Final Report - Section C-1

OC Transpo Comprehensive Review

The Way AheadBecoming The Best
of The Best

FINAL REPORT

Prepared for
OC Transpo Ottawa, Ontario
Ottawa February, 1999 46840

C-1 Short-Term Targets

Short term performance targets (5 years) serve a number of important purposes, including:

Targets provide a framework for improving operations. While "do as well as you can" is a standing direction to all management, specific targets for performance give a challenge and a context for improvement plans, and provide direction on the scope of change expected.

Targets give a context for union-management discussions. The acceptance of the targets by both unions and management will give a framework for their relationship that also meets Council's policy and fiscal requirements. Labour costs are the most substantial element of OC Transpo's budget. Targets also give employees an incentive to improve efficiency in order to allow the maximum potential for individual compensation.

Targets provide objective performance measures. Regular performance reports will give Council an ongoing indication of the progress that is being achieved, and early warning if there is not steady progress through the five years.

A. Four short-term targets

Four 5-year targets are suggested in Exhibit C-1-1.

Exhibit C-1-1

Short Term Targets

Category Type Currently 5-Year Target Change

Ridership Rides per capita Total rides 108 70.5 million 120 84 million +11.1% +19%

Cost-effectiveness Riders per service hour 35.4 37 +4.5%

Cost-effectiveness Cost per service hour $71.46 $67.59 -5.4%

Cost-effectiveness Average fare per rider $1.14 $1.10 -3.5%

The achievement of these targets will contain the tax dollars required to support public transit operations over the five year period. However, some early investments will be required to achieve the targets. Some of the investment must be in capital for items such as new buses and improved transit priorities. Other investments must be made in the operating budget. For example, improving service reliability will require providing more relaxed schedules, which will reduce "efficiency" in the short term. However, in the mid-term it will increase ridership and measured efficiency. An investment in marketing, improved customer relations and better complaint handling is required in the short term to boost ridership and enhance confidence in the system. These investments will be justified as the system and ridership expands, but will result in increased costs per hour of service in the short term.

OC Transpo should review these targets every two years based on the latest available data. It should then establish a new target for the next five years, thereby ensuring a continuing focus on improvement that is available to guide the day-to-day decision making process. The review process would be easier if the Canadian Urban Transit Association were to encourage systems with mixed modes (i.e., bus and LRT or subway) to report at least some of their data segregated by mode.

Each of the four targets are discussed below.

B. Ridership target

The Official Plan calls for increasing OC Transpo's ridership from 108 annual rides per capita to 155 rides per capita by the year 2021. In this context, a five year target of 120 rides per capita would be challenging, but achievable. This corresponds to increasing total ridership from 70.5 million per year to 84 million per year. It would also establish a trend that is consistent with achieving the long-term target. Given the anticipated growth in population, achieving this target increase of 11.1% will actually require an increase of 18% in the total number of rides to almost 85 million in the year 2003, or an average growth in total ridership of 3.6% per year.

C. Passengers per service-hour

Any increase in the number of passengers per service-hour will mean fewer service hours are required to serve a given number of passengers. OC Transpo carried 36.6 passengers per hour of bus service in 1997 and budgeted to carry 37.2 passengers per hour in 1998, but only achieved 35.4. A number of factors will tend to reduce this number over the next five years. The introduction of lower-capacity, low-floor buses will reduce the maximum number of passengers that can be on a bus at one time. Also the need to improve service reliability will require some relaxation of schedules, and more buses will be required to serve a given route.

However three important initiatives can be taken to off-set these factors:

Ensure service goes where it is most used. This approach means reducing the amount of service in areas where, and at times when, it is least used and, concurrently concentrating service in the times and places where it is most used. The Service Design Guidelines discussed later in this report address this concept.

Increase the proportion of articulated buses. The decreased capacity of the low-floor buses can be off-set if there is more emphasis on purchasing articulated low floor buses, which have a higher capacity than standard buses, ensuring the average capacity of buses in the fleet remains constant or even increases.

