14

PRICE, PRODUCTIVITY AND FINANCIAL PERFORMNCE IN THE TRANSPORTATION SECTOR

Bus Industry

The bus transport industry is made up of three segments: intercity bus services, school bus services and urban transit services.Note 10 The activities of school bus operators are not covered in this chapter. Urban transit services are reviewed in the next section.

Scheduled Intercity Bus Services

Price and Output Indicators

Intercity bus industry revenues fell 2.4 per cent in 1999, leaving them at a level that was still 11 per cent higher than 1994 revenues. Prices increased by 1.7 per cent, whereas output fell by four per cent. Sources of industry revenues were as follows: 84 per cent from passenger services, 12 per cent from parcel services and four per cent from various other activities. These proportions have not changed since 1994.

The level of market share by scheduled bus services seems to have stabilized at a 40 per cent share of passenger service revenues. Back in 1994, the revenue share of operators of scheduled bus services was 53 per cent. The revenue share of charter and tour services reached 43 per cent in 1999. The greatest growth has occurred in the specialized services, such as limousine and sightseeing services. This market segment doubled its share of passenger services, from 8.5 per cent in 1994 to 17 per cent in 1999.

Changes in demand for each type of intercity bus service appear to be related to price changes for the services. Demand for scheduled intercity bus services fell by 20 per cent between 1994 and 1999, as nominal prices for those services went up by seven per cent. Conversely, activity levels increased by 57 per cent for other bus services, whose prices fell by eight per cent.

Over the 1994-1999 period, total output of the bus industry increased by 2.2 per cent a year, while its prices declined by 0.2 per cent annually.

Cost Structure

The cost structure of the bus industry remained relatively stable. Labour costs represented about 42 per cent of the industry's costs in 1999, compared with 41 per cent in 1994. In 1999, fuel costs represented 8.4 per cent of total costs, versus eight per cent in 1994. The share of capital costs (leasing, depreciation and financing) increased from 17 to 21 per cent. Operating costs other than fuel and labour changed more significantly, losing 4.5 percentage points from their 1994 level of 33.4 per cent.

Productivity and Unit Cost Indicators

Despite a small decline in 1999, total factor productivity has increased since 1994 at an annual rate of 3.8 per cent. Trends toward lower capital intensity prevailed until the mid-1990s. Then, between 1996 and 1999, the capital intensity of the industry increased by six per cent. This has contributed to the 26 per cent gains in the productivity of other factors of production. The productivity gains, combined with moderate factor price increases, led to unit cost declines of 1.6 per cent a year. This caused industry costs to drop by $76 million from the level they would otherwise have reached in 1999. This cost reduction was equivalent to 13 per cent of industry costs in 1999.

Financial Performance

Table 14-6 shows that between 1994 and 1999 the bus industry achieved operating ratios that generated viable returns. These operating ratios were much lower than those of the early 1990s. The turnaround was achieved in an environment of declining demand for the main revenue segment of the industry, scheduled bus services.

Productivity gains made by the industry were directly responsible for the improvement in the profitability of the intercity bus industry. Prices were not a factor, since they fell during this period.

Effects of Higher Fuel Prices

Because fuel information in the bus industry is incomplete, this assessment uses the fuel prices experienced by the trucking industry. If fuel prices increased from 49 cents a litre to 63 cents a litre, in 2000 as they did for the trucking industry, fuel costs for the bus industry would have risen by 26 per cent in 2000, and total costs would have increased by 2.5 per cent. Intercity bus transport prices would have gone up by 2.5 per cent if the higher fuel costs had been passed on to users.

Urban Transit Systems

This section reviews the activities of urban transit service operators, members of the Canadian Urban Transit Association. Revenues from users grew by 6.6 per cent in 1999. The two per cent decline in operating subsidies was more than offset by the 24 per cent increase in capital subsidies.

Price and Output Indicators

From 1994 to 1999, the output of transit systems advanced annually by an average of 0.8 per cent. Since 1996, output growth has reached three per cent per year. Between 1994 and 1999, prices increased by 3.2 per cent a year. Since 1996, in concert with stronger output growth, price increases have slowed to 1.6 per cent a year. Overall, transit prices increased on average by 2.3 per cent per year in real terms over this period. This real increase represented, for the riders of transit systems, an additional disbursement of $186 million by 1999.

