Fare structure
Fare structure refers to the types of fares charged, the most common of which are:

• Flat fare (same fare irrespective of distance travelled on a particular route)
• Graduated fare (fare increases with distance travelled on a particular route)
• Zonal fare (fare increases with journey distance according to fare bands and is usually independent of number of bus routes used, i.e., free transfers, and also usually independent of mode of travel selected if bus and rail are both available)

Fare structure also includes whether or not concession fares are offered for particular groups of passengers, typically, children, students, and the elderly. Whether or not passes of various types (e.g., weekly, monthly, tourist) are offered in addition to single journey tickets is also part of fare structure.

Fare level
Fare level refers to the average fare paid per passenger (or per passenger-kilometer) for the whole system. Raising or lowering this average level obviously changes the total income of the bus system.

Fares policy objectives
In order to assist transport professionals involved in determining either fare structure or fare level, it’s important that political leaders set policy objectives so transport professionals can measure the impact of fares.

The policy guidelines should first and foremost give clear guidance about the extent to which fare revenue should cover operating costs. What level of cost recovery is desired — 40%, 60%, 100%?

Secondly the policy guidelines should state whether the user should broadly be paying for the amount of service he is using. This means, for example, the further you travel and the better the quality the more you pay, which, in turn, points towards a graduated or zonal fare.

Alternatively, if bus service is seen as a social service that should be available to all at the same price independent of the distance travelled, this, in turn, points towards a flat fare. Normally the use of flat fares is designed to help poorer people living at some distance from employment opportunities in the city centre.

Consistency is key
Once policy principles are decided, it’s important for governments to apply them firmly. An inconsistent approach can be disastrous. For example, general fare controls that don’t allow fares to rise in line with operating costs means either subsidies must increase or bus companies will go bankrupt.

In view of the politically sensitive nature of bus fares it’s often difficult for governments to increase fares as needed. In some cities, in an attempt to de-politicize the fares issue, the responsibility for setting fares is devolved to a statutory public authority — a Passenger Transport Authority. The authority acts according to agreed principles in determining the need and amount of fares increases.

Alternative Fare Structures

Flat fares: Under a flat fare structure the same fare is paid no matter what distance is travelled. This can be based on a single boarding or it can be based on duration (e.g., within two hours of ticket issue or validation).

For cities covering a small area this can be a reasonable option but for cities covering a large area it can pose difficulties. If the fare is set at a level that encourages short distance travel within the city it almost certainly represents a substantial discount for longer trips. The overall system operating at flat fares usually has a low cost-recovery ratio and requires substantial operating subsidy. This structure subsidises all longer distance travel whether passengers are in need of it or not and subsidizes both casual and regular travellers.

Flat fares can vary for either bus quality (e.g., air conditioned or not), or quality of service (e.g., limited stop and express).

Graduated fares: Under a graduated fare structure, passengers pay an increasing amount the further they travel. This can be done on the basis of the passenger’s journey (best) or on the distance of the bus routes (not so good).

The benefit of this approach is a closer match between the amount of service provided and the fare paid and if the fares are set below cost recovery, the benefits apply to all passengers more or less equally. Like flat fares, graduated fares can be related to service quality.

Zonal fares: Under a zonal fare structure the city is divided into zones and passengers are charged according to the number of zones they travel. This is similar in principle to the graduated structure but is independent of the route structure. While separate fares can be charged for different modes, it is customary for zonal fares to be independent of the mode chosen. This is usually a policy decision to enable competing bus routes to be withdrawn after the introduction of a new rail line.

Concession fares: The most common types of concession fares are for children, students, seniors and disabled. There must be agreement between the government and the operator as to who pays for the difference between the concession fare and the regular fare.

If the operator is expected to absorb this discount then regular adult fares must be higher than they would have been otherwise in order to generate enough additional revenue to cover the shortfalls. If the government is willing to pay for particular groups some method must be established to obtain estimates of the amount due.

Mechanisms and channels for financing social service provisions, such as student or elderly concessions, must be defined. They can include contributions from budgets of the relevant departments such as social services and education.

Monthly and other passes: In many cities monthly or weekly passes are sold to encourage regular use of public transport. These are normally aimed at people making similar journeys each day such as company employees and students. While a certain discount may be offered by the operator on commercial grounds this is usually relatively small.

Where governments have an objective to provide travel to some or all citizens for some maximum amount or some maximum percentage of income, these discounts can be more substantial. In this latter case, it would be the obligation of the government to compensate the operator.