Improved vehicle reliability. More reliable vehicles will allow delivery of service with fewer spare and substitute buses, resulting in a higher portion of bus hours going to actually providing service on the street.

Transit priority measures. More extensive transit priority measures will help improve service reliability, and thereby improve the amount of service that can be delivered with an hour of bus service.

OC Transpo did achieve rates as high as 38.2 passengers per hour in the mid 1980's. However average trip lengths are considerably longer now with the substantial development outside the greenbelt. In this context, a target of 37 passengers per hour of bus service provided in 2003 will be a challenge, but its attainment will ensure an efficient use of the available resources.

D. Cost per hour of service

It cost OC Transpo $71.46 to put a bus on the road for an hour in 1997 and its 1998 budget expects a cost of $72.73 per hour—an increase roughly in line with the rate of inflation. In order to establish a suitable target for the five year plan, we looked at three different sources of information—OC Transpo's historical costs, a competitive service delivery analysis, and a comparison of costs with other Canadian transit systems.

1. Historical comparison

OC Transpo's costs are now much higher than they were a decade ago as shown in Exhibit C-1-2. The exhibit shows that Transportation costs (including Operators, Supervisors and related costs) peaked in 1993 and have declined since to a level close to the 1989-1990 level. A target in the range achieved between 1989-90 was selected. Fuel costs have been remarkably consistent over the years, so current fuel costs were selected for the possible target. Bus maintenance costs have increased significantly over the years, in part as a result of the aging of the fleet. With current and planned bus purchases, the fleet should be as new in 2003 as it was in the late 1980's, so the target reflects costs in those years.

Exhibit C-1-2

OC Transpo's Historical Operating Costs - Standard 40 Foot Bus

Item 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 Possible Target

Transportation 34.48 36.84 36.44 36.02 37.08 35.96 33.83 34.23 33.04 33.18 31.84 $33.15

Fuel 6.05 5.89 5.80 5.80 5.86 5.71 5.41 5.75 5.43 5.99 6.25 6.05

Bus Maintenance 15.47 15.85 15.49 14.68 14.34 13.81 13.47 13.01 12.02 13.01 12.02 12.50

Plant Maintenance 3.77 3.99 3.87 4.00 3.94 4.05 4.09 4.06 3.54 3.97 3.83 3.75

Transitway Maintenance 2.41 2.21 2.19 1.84 1.97 1.50 1.57 1.49 1.33 1.13 0.91 2.41

Other 7.78 8.91 9.12 7.77 7.76 8.14 7.72 7.75 7.11 7.05 7.18 7.15

Total 69.96 73.69 72.91 70.11 70.95 69.17 66.08 66.28 62.48 64.34 62.03 $65.01

Notes: Costs have been adjusted for inflation to represent 1997$, Fuel and Bus Maintenance costs have been adjusted to account for the higher costs of articulated buses (estimated at 1.5 times the cost of regular buses). Fuel maintenance costs were also adjusted for average speeds, to treat fuel and bus maintenance costs as kilometer dependent rather than time dependent.

Transitway security patrol costs are included in Transitway Maintenance. "Other" costs include Planning, Information Systems, Security and Claims, Finance and Human Resources and Marketing and passenger information costs.

Plant maintenance costs have also been remarkably similar over the years, while transitway maintenance costs have increased with the growth of the transitway, suggesting targets near current numbers for these services. Administration costs per hour of service rose significantly in the 1990's, in part because they were not reduced as quickly as the declines in the volume of service provided. With service expansion over the next five years, they should continue to decline to the level of the late 1980's.

To assist in understanding some of the key cost factors, Exhibit C-1-3 shows the historical costs of OC Transpo per hour of service broken down between labour and non-labour costs, and further breaks down the labour costs between those related to the two unions and those of staff in the non bargaining unit. It demonstrates that 72% of OC Transpo's operating costs (excluding certain financial charges) are labour costs, and that labour costs generally have risen more rapidly than non-labour costs.

