Impact of Transit Fare Increase on Ridership and Revenue

Abstract

On May 4, 2003, the Metropolitan Transportation Authority's New York City Transit subsidiary (NYCT) raised its subway and bus fares for the first time since discounted and unlimited-ride MetroCards (electronic fare cards) were introduced between July 1997 and January 1999. Before the 2003 fare increase, the agency did not have any experience with either the direct ridership effects of price changes for unlimited-ride passes or the shift of customers when prices of different fare media increased at different rates and customers could shift from one fare medium to another. Partly on the basis of work done by other transit agencies, NYCT developed a spreadsheet model that used direct fare elasticities to estimate absolute ridership loss and used trip diversion rates (similar to cross-elasticities) to estimate the likelihood that passengers would shift from a fare instrument with a larger percentage increase to one with a smaller increase. The actual shift of customers between fare instruments after the fare increase was greater than projected, with the result of a lower than expected systemwide average fare. The negative revenue impact from the lower average fare was mostly offset by a lower than expected ridership decline. The estimated fare elasticities were below the average of historical NYCT fare elasticities and suggest that customers using unlimited-ride passes were less sensitive to fare changes.