Financial implications of specifying service quality in public transport service contracts with a large captive user base – the case of South Africa

Abstract

Improved service quality is increasingly acknowledged as critical for increased patronage of public transport services. However, in markets characterised by large proportions of captive public transport users, typically found in developing or emerging economies with low car ownerships rates, the marginal benefits of improved service quality are not apparent. The paper uses historical financial and patronage data from existing bus contracts in South Africa and a conjoint-analysis based behavioural model to estimate the budgetary implications, and marginal benefits, of specifying service quality in public transport contracts, where marginal benefits are defined in terms of nominal welfare benefits to society. It is shown that the marginal benefits of improved service are significant and may outweigh the marginal cost of improved service quality or the business as usual alternative. Practical implications of the findings on contract planning and designs are also discussed in the context of markets with characteristically large proportions of captive public transport users.