The cost of ATU members wages and benefits (primarily operators and mechanics) represent almost 58% of total costs, and have risen 14.5% per bus hour (in real terms, after allowing for inflation) over the last ten years, the same as OC Transpo's over-all costs. However the increase is lower for the Transportation Department (primarily operators) at 8.7% and much higher for the Maintenance Department at 37%.

Exhibit C-1-3

OC Transpo's Historical Operating Costs - Wage and Benefit by Bargaining Unit

1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987

Cost/Hour

ATU 41.76 44.19 43.78 43.24 44.17 42.72 42.06 40.14 38.80 38.96 36.48

CUPE 3.10 3.64 3.36 3.32 3.34 3.19 3.23 2.90 2.81 2.86 2.74

NBU 7.28 7.47 6.73 7.21 7.48 7.21 7.23 6.69 6.18 5.85 5.74

Non Wage 20.45 21.15 21.76 19.17 19.48 19.44 20.65 20.24 18.12 18.66 18.44

Total 72.59 76.45 75.63 72.94 74.47 72.57 73.18 69.97 65.91 66.34 63.41

Percent Change

ATU 14.5% 21.1% 20.0% 18.5% 21.1% 17.1% 15.3% 10.0% 6.3% 6.8% 0.0%

CUPE 13.1% 32.8% 22.4% 21.0% 21.7% 16.4% 17.8% 5.7% 2.5% 4.3% 0.0%

NBU 26.7% 30.0% 17.2% 25.6% 30.2% 25.5% 25.9% 16.4% 7.6% 1.9% 0.0%

Non Wage 10.9% 14.7% 18.0% 3.9% 5.6% 5.4% 12.0% 9.8% -1.8% 1.2% 0.0%

Total 14.5% 20.6% 19.3% 15.0% 17.4% 14.4% 15.4% 10.3% 3.9% 4.6% 0.0%

Note: Costs have been adjusted as in Exhibit C-1-2. ATU and CUPE refers to wage and benefit costs related to members of each union, and "NBU" refers to the wage and benefit cost of Non-Bargaining Unit staff.

The cost of wages and benefits for CUPE members per bus hour has increased slightly less at 13.1%. Departmental comparisons are difficult because of changes in the allocation of CUPE members over the years.

The cost of wages and benefits have increased the most in the non bargaining unit category, with a 26.7% increase over the ten years. These costs have not been reduced consistent with the reduced service hours provided by OC Transpo in recent years. It is difficult to determine the relative increase in the cost of various departments because of the functions transferred between departments over the years. These costs should be reduced through the integration of some functions with the RMOC, and must be contained as the amount of service offered expands, although one-time costs in 1997 also influence the results.

2. Competitive service delivery analysis

The Steering Committee and OC Transpo management have indicated that the five year plan is to be based on direct service provision, without a reliance on contracting or other external competitive measures to reduce costs. However this analysis was prepared to determine what cost reductions might be expected over the five year period if external competition was employed. In this way it is possible to set a target for OC Transpo's cost structure that would achieve as much as a competitive approach might be expected to achieve.

The Strategies for Change report issued in September reviewed a number of examples of transit agencies in Europe and the United States that have decided to purchase bus services by competitive contract rather than providing them directly. In each of the examples shown, the agencies were able to reduce their costs by over 30%. Although some of the cost reductions were not fully sustained after the early years as contractors determined their actual costs and the industry consolidated, costs reductions of at least 25% appear possible in services outsourced.

OC Transpo is restricted to outsourcing in a manner that will not result in lay-offs, limiting the extent to which outsourcing would even be possible over the coming five years. Exhibit C-1-4 shows the average cost per hour that OC Transpo might achieve if it were to outsource services to the maximum extent possible (i.e., growth in services and to replace retiring personnel), and if it were to achieve the 25% saving on all service outsourced.

