14
PRICE, PRODUCTIVITY AND FINANCIAL PERFORMANCE IN THE
TRANSPORTATION SECTOR
The Bus IndustryNote 3
The bus transport industry is made up of three segments: intercity
bus services, school bus services, and urban transit services.
The activities of school bus operators are not covered in this
chapter.
Intercity Bus Industry
The distinction in the analysis between scheduled and charter
intercity bus service operators has been dropped. It was
becoming increasingly blurred as more and more carriers offered
both types of services and/or data reported under scheduled or
charter operations included more and more significant portions
of revenues emanating from a mix of the two types of services.
Price and Output Indicators
Intercity bus industry revenues, after several years of relative
stability, jumped by 12 per cent in 1998, due to a 13 per
cent increase in outputs. Industry revenues were generated by
passenger services (84 per cent), parcel services (12 per cent)
and various other activities (four per cent).
Scheduled bus services had a 40 per cent share of passenger
service revenues in 1998. In 1991, their revenue share was as
high as 56 per cent. The revenue share of charter and tour services
reached 45 per cent in 1998. The biggest source of growth
is the specialized services such as limousine and sightseeing.
This market segment had a 15 per cent share of passenger
services in 1998, up from only ten per cent in 1991.
Changes in demand level for each type of intercity bus service
appear to be related to price changes observed for the services
over time. Demand for scheduled intercity bus services has fallen
by 23 per cent since 1991 while nominal prices for the same services
have gone up by 5.4 per cent. Conversely, over the same period,
the prices of other bus services have fallen by 20 per cent, while
activity levels have increased by 93 percent.
Over the 1991 - 1998 period, the bus industry's output increased
by 2.6 per cent a year, while its prices declined by 0.9 per cent.
Cost Structure
The cost structure of the bus industry has remained stable
over time. Labour costs represented about 39 per cent
of the industry's total in 1998, compared with 40 per cent
in 1991. In 1998, fuel costs represented 8.5 per cent,
versus 8 per cent in 1991. Other operating costs, which include
marketing, materials other than fuel, insurance and other miscellaneous
expenses, amounted to 36 per cent of total costs in 1998,
compared with 35 per cent in 1991. The share of capital
costs (leasing, depreciation, and financing) has varied within
an 18 to 19 per cent range.
Productivity and Unit Cost Indicators
Between 1991 and 1998, both variable and total factor productivity
in the bus industry increased by 3.9 per cent a year. The
productivity gains, combined with moderate factor price increases,
led to unit cost declines of two per cent a year. Each
factor of production contributed to the reduction of total costs,
as a proportion close to their share of total costs.
Since 1991, bus industry costs have been reduced by $168 million
from the level that they would have reached in 1998, if the industry
had not achieved productivity gains. This cost reduction is equivalent
of 24 per cent of industry costs in 1998.
Financial Performance
Table 14-6 shows that in the early 1990s, the industry had
high operating ratios, in excess of 95 per cent. Its operating
margins were then below the long-term viability level. Since 1994,
the industry has achieved operating ratios generating viable returns.
This turnaround was achieved in an environment of slow growth/declining
demand and falling prices. Productivity gains made by the industry
were directly responsible for the improvement in industry profitability,
even if more than two thirds of the industry productivity
gains were returned to users in lower prices.
Urban Transit Systems
Urban transit service operators are members of the Canadian
Urban Transit Association. Total operating revenues, including
operating subsidies, have grown by 1.4 per cent a year between
1991 and 1998.
Price and Output Indicators
Between 1991 and 1996, the output of transit systems, measured
by the number of passengers and vehicle-kilometres, declined by
a combinedNote
41.5 per cent a year. Since 1997, output has rebounded,
advancing annually by 1.9 per cent. There is a similar break
in price trends. Between 1991 and 1996, prices increased by 5.1
per cent a year. After 1996, price increases slowed to less
than 1.8 per cent a year. Overall, between 1991 and
1998, transit prices increased on average by 4.2 per cent a year,
or 3.6 per cent a year in real terms. This real increase represented
an additional disbursement of $258 million by 1998 for the
riders of transit systems.
Cost Structure
Labour costs, accounting for as much as 54 per cent, represent
the largest component of total transit costs in 1998. Transit
systems are thus the most labour-intensive industry of the transport
sector. All other transport sectors have an average 38 per cent
labour cost share. Simulating the average salary of the intercity
bus industry on transit systems would reduce labour costs by about
$845 billion, or 41 per cent of total costs.
Urban transit is the second most capital intensive industry
in the transport sector after rail freight. Capital costs account
for more than one quarter of the total costs in 1998.
The larger labour and capital cost shares are offset by the
lower share of "other materials and services," an indication
that outsourcing is not as important in the management of transit
systems as it is in other transport sectors.
Productivity and Unit Cost Indicators
In the early 1990s, up to 1996, the total factor productivity
of transit systems declined by 1.1 per cent a year. In recent
years, however, overall productivity has risen by 1.8 per cent
a year. The performance of the variable factors of production
has been even more robust. While overall productivity declined
by 1.9 per cent between 1991 and 1998, that of the variable factors
rose by 7.4 per cent. The productivity decline of capital,
28 per cent, reflects the increased capitalization of
transit systems.
Per unit of output, transit unit costs rose at 3.8 per cent
a year until 1996. This increase exceeded the general inflation
rate of 1.6 per cent. Compounded over five years, the gap was
equivalent to $365 million in 1996. Two years later, this was
reduced to about $117 million, as unit costs declined annually
by 1.4 per cent. Over the 1991 - 1998 period, urban transit unit
costs increased by 2.3 per cent a year. The contributions of labour
and capital costs to the total cost increase were 139 per cent
and 133 per cent, respectively. Other variable costs had to decline
by the equivalent of 172 per cent of the total cost increase.
Financial Performance
The total cost of transit systems was estimated at $3.7 billion
in 1998, as shown in Table 14-7. Cash operating costs were $2.8
billion. Users paid 47 per cent of the total cost of the
system. Their share of total costs has been rising steadily since
1991, except for a dip in 1993. While operating subsidies have
been relatively stable, there has been a strong upward trend
in capital costs.
Performance of Transit Systems in Selected Provinces
Table 14-8 compares key indicators of the performance of transport
systems for selected provinces: British Columbia, Alberta, Ontario
and Quebec. The transit systems of other provinces are small;
together, they account for 5.1 per cent of transit passenger revenues.
More importantly, the analyses of individual provinces' systems
were restricted by data limitations.
Users of Ontario transit systems pay the highest prices, while
those in Alberta pay the lowest. The reverse is true in terms
of demand growth, with Ontario showing the strongest growth and
Alberta the weakest. Per unit of output, British Columbia has
the highest costs, followed by Ontario. In keeping with its lower
prices, Alberta has the lowest unit costs. Quebec has the second
lowest unit costs, but the strongest productivity.
In 1998, the revenue shortfall of all systems was close to $2
billion. Ontario transit systems had the highest cost recovery
of all systems, at more than 50 per cent of their total costs,
and Ontario's users paid the highest transit prices. British Columbia
and Quebec had the lowest cost recovery, the former because
of its higher unit costs, the latter because of lower prices.
The Bus Industry
NOTES:
3
The 1995 - 1997 data have been revised to reflect the new North
American Industry Classification System.
4
The two indicators of passengers and distance run have been averaged
in a combined indicator.
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