The Falling Value of Monthly Passes

Of the many shifts in travel trends, one that gets a lot of attention is fewer miles traveled by auto. While some explanations for the reduction focus on factors of the built environment or demographic changes, the changing structure of daily travel trips receives less attention. Overall people of all types are making fewer trips per day, though the modal mix of daily journeys is changing. Commute trips and shopping trips have declined more than others. These are trips that are more easily substituted with not making a trip at all, either by working remotely or increased retail deliveries.

Fewer trips per traveler affects the overall cost of travel but potentially in more nuanced ways than expected. If a commuter starts working remotely once or twice a week, the math supporting their decision to buy and use a monthly pass for parking or transit changes. In particular, as people travel less per month the discounts from monthly passes for parking or transit decline. As “unlimited” passes create incentives to travel more as the cost per trip declines with use, as travel decreases the incentives to travel even less kick in. At some point, and this depends on many factors, the change in travel cost per trip paid via monthly pass outpaces the change in travel.

Say a monthly pass for unlimited transit is $100, and the traveler commutes 20 days per month (I use 20 as an even number; most full time workers commute 21 or 22 days). This means the traveler pays an average cost of $5 per day to commute (which is a not an atypical round trip transit fare), but all trips, including any additional trips above 20 have a marginal cost of $0. As long as the daily cost is more than $5 it is worth a monthly pass. But if the number of commutes is reduced by four as the traveler now works at home one day per week, the daily cost of the pass is $6.25. As this is likely higher than local round trip transit fare the commuter no longer buys the monthly pass. In addition, without the pass, the cost of any trip beyond the commute trips increased from a marginal cost of $0 to whatever a round trip transit fare is. Of course, if the numbers of marginal trips are known ahead of time perhaps the traveler will continue to buy the monthly pass.

Otherwise, the new cost structure of trips may accelerate switches to substitutes, mostly to not traveling at all. If each commute trip has a marginal cost then commuters can minimize this cost by taking fewer commute trips, so we should expect even more working at home. If each non-commute trip has a high marginal cost then people will also substitute away from these trips. Taken together, fewer trips may lead to fewer monthly passes, which raises the marginal cost of travel and creates a cycle where higher costs per trip further reduces the number of trips taken. You can draw a similar example for driving.

In limited discussions with people who work for large transit agencies they have indicated that ridership increases are mostly through individual fares (including bonuses) rather than monthly unlimited passes. I have not seen these data published, but if true it suggests that shifts in the frequency of travel may have effects on fare policy for transit. Another effect may be that transit agencies may get more money per trip if the unlimited trips are eliminated, but this may be offset by fewer trips per person. There also may be rapid shifts toward substitutes as increased travel costs per trip are not a linear function.

Once travelers stop buying monthly passes for transit or parking (e.g. buying in bulk) they may eagerly seek out alternatives because the marginal trip suddenly becomes much more expensive. For drivers this substitute may be mass transit, but it also may be fewer trips by all modes as they look to telecommute and shop online. It is also possible that the increment between marginal auto trip cost and marginal transit trip cost may not be that great for local trips after monthly passes no longer make sense.

All of this is speculative, but the takeaway is that as travel behaviors change, the costs of individual trips change, and we don’t have that clear an idea how this will all play out. We should keep an eye on sales of monthly passes as people travel less. The financial models for transit, parking and even toll roads may not be as predictable as we think.