Exhibit C-1-4

Theoretical Average Operating Costs - 40 Foot Bus - with Outsourcing

1997 % Saving % Turn-over %Growth Average-2003

Outsourced Services 59.77 25% 30% 12% $54.13

Transitway Maint. 2.41 2.41

Other 7.78 7.78

Total 69.96 $64.32

The outsourcing scenario assumes that transitway maintenance and administration services (e.g., planning, passenger information, marketing, etc.) would remain "in-house", while the maintenance and operation of buses would be contracted out. The growth rate in costs is less than the 18% growth in total services as less growth could be expected in the maintenance function as the fleet is renewed. Overall, the calculation suggests OC Transpo might achieve an average cost for all services (both those outsourced and those still retained "in-house") of $64.32. This target would still be a challenge as it assumes all retiring and additional personnel could be replaced with contracts. This assumption may be unrealistic as contracts tend to be for definable parcels of work which may not correspond with actual retirement dates and growth needs.

3. Comparison with other public transit operations

The differences in currencies, living standards and other factors make cost comparisons with transit services in the United States, Europe or other continents difficult. Exhibit C-1-5 therefore compares OC Transpo's costs with those of other "mid-sized" Canadian transit operations, and suggests a target for OC Transpo based on the lowest costs achieved by other systems, where they are comparable.

Exhibit C-1-5

Mid-Sized Canadian System Operating Costs - Standard 40 Foot Bus

Year: 1996 1997 1996 1996 1997 1997 1997 Possible

Item Van Ott Edm Cal Win Que Miss Target

Transportation 47.41 34.48 34.31 33.00 31.74 42.20 38.33 $33.00

Fuel 5.72 6.05 5.07 4.77 6.18 5.72 5.15 6.05

Bus maintenance 18.54 15.47 11.60 11.30 13.86 16.29 9.68 12.60

Plant Maintenance 5.72 3.77 1.73 2.48 2.75 3.28 3.41 3.25

Transitway Maintenance 2.41 2.41

Other 8.56 7.78 7.44 7.20 5.54 7.55 5.35 7.00

Total 85.95 69.96 60.15 58.76 60.07 75.03 61.92 $64.31

Note: Data is for 1997 where possible, however for systems with LRT operations, 1996 data is the most recent available which distinguishes bus from LRT operations. Data has been adjusted for average operating speeds and ratio of articulated buses as discussed above to reflect costs of operating a standard 40 foot bus.

Calgary and Winnipeg have the lowest costs for transportation (bus operations), and the second lowest cost (Calgary) was chosen as a target. Fuel costs vary more based on local tax regimes than any other factor, so OC Transpo's current costs were included in the target. Bus maintenance costs are affected by fleet age, with OC Transpo's fleet the second oldest, next to Edmonton. However, all systems have fleets older than OC Transpo's will be in the year 2003. The target was set a little higher than the lowest systems to account for Ottawa's more difficult climate and the resulting higher levels of salt usage (estimated to add $1 per hour). Calgary and Edmonton do not include property taxes in their plant maintenance costs, making them a poor comparison. The plant maintenance target was set $.50 per hour higher than Winnipeg to recognize the costs are related to long term fixed elements, particularly garages, and are difficult to change substantially over short periods of time. Administration costs vary at least in part with the size of the system, with Mississauga and Winnipeg, the smaller systems, having the lowest costs. In order to reflect the more complex OC Transpo operation, and the inadequate level of service, particularly for customer complaints which contributes to Winnipeg's lower costs, a target of $7.00 would seem appropriate, still below the level of other large systems.

* * *

In setting a target, it is important to consider two factors that will add value to OC Transpo's operation and increase operating costs. The addition of air conditioning to the new buses will improve passenger and operator comfort levels, but add additional costs expected to average approximately $.20 per bus hour on average by the year 2003. Similarly, the implementation of new smart systems will help make better use of bus hours, but will also bring some new operating costs, estimated to add roughly $.20 per hour. Considering these factors and the results of the various target setting approaches discussed above, the following are the recommended targets for the year 2003—expressed in 1997 dollars, and therefore subject to adjustment for inflation between 1997 and 2003.

