Consider a systemic relief package for the minibus taxi industry
In the past week or two news broke that Johannesburg minibus owners are planning to increase fares on local (commuter) routes by up to 25%.
Some reactions from within government were that this is inconsiderate given the hardship that public transport users are already dealing with during COVID–19 Lockdown. Industry leaders on the other hand point to the significant decrease in demand, the 70% load factor imposed by government and the fact that the industry, as the main public transport service provider in most metropolitan areas, has never seen any form of government subsidy.
A few weeks ago we published an article in which we put forward three demand recovery scenarios as lockdown regulations are eased. In this article we made three related points.
1) Travel demand in the major urban areas may not recover to the pre- lockdown levels of March 2020, due to – amongst others – job losses and an increase in the working from home option;
2) Travel demand recovery will in all likelihood not be rapid;
3) COVID-19 regulations pertaining to the load factor in all modes of public transport may become the new normal and that Minibus Taxi Operators may find it an increasingly difficult balancing act to cover their fixed and variable costs from daily fare revenue.
Government has repeatedly signalled its intent to provide some form as assistance to the minibus taxi industry and high-level talks appear to be ongoing. To distinguish appropriate from inappropriate relief measures one would need to understand the basics of the cost and revenue model that underpins more or less 80% of the minibus taxi industry, and in this context the principal relationship between owner and driver. There are in essence three main operating models at play in the industry, namely; the daily target model, the driver commission model and the owner-driver model.
The daily target system is the predominant model and in terms of this model the Owner (Operating License holder and in most cases vehicle owner) sets a daily target for the driver. The owner assumes responsibility for the main fixed costs (e.g. vehicle financing, insurance, licensing etc.) as well as variable costs such as major and minor vehicle maintenance and repair costs, including tyre replacement, and break- pad replacement). The driver, on the other hand, assumes responsibility for fuel costs and in some instances minor body repairs. Drivers who make use of sliding door operators also assume the responsibility for paying them.
A further aspect of the way in which the minibus taxi industry functions that needs to be taken into account when considering relief measures is that the South African regulatory system is built on a route-based licensing model. Therefore one can differentiate between at least two main categories of taxi operations: those operators who have licenses that authorise them to operate typical place of residence to place of work commuter trips for, example Mamelodi or Atteridgeville to Pretoria. The other being those operators who have licenses that authorise them to operate typical trips internal to a residential area, known as feeder or distributor routes, which provide travel within areas such as Soweto, Khayelitsha, Mamelodi or Mitchells Plain.
The economies of these two main types of minibus taxi services are very different. Where internal (feeder/ distributor services) typically carry passengers over short trip distances and benefit from high seat turnover, operators who provide township to city type services mostly work on a fill – and – go system and often provide their service over trip distances ranging from 10 to 40km or more one way – the return trip often being run with an empty or near empty vehicle. The combination of reduced travel demand and reduced load factor could therefore impact the feeder/distributor services differently from the way in which line-haul or trunk services are impacted.
Based on these basic insights into how the minibus taxi industry functions, the question arises, if a form of government relief is to be considered, how should it be directed?
To answer this question, we need to at least be clear on the following;
- What is the objective of the relief?
- Who are the intended beneficiaries?
- How will the relief be administered?
Although there are numerous ways in which one can view the depth of the minibus taxi value chain (from drivers and sliding door operators, to mechanics, washers, rank marshals, and admin staff), the primary objective of any form of relief should be to lower the earnings pressure on both the owner and the driver and to try and sustain a public transport supply model that will be able to deal with demand as it recovers over time. If the core issue of owner and driver earnings can be addressed the value chain could be sustained.
We need to look for systemic solutions and refrain from applying blunt instruments that will produce unintended consequences. Based on the work we have done over more than a decade in multiple African cities it is evident that the cost of capital (cost of vehicle financing) for the owner and the cost of fuel for the driver, are the two most significant costs to manage even under conditions of steady and predictable demand. A government intervention aimed at reducing the cost of vehicle financing for at least the next 12 months would in our view go a long way to enhancing the overall viability of the minibus taxi industry as we navigate through the effects of COVID–19 management measures on travel demand. In addition, the introduction of a reduced fuel price for licensed public transport vehicles could be the best way of introducing a sustainable subsidy to the minibus taxi industry. It is not beyond the realm of the possible that protracted post COVID–19 demand recovery may result in a rightsizing of public transport supply. Until that happens the demand for relief will remain on the table and we can only hope that it will be dealt with in well – considered and sustainable manner.
Nico McLachlan is the Managing Director of ODA (Pty) Ltd a Change Management consultancy specialising in paratransit reform. He has acted as advisor to the minibus taxi industry on both the Cape Town MyCiti and Johannesburg Rea Vaya projects and has worked on public transport improvement projects in Kenya, Ghana, Uganda and Rwanda.