Paying for public transport often accounts for a significant proportion of household spending for those on low incomes, and the level of fares is often a sensitive political issue. Where a large number of passengers have difficulty affording bus fares, the fares may be regarded as excessive.
In many cases, the fares are not excessive in the sense that they are at the minimum level necessary to cover the full cost of providing an efficiently operated bus service. If passengers cannot afford the fares in such a situation, the basic choice is between reducing service standards to an affordable level or providing a subsidy. Restricting fares to an affordable level, without subsidy and without reducing standards, will make the service unsustainable.
Where bus services are provided on a purely commercial basis, fares must be set at a level at which total revenue is enough to cover the full cost of providing the service, including replacement of assets and an appropriate return on investment. If these costs are unnecessarily high, the fares must also be unnecessarily high.
Inefficient operating practices that result in poor vehicle utilization are a common cause of excessive cost in developing countries. Such practices may be a result of inappropriate operating structures or company size or inadequate regulatory framework.
Another contributory cause of high fares is poor revenue integrity. If the operator does not receive all fare revenue collected, even if fares are high enough to cover costs, there will be a shortfall that must be compensated for: an obvious measure is to increase fares.
The revenue of formal bus operators is often reduced through competition from the informal sector. In many cases, informal operators do not conform with the relevant regulations, including those governing safety standards. As a result of such competition, the formal operator is often forced to increase fares, reduce service levels, or both, so that in the long run the public is forced to pay higher fares for an inferior service.