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ONLY HARDCOPY RECORDS CERTIFIED BY THE GENERAL SECRETARY WILL BE DEEMED TO BE OFFICIAL.TORONTO TRANSIT COMMISSION
TO Chair Betty Disero
Vice-Chair Sherene Shaw
Commissioner Brian Ashton
Commissioner Joanne Flint
Commissioner Norm Kelly
Commissioner Peter Li Preti
Commissioner David Miller
Commissioner Howard Moscoe
Commissioner David Shiner
FROM Richard C. Ducharme
MEETING DATE November 20, 2002
SUBJECT Staff Response to Commission Inquiry - Volume Incentive Pass Program
A motion was approved at the November 22, 2000 Commission meeting asking staff to report on the issue of pricing for Metropasses sold on a bulk purchase basis to corporations. A motion was approved on August 28, 2002 requesting that staff report on the impacts of the "double cohort" and the feasibility of establishing a pass for students at all post-secondary institutions in the City of Toronto. This memo responds to these motions.
SUMMARY
It is recommended that the Commission receive this report for information noting that the implementation of a Volume Incentive Pass (VIP) Program for adult Metropasses, may have a potential annual revenue loss of between $1.8 million and $3.4 million. This estimated revenue loss may be partially offset by a revenue gain of up to $1.5 million as a result of the reduction in high school eligibility for TTC fares from five years to four years (i.e. the double cohort). However, the net potential loss of $0.3 million to $1.9 million has not been recognized in the 2003 and future pro forma operating budgets.
The VIP program would be similar to the existing Metropass Discount Plan (MDP) with some additional features and flexibility to better meet the needs of corporations and institutions. The program would provide a price discount to corporations and institutions based on a commitment to purchase a minimum monthly volume of passes for a one-year period. In general, the level of discount for the pass would increase with the volume of passes purchased. Simply put, the TTC would deliver the passes to the organization and collect the fees for the passes from the organization. The organization would then distribute the passes and collect the required monies from their employees and/or students.
The organization would have the flexibility to establish their own internal program to promote and distribute the passes that best met their needs. This could include further discounts to the price of the pass. Any discounts over and above that provided by the TTC would be funded wholly by the organization. This could also include allowing employees and/or students to purchase the Metropass in only those months the individual wanted to buy, as long as the organizations commitment to the minimum monthly volume of passes was met.
It is expected this program would appeal to a variety of organizations within the City of Toronto. Over the past year, the TTC has received inquiries from various corporations and public institutions about the availability of a formal program for employees, and have stated an interest in participating in a program that offers discounts for volume purchases. Interest in a discounted Metropass has also been expressed by various post-secondary institutions, particularly the University of Toronto who had discussions with the TTC on this topic earlier this year. These organizations are actively seeking ways to promote transit use for their employees and/or students.
The proposed VIP program provides a framework for the fair and equitable treatment of all interested and qualified parties who wish to commit to the volume purchase of TTC Metropasses for a one-year period. The VIP guidelines will clearly identify what the parameters for the program are, and allow the organizations to determine their interest in participating based on identified rules. The guidelines will also provide the flexibility for organizations to implement and administer the program in a way that is most suited to them.
The proposed VIP approach is also beneficial for the TTC, because it eliminates the requirement for the TTC to negotiate separate arrangements with a variety of organizations. Separate arrangements are more difficult to manage and are more likely to be perceived as inequitable, an issue that is avoided with the standard guidelines of the VIP program.
More details about the program are discussed in the next section. However, the program will require eligible corporations and institutions to purchase a minimum of 50 passes per month for a one-year period. The price structure for the program is outlined in Attachment A, and provides a discount of between 10% and 12% from the regular price of the adult Metropass dependent on the volume of passes purchased.
Based on this pricing structure, it is estimated that between 18,000 and 33,000 Metropasses per month would be sold through the VIP program, of which approximately 30% to 50% would be by current non-pass purchasers (i.e. current ticket, token and cash users). Experience with bulk purchase programs at other major transit properties (i.e. Ottawa and Vancouver) would suggest that up to 2% of the passes would be purchased by new users to transit.
If sales are in the 18,000 to 33,000 per month range, it is likely this would result in a ridership increase of between 0.9 million and 1.9 million rides annually. However, due to the discount, an annual revenue loss of between $1.8 million and $3.4 million is forecast.
As part of this exercise, an estimate of the revenue impact of the "double-cohort" was also conducted. It is projected that the reduction in high school eligibility for TTC student fares from five years to four years could result in a revenue gain of up to $1.5 million for the TTC.
