Excessive Subsidy Requirement
One of the most common reasons for cities to reform their bus systems is an excessive subsidy requirement that is projected to rise and become unsustainable in future years.
High subsidies result from total revenue being substantially lower than total operating costs. This may be for a number of reasons. To meet perceived social needs, fares may be controlled at too low a level, and although buses may be busy, the revenue may be insufficient to match the costs. On the other hand, fares may be set too high to be affordable for many people. As a result, low levels of ridership result in low revenue. Poor revenue integrity is another possible cause, so encouraging operators to implement measures to improve revenue control may reduce the subsidy requirement.
Often, operating costs are higher than they should be. Recent experience in a number of countries established that when genuine competition is introduced for the bus market, unit costs usually drop substantially. Reforming the bus system to introduce competition can therefore help reduce subsidies.
If costs are considered reasonable, and if fares are set as high as the market can bear, then the final option to reduce the subsidy is to reduce the number of subsidized services. In most cities, this would have political implications.