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Franchising: How JUTC could avoid a fare hike

TERRON DEWAR Business reporter dewart@jamaicaobserver.com

Thursday, September 04, 2014    

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THE Jamaica Urban Transit Company (JUTC) lost $2.8 billion last year.

The deficit piled on top of the $18 billion in losses it had accumulated up to that point.

And that's after it received billions of dollars in Government grant support.

The state-run company was expecting an even larger deficit this year; even with a projected 35 per cent rise in revenue to $4.7 billion for the year to next March.

Following a 25 per cent fare increase last year August, the bus company figured that it could carry 20 per cent more passengers on its buses by reclaiming some of the more profitable routes.

Indeed, JUTC took back six routes from franchise operators on April 1.

Implementation of a cashless fare collection system and increasing the length of time each of its buses run on the road was also suppose to generate higher sales.

But higher bus run out and a greater number of routes also means higher costs.

Somehow, the JUTC expected to achieve the increased revenue with the same amount of staff cost -- $2 billion -- as the year before.

It did, however, account for a 57 per cent increase in fuel cost, which was projected to be $2.3 billion this year.

And, after all of that, an operating loss of $3.4 billion was expected.

To stop the bleeding, Transport Minister Omar Davies implemented ascend fare hike within the last 12 months. Rates for students was increased by 33 per cent. Adults would pay 50 per cent more. And pensioners fares were doubled.

The fare hikes are just a band-aid, according to Egerton Newman, president of the Jamaica Association of Transport Owners and Operators (JATOO).

He says that independent bus owners who operate under the JUTC franchise are able to break even.

They face stiff competition and pay a heavy annual fee of $840,000 to the state-run bus company. And, up to February this year, that fee was $560,000 less.

Additionally, they still have difficulty collecting the adjusted fare from the previous increase last year.

Newman reckons that if the commuting public were pressured by the JUTC's franchise protection unit to consistently pay the previous fare then a rate increase could be avoided.

More importantly, the JATOO president figures that increasing the number of franchisees while gradually reducing the number of state-owned buses on each route would go much further towards cutting losses than increasing fares.

The 310 buses currently under the JUTC franchise generate over $250 million in revenue for the bus company. And they don't cost the Government anything.

"JUTC operates up to five buses on some routes for which they give franchise licences," said Newman. As a result, load factors (the number of seats which are filled) are low, except at peak hours. For those routes, both JUTC and franchisees lose.

JUTC is heading in the opposite direction.

It is adding 100 buses to routes in the Kingston Metropolitan Transport Region next Monday.

This will bring the number of buses in operation to 445, following a reduction from 400 to 345 buses at the beginning of the summer school break.

The state-run company also plans to spend $3 billion to buy 65 new buses.

That amount of funds could be used to buy over 400 coaster buses which could be privately run, according to Caribbean Business Report calculations based on estimates provided by Newman.

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