There is a level of uncertainty associated with the estimates provided above. For example, if the forecasted sales estimates are not achieved, it is likely that the ridership and revenue impacts of the program will not be as high as estimated. If more "new" or occasional transit users are attracted to the program, this could also result in less revenue losses than projected.
Since the VIP would be a new program and the actual market demand for the program would yet to be determined, it is recommended that if the VIP program is approved, it should be implemented in a phased approach that would allow for information on actual experience to be collected. This information would include monitoring the number of passes purchased, and conducting consumer research with individuals purchasing passes on the VIP program to determine their pre- and post-program transit use. This data would allow for a more accurate determination of the actual ridership and revenue impacts of the program to be made.
If approved, the VIP program should therefore be implemented as follows:
At that time, the Commission can assess the VIP program based on actual experience and a more accurate assessment of the ridership and revenue impacts.
It must be stressed however, that the potential net loss of $0.3 million to $1.9 million has not been recognized in the 2003 and future pro forma operating budgets.
A summary of the relative advantages and disadvantages of the VIP program for both the TTC and potential participants is outlined in Attachment B. The report in 12 months should review whether these advantages and disadvantages actually occurred.
OVERVIEW OF THE VIP PROGRAM
Outlined below are some of the key parameters of the VIP Program.
Although it is the TTC's intention to extend eligibility to all interested and qualified organizations at some point in the future, it is prudent to limit eligibility at least initially, to ensure the program is viable and all required financial and operational safeguards are in place and working as intended. It is recommended that the program be made available at least initially only to corporations and institutions as defined below.
Initially, to be eligible for the program, "corporations" must be federally or provincially incorporated including any of its affiliates (this includes companies created by federal and provincial statutes) or a limited liability partnership. "Institutions" eligible for the VIP program will include:
An organization must have a minimum number of "employees" to participate in the program. It is recommended that the minimum order quantity be set at 50. Approximately 65% of the employees in the City of Toronto work for corporations that have at least 50 employees.
Organizations wishing to participate in the program must sign-up for a one-year period. However, unlike the MDP that requires specific individuals to subscribe for a one-year period, the VIP program contract will only stipulate the minimum monthly volume of passes the organization must purchase. The TTC will not require individuals within these organizations to purchase passes for each month within the contract period. It will also be the responsibility of the organization to distribute the passes internally and collect the required monies.
The organization must agree to the following to be eligible to participate in the program:
It is recognized that the demand for the Metropass may vary at certain times of the year for organizations participating in the VIP program (e.g. summer period; plant shutdowns; etc). Some flexibility will be built into the guidelines of the VIP program that will allow organizations to adjust the total number of passes they are required to order in a particular month. This should increase the attractiveness of the program for organizations that are potentially interested.
The pricing structure for the VIP program must take into account the current price of three existing passes: the regular adult Metropass price, the MDP pass price and the student pass price. The adult MDP is currently priced at a discount of 8.3% from the regular adult Metropass based on a subscription period of one year. The price of a student Metropass is 14.4% less than a regular adult Metropass. In order to have "employers" view the program as providing an incremental benefit to employees, as well as attracting employees to sign-up, a minimum discount of 10% off the regular pass price should be offered. It is recommended that the highest discount offered be 12%. This is less than the discount for the student Metropass, and provides a significantly higher discount on an adult Metropass than has previously been offered by the TTC. A summary of the price structure is provided as Attachment A.
Similar to the current MDP program, VIP participants will have protection from future TTC fare increases during the one-year subscription period. When the subscription period reaches its renewal date, the TTC fares in effect will be used for the renewal period.
If an organization does not meet its commitment within the program, they will be subject to penalties similar to individuals who do not currently fulfill their MDP obligations.
JUSTIFICATION
The proposed Volume Incentive Pass (VIP) program would provide a discount to corporations and institutions based on their commitment to purchase TTC Metropasses in volume and for a period of at least one year. From the TTC’s perspective, the program provides a set of guidelines that can be applied equitably to all requests from organizations for the bulk purchase of TTC passes. The program would also encourage a longer-term commitment to transit and the use of the Metropass by organizations that could result in increased ridership on the TTC.
However, if the program were implemented, a revenue loss of between $1.8 million and $3.4 million annually is forecast for the TTC. This could be partially offset by a potential revenue gain of up to $1.5 million from the impacts of the "double cohort". However, the actual impact of this program on ridership and revenues is uncertain at this time. If the program were approved, it would therefore be appropriate to implement this program on a limited scale, conduct consumer research with program participants, and report back to the Commission approximately 12 months after implementation on the status and actual impacts of the VIP program. Note that the potential net loss of $0.3 million to $1.9 million has not been recognized in the 2003 or future pro forma operating budgets.
Chief General Manager
3-16-16
Attachments