Exhibit C-1-6

Recommended operating cost targets for 2003 (in 1997$)

Historical Outsource Benchmark Other Proposed Proposed

Item Target Target Target Factors 40 ft Artic

Transportation 33.15 54.13 33.00 $33.15 $33.15

Fuel 6.05 incl 6.05 6.05 9.07

Bus maintenance 12.50 incl 12.60 .20 12.80* 19.20

Plant Maintenance 3.75 incl 3.25 3.25 3.25

Transitway Maintenance 2.41 2.41 2.41 2.41 2.41

Other 7.15 7.78 7.00 .20 7.35 7.35

Total 65.01 64.32 64.31 $65.01 $74.43

Notes: Costs have been adjusted for inflation to represent 1997$. Fuel and Bus Maintenance costs have been adjusted to account for the higher costs of articulated buses (estimated at 1.5 times the cost of regular buses). Fuel and maintenance costs were also adjusted for average speeds, to treat fuel and bus maintenance costs as kilometer dependent rather than time dependent.

Transitway security patrol costs are included in Transitway Maintenance. "Other" costs include Planning, Information Systems, Security and Claims, Finance and Human Resources and Marketing and passenger information costs.

* The Maintenance target assumes the fleet renewal program proceeds as planned, and that new buses can be maintained at similar costs to traditional buses. This may not be the case in the next few years as new bus deliveries consist largely of new models, low floor buses, with no operational history, and from early indications, considerable "bugs" to be worked out. In this context it is recommended that planning be based on a target of $13.80 for maintenance costs ($20.70 for articulated buses) until the condition of the new buses is clearly determined.

These targets are aggressive and will require the dedicated effort and support of OC Transpo management, unions and employees. It should be emphasized that achieving the targets, particularly in the maintenance area where the largest cost reductions are possible, depends upon the Commission proceeding with the bus replacement plan, and upon the industry producing buses with maintenance requirements comparable with those of older buses. This will require considerable effort and resources being dedicated to re-engineering the maintenance processes.

If achieved, this target will result in an annual saving of $8.8 million per year, in 2003, given the expansion in service planned. If sustained over the period until 2021, the savings would be over $200,000,000. The proposed targets of $65.01 per hour for a standard bus and $74.43 per hour for an articulated bus represent a 7.1% reduction in current costs. With the anticipated new mix between articulated and standard buses in 2003 (244 articulated buses in a fleet of 892), the average cost per hour (in 1997 dollars) would be $67.59, for a targeted reduction of 5.4%.

E. Average Fare Revenue Per Passenger

Average fare levels rose 22% faster than inflation in the last ten years, contributing to the ridership decline. Fares are expected to decrease modestly in 1998, from $1.14 to $1.13 as a result of the introduction of the deep discount tickets. Although free fares have received some discussion publicly, the cost of a fully free system would not be reflected in ridership, and could lead to some abuse of the system. However selected discounts aimed at specific target markets will result in some increased ridership, and with the introduction of smart cards, can be manageable administratively. The removal of express premium fares from some routes, as recommended in the new route structure will also tend to reduce the average fare revenue per passenger carried. A target fare level of $1.10 per ride (1997$) would be fiscally responsible, while leaving room for creative marketing initiatives.

F. Towards Achieving the Targets

OC Transpo will not be able to move in a straight line towards achieving the targets set. It must move immediately to improve service reliability, which will require adding time to route schedules. It will take some time for ridership to respond to the improved reliability. Similarly, the new route structure will have very little effect on 1999 performance, with the first elements only being implemented in September. Thus it is likely that the average number of passengers per service hour will decline further before it begins to improve.

Similarly, the maintenance level of the fleet must be improved immediately to improve service reliability, and the early years will see the department dealing with the new generation of floor buses before the bugs are ironed out. Significant improvements in productivity that can be expected from re-engineering will also not be achieved in 1999. Similarly, some of the "other" costs, including security, marketing and customer relations can be expected to increase in the short term as part of building confidence in the system and establishing acceptable levels of service. They should, however, decline as a share of total costs over the five years as the system grows and the new investments are stabilized. As a result, cost per service hour can be expected to grow in 1999 before it declines over the balance of the five year period.

