by the mass transit industry come from revenue reduction while having to maintain large costs that come from running and maintaining the vehicles. On the cost side, there are some strategies we can explore.

Short-term solution

In the short term, the frequencies of train and bus services can be reduced in order to match the current ridership levels. While this will not entirely mitigate the losses that come from maintaining the large fleets of vehicles owned by the transit services, it will help to lower the variable costs of fuel and power that come from running the services, given the lower ridership. However, this approach can be tricky, as Singapore ran into problems of over-crowding (in a time where it is least needed) when this strategy was first rolled out. Transit services should, to their best ability, adopt forecasting models to predict ridership levels, and then serve to over-provide rather than under-provide.

Long-term Solution

To address the bleeding of funds from these transit companies, a concept we can potentially explore is the idea of “state-owned pseudo-equity” financing. Professor Marti Subrahmanyam of NYU Stern and Professor Joseph Cherian of NUS Business wrote in a Business Times article about the possibility of saving SMEs during the pandemic via the usage of State-Owned Pseudo-Equity. While not relevant for Mass Transit companies that are already state-owned, it is an idea that privately-owned mass transit companies can explore. The benefits of Mass Transit is arguably a public issue, and one which necessitates governmental concern. State-owned pseudo-equity allows for temporary “partial ownership” of the business, where governments inject funds into these mass transit companies in exchange for some equity stake. The state then collects “dividends” in the form of higher corporate taxes for a number of years. For critics who are fearful of nationalization, the kicker is that the businesses will have the right to “buy back” the equity at a reasonable valuation at a future date (long after these transit companies are out of the danger of bankruptcy). This allows the companies to procure the funds they need without incurring more debt, instead surviving off funding from the State- who should have the national and public interest to ensure survival of these companies.

Alternative Revenue Opportunities: Reinventing the Transportation experience

Lastly, other than reducing the costs or looking for sources of funding to survive losses, one more way of improving could be to reimagine the revenue opportunities for transportation services. If the existing pool of customers indeed shrinks due to a permanent shift in societal patterns, then perhaps it is worth considering trying to increase margins per customer instead.

In the realm of air travel, there are distinctions between low-cost budget airlines like RyanAir or AirAsia and higher tier airlines like Emirates, where the former is aimed primarily at passengers looking to just get from point A to point B, with not much consideration for luxury. In the realm of rail, train or even bus services, this form of “low-cost” travel is usually the default option for most people. To increase profit margins per customer, perhaps companies could introduce a “luxury” option for their rides- think a higher price option where a commuter gets a comfortable bed cabin for their hour long journey on the subway. While this article hypothesizes a world where WFH causes a significant decrease in travel, there will still be certain industries and jobs where travel is required. This solution could then target these workers who could use a good rest on the way home comfortably.

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[1] https://www.cbc.ca/news/canada/british-columbia/translink-seeking-emergeny-funding-coronavirus-pandemic-1.5531302

[2] https://www.straitstimes.com/singapore/no-change-in-transport-fares-amid-covid-19-pandemic

Final year student from NUS Business School. I specialise in Finance and Minor in Real Estate. While my main interests are the global financial markets, I am excited to learn about many things!
More posts by Kenny Lee.
Mass Transit after COVID-19
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