Enhancing rail capacity using free fare incentives to shift demand peaks

This paper explores the short and medium term outcomes of a new policy measure aimed at managing peak overloading of rail services implemented in Melbourne Australia from March, 2008. The aim of the program was to encourage peak rail passengers to shift travel to trains travelling before the morning peak by offering a free ticket called the early bird ticket which is valid for travellers arriving in the CBD before 7:00a.m. The program costs about A$6 million p.a. in lost fare revenues (2008) and around 8-9,000 passengers use the free early bird tickets each weekday. In 2008 a survey found that 23 per cent of free early bird ticket users had shifted their time of travel out of the peak, the equivalent of 2,000 to 2,600 passengers each peak. After the early bird was introduced an increase in rail loadings of 41 per cent occurred for trains arriving in the city before 7:00a.m. The shift of peak demand has reduced the financial pressure of having to buy and operate new peak trains. Estimates place these savings at between 2.5 and 5.0 trains in 2008 to a high of 8.05 trains in 2038. Financial analysis suggests the savings in peak trains would substantively cover most or more than cover the financial costs of providing free fares before 7:00a.m. Wider economic benefits would likely also apply making the program economically beneficial even under a low impact scenario. The paper concludes by suggesting key factors for success in applying a similar program in other railways as well as identifying areas for future research.