Cost Structure

Capital costs account for 30 per cent of total costs,Note 11 making the urban transit industry the most capital intensive in the transport sector. In transport sectors other than transit, the cost of capital represents less than one fifth of total costs.

By far the most labour-intensive industry of the transport sector, urban transit had labour costs of as much as 51 per cent of total transit costs in 1999. In comparison, the labour cost share of all other transport sectors averaged 37 per cent.

Two factors explain this. The first is the cost of transit worker's salaries, which have been higher than average salaries by about $725 million over the 1994-1999 period, a sum that is close to half of transit operating subsidies. While the rail industry, for example, can offset the impact of higher salaries through productivity gains, such gains are not attained in transit systems. The second factor is the cost of goods and services other than fuel which are far lower than in other transport sectors: these costs account for 14 per cent of total costs in transit systems and 32 per cent of total costs in the rest of the transport industry. Outsourcing is less common in transit systems than in other transport sectors.

Productivity and Unit Cost Indicators

The total factor productivity of transit systems gained 0.4 per cent in 1999, but it is below the 1994 levels. The performance of the variable factors of production was more robust, growing at a pace of 0.8 per cent a year. The annual productivity decline of capital (-3.6 per cent) reflected the increased capitalization of transit systems.

Per unit of output, transit costs fell by 1.3 per cent between 1994 and 1999. In real terms, the lower unit costs included in 1999 savings were equivalent to $58 million. The reduction of variable costs was three times that amount.

Financial Performance

Table 14-7 shows that the total cost of transit systems was estimated at almost $4.1 billion in 1999. Cash operating costs were close to $2.9 billion, an increase of $100 million over the previous year. Users paid 45 per cent of the total cost of the system. Cost recovery went up steadily from 1994 to 1999. Operating subsidies were relatively stable, while capital subsidies continued their strong climb. This trend may be reversed now that Ontario, which accounts for 75 per cent of all capital subsidies, has reduced its financial transfers to local authorities.

Performance of Transit Systems: Selected Provinces

This section examines key indicators of the performance of transport systems for British Columbia, Alberta, Ontario and Quebec, as shown in Table 14-8. The transit systems of other provinces are small; together, they account for 5.1 per cent of transit passenger revenues in Canada. More importantly, the analyses of individual provinces' systems were restricted by data limitations.

Ontario has the highest unit costs and the highest prices, while Alberta has the lowest unit costs and prices among the selected provinces. While Quebec has higher productivity than does Alberta, it is second in terms of unit costs, because it pays the highest salaries in the country.

In 1999, the revenue shortfall of all systems was around $2.2 billion; this figure has been remarkably stable over time. The Ontario transit systems had the highest cost recovery of all systems, at more than 50 per cent of their total costs. British Columbia had the greatest revenue shortfall per passenger, at more than $2 million, because of low prices relative to unit costs, and the fact that transit riders were travelling longer distances than elsewhere in the country.

Effects of Higher Fuel Prices

Transit systems' energy costs were low in 1999, at five per cent of total costs. Electricity use made up an estimated 40 per cent of energy costs. Because of tax exemptions, transit systems paid lower fuel prices - for instance, between 35 and 40 cents per litre - than did the trucking or bus industries, where effective fuel prices averaged 49 cents a litre in 1999.

By the end of 2000, transit systems may have experienced fuel cost increases in the order of 29 per cent over the 1997 base average fuel price of 37.5 cents a litre. If the higher fuel costs were to be absorbed by users, in the absence of any offsetting factors, fares would need to go up by 2.4 per cent. Since operating subsidies are about as large as passenger revenues, the subsidies would have to increase by the same amount as fares. In provinces where electricity was used as an energy source for motive power,Note 12 the impact of increased fuel prices on total transit costs was limited to less than one per cent. In other provinces, the impact would be twice as much.

PRICE, PRODUCTIVITY AND FINANCIAL PERFORMNCE IN THE TRANSPORTATION SECTOR

Rail Industry

Trucking Industry

Bus Industry

Air Transport Industry

NOTES:

10 The 1994 - 1999 data have been revised to reflect the new North American Industry Classification System (NAICS) and revised capital stock data. Under NAICS, "bus" includes limousine and sightseeing services.

11 A different methodology was used to gather data for this annual report than was used for last year's report: Industry capital stock estimates have been revised, affecting the cost of capital. Under the previous methodology, the capital cost share would have been 27 per cent. This reduces the cost share of other factors of production.

12 Québec, Ontario, Alberta and British Columbia