Equipment and Service

Freight and passenger transportation are closely interrelated. Often the two services are performed by the same for-hire firm, using the same ways and sometimes even the same vehicles, terminals and personnel. In some instances, the service that makes profit may offset losses made by the other service. Freight and passenger services are affected by public aids in construction, maintaining, or operating ways. Both private and for-hire transport of both goods and people are intermingled on public ways. The transportation of people is a common element in many problems such as urban redevelopment, pollution, congestion, safety, budget priorities, bankruptcy, and diplomacy (Sampson & Farris 1975). The transportation user must be aware of the basic processes, procedures, and primary forms of transportation supply as well as the underlying economic principles governing them.

Passenger Carrier Selection.In selecting a passenger carrier from two alternatives, an individual may be confronted with one carrier that is cheaper but incurs a longer travel time and another carrier that is more expensive but incurs a shorter travel time. An individual who chooses the former carrier is a cost preferrer; he or she would rather save money than time. An individual who chooses the latter carrier is a time preferrer; he or she would rather save time than money. This shows that in taking a trip, a passenger incurs not only a money price (i.e. the carrier’s price or rate charged) but also a time price. The sum of the money price and time price is the full transportation price for a particular passenger trip. The time price, in turn, is the passenger’s opportunity cost for the trip minus the money equivalent of the direct level of satisfaction received from the trip. An individual who selects a time-intensive but less expensive carrier over an alternative carrier is said to be a cost preferrer i.e. that individual prefers to sacrifice time to save money. An individual who selects a less time-intensive but more expensive carrier over an alternative carrier is said to be a time preferrer; i.e. that individual prefers to sacrifice money to save time.

Calculation for Time Price. A passenger’s time price (PT) or value of time for a given trip is calculated as follows:

PT = KT – ST

Where K = the passenger’s opportunity cost per unit of elapsed time

T = the elapsed time of the trip
S = the passenger’s money

The parameter K may be measured by passenger’s wage rate per unit of time, since a measure of the opportunity cost of non-work time is the wage income forgone in not being at work. If this is known for a particular passenger trip, then the product of the passenger’s wage rate and T minus PT would be the money equivalent (ST) of the direct level of satisfaction that the passenger receives in taking the trip (i.e., ST = KT – PT). If the trip provides dissatisfaction rather than satisfaction, S will be negative and the passenger’s time price will exceed the opportunity cost for the trip.
A passenger’s full transportation price (P′) for a trip on a particular carrier is equal to:

P′ = P + PT

Where P   = the rate or money price the carrier charges

PT = the individual’s time price

The elapsed time (T) for a passenger trip includes travel, waiting, and walking time. Alternatively,

T = Tt + Ta + Tl

Where Tt = travel or in-transit time for a trip

Ta = waiting time for a trip
Tl = walking time for a trip

Furthermore, PT may be considered the total time price for a trip; i.e.,

PT = PTt + PTa + PTl

Where PTt = travel time price for a trip

PTa = waiting time price for a trip
PTl = walking time price for a trip

For bus trips, for example, waiting time may include waiting at a bus stop for a bus to come and/or waiting at a transfer point for a bus to arrive; walking time may include time in walking from home to a bus stop and/or walking from a bus stop to the ultimate destination. A passenger’s walking and waiting time prices for a trip appear to be two to three times greater than the travel time price, because of the discomfort associated with such times.

Elasticity of Demand. A measure of how responsive transportation users are to changes in carrier rates (or prices) and operating characteristics as well as to changes in their own income is the elasticity of demand. The elasticity of demand (E) between the quantity (Q) of transportation service units demanded by a user and some factor (X) affecting this demand is measured by the percentage change in Q divided by the percentage change in X, or

E = (%ΔQ)/(%ΔX)

Where Q = the service units demanded from a particular carrier

X = that carrier’s price (or rate), for example

If X represents the carrier’s price (or rate), the formula would measure the price elasticity of demand for the carrier’s service. If X represents the rate charged by a competitive carrier, the formula would measure the cross-elasticity of demand between the service units demanded of a particular carrier and the rate charged by a competitive carrier. In passenger transportation, X may also represent trip elapsed time and passenger income; if so, the formula (or E) would measure the time and income elasticities of demand respectively.

If the value of E is greater than one (i.e. demand is elastic), the percentage change in the quantity of transportation service units demanded will be greater than the percentage change in X (i.e. the factor that caused the change in quantity demanded). If the value of E is less than one, the demand is inelastic (with the percentage change in quantity of service units demanded being less than the corresponding change in X) If the value of E is equal to one (i.e. demand is unitary elastic), the percentage changes will be the same.

Congestion. Congestion occurs in transportation activities when users of a transportation facility such as a way or terminal interfere with one another so as to increase the elapsed time and thus the time prices of their trips. Congestion may be reduced by expanding the congested way or terminal or by reducing the traffic flow through various pricing mechanisms, administrative controls, or physical barriers. One type of pricing mechanism is the congestion toll. In placing a toll on users of a congested facility, however, problems arise in determining the proper amount of the toll and how the congestion toll revenue is to be spent.

Passenger markets Passenger market may be grouped into three, namely, business travel, vocational travel, and personal travel.

Business travel market is the largest segment in the airline industry. One characteristic of this market is that ultimate payment of the travel is borne by a party or firm other than the passenger. The demand for the service is not very price-sensitive which is indicated by the fact that the businessmen typically occupy the first class sections of the airplanes. Business travel is very schedule-sensitive.

Vacation travel market is generally not schedule-sensitive, and, in fact, flights and trips during the day are often sought. It is a price-sensitive market that can be evidenced by the strong airline promotion of fares. Another feature of vacation travel is that the travel itself is often part of the consumed activity. That is, the train ride, plane ride with movies and unique meals, and cruise ship tours become part of the vacation. Business and personal travel, on the other hand, represent travel demand that is secondary in nature.

Personal travel market is a catchall term for travel that is not business or vacation oriented. It consists of trips to and from school or out-of-town jobs, or travel for medical or personal reasons such as funerals. This is a difficult travel segment to describe because travel motives are diverse. Carriers give their primary attention to business and vacation travel.

Passenger transportation product takes the form of equipment, facilities, price, and schedule.

The equipment and facilities consist of the conveyance and the comfort of the ride. The comfort can be smoothness on the one hand, or amenities such as meals, movies, and other diversions, on the other. Airlines place heavy reliance upon the width of the passenger seat as a selling item as well as convenience of luggage check-in and seat selection. Most travelers closely evaluate appearance of the equipment and facilities as well.

Price is another part of the passenger travel market. It is the ‘how-much-cost-to-travel’ factor. Price includes the actual ticket fare plus access costs such as parking and enroute meals.

The schedule is the other service item considered by consumers of passenger travel. It is the ‘when’ of travel. This element makes auto travel preferable in most markets because of its flexibility. In business settings, however, the speed of transit is important. In particular, the time between origin point to destination point is the key factor. Related to the schedule, is understanding the timetable. The public may need assistance in reading the timetable.

The travel agent is a valuable but often overlooked and misunderstood facilitator of passenger travel. The agent is a link between the passenger, on the one hand, and carriers and hotels on the other. Their service include explaining the lowest cost and most direct transportation services as well as making reservations for issuing tickets to the passenger. Agents also arrange for car rental, hotels, and complete tour services. The cost of using a travel agent is minimal to the passenger. The agent is compensated through a commissioner paid by the carrier. The passenger has the advantage of learning and possibly using all carriers’ services this one facilitator.