G. Future Target Setting

These targets set an appropriate framework for OC Transpo's five year plan. However a number of things will change over time. The cost structure of other Canadian transit agencies will change. Inflation will have an impact on costs. Changes in the fleet composition will effect the achievable passenger per hour range. Improvements in bus priority systems will improve the operating environment, hopefully more quickly than general traffic congestion increases. As OC Transpo nears its five year goals, it needs to consider new challenges for further into the future. OC Transpo should review the goal setting process every two years to develop new challenges and ensure it becomes and remains "the best of the best" in the transit industry. This will involve continuing benchmark comparisons.

H. Key Requirements

There are a large number of factors that influence OC Transpo's success. The route structure, the labour relations environment, the morale of employees, the effectiveness of marketing efforts and the pricing policy all have important effects and are explored further in this document. However there are two key elements which OC Transpo must improve, and must maintain at a high level in order to achieve the goals set out here. These are:

Customer Service—OC Transpo operates a customer service business. It doesn't drive buses, it carries people. Attracting and keeping these people as customers requires treating them with respect, courtesy and attention. As workers in any service business will attest, customers do not always return the respect and courtesy. After years of dealing with the public, it can be difficult to brush off the slights and treat the next customer, and one after that, as well as you would treat a friend—but it is essential to ensuring customers enjoy their experience with OC Transpo and continue to chose it as their preferred way to travel.

Good customer service is not just a matter between customer and bus operators. It is also a key issue in how OC Transpo provides information, responds to suggestions and complaints, in the choice of equipment it makes and how it maintains the buses, and how it involves people in the design and implementation of services. Improving and maintaining good customer service is a theme that runs throughout the various initiatives discussed in this report, and must be at the core of all decisions OC Transpo and its employees make.

Service Reliability—Encouraging more people to rely on OC Transpo's services also requires significant improvements in the reliability of its services. Passengers must be able to rely on the schedule and expect that the bus will arrive, will arrive on time, and will meet the next bus for a scheduled transfer. Too often buses are arriving late, or worse still early (before the customer arrives at the stop), or worse yet, not arriving at all. While there are uncontrollable influences, such as weather, accidents and unusual traffic conditions that will always create some problems, too often the problems result from:

decisions not to renew the bus fleet, with the result that OC Transpo's is among the oldest in the country,

not maintaining the fleet adequately so that either enough buses are not ready for service, or bus breakdowns are frequent, and

decisions to provide all the services needed, without the necessary resources.

The last point requires particular elaboration. As budgets were reduced through the 1990's, OC Transpo attempted to keep providing the same services, and even to extend services to new areas, although the number of "bus hours" available were reduced. This "doing more with less" resulted in tighter and tighter schedules, with operators having to drive faster, and having less recovery time at the end of the route to make up for delays. The operators responded by running as quickly as possible, often ahead of schedule, to make sure they had a break to eat a sandwich or go to the washroom and still start the next run more or less on time. This in turn led to poor morale and finger pointing between planners, operators, maintenance staff, supervisors and management, helping build the downward spiral.

OC Transpo must only provide the services it can provide reliably with the resources it has—If it does not have enough reliable buses, or budget for enough bus hours to provide reliable on-time services on all its routes, it must reduce the amount of service it provides, eliminating the least used services first, until it is only doing what it can do well. Improving service reliability is not a simple task. Like improved customer service, it is fundamental to much of the discussion in this report, including fleet renewal, the Driver Empowerment, Route Scheduling and Fleet Maintenance Working groups, the route changes, the Service design Guidelines and so on.

If OC Transpo can meet the cost reduction targets, it will certainly help, but it is up to the Commission to decide whether enough resources can be provided to ensure reliable service can be provided to meet the ridership targets. If these resources cannot be provided, the Commission should recognize that eliminating specific services is preferable to operating all services poorly.