Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 25 - Evidence (afternoon session)
CALGARY, Tuesday, March 26, 2002
The Standing Senate Committee on Transport and Communications met this day at 1:05 p.m. to examine issues facing the intercity busing industry.
Senator Lise Bacon (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, we are continuing our examination of issues facing the intercity busing industry, and we have with us Professor Barry Prentice.
Welcome to our committee, professor.
Professor Barry E. Prentice, Director, Transport Institute: Thank you very much for inviting me. I should tell you that I did take the shuttle bus from the airport, so I did have a little contact with this industry.
I would like to open my remarks with a short discussion of the economics of transportation. First, it is my belief that economic regulation cannot create a market. At the very best, all economic regulation can do is partition a market to allow one party to have a bigger share than another. The market is either there or it is not.
The two most important variables in the economics of travel are money and time. Those translate into: the cost of travel, which can include your ticket price, the cost to get to a station, meals along the way and so on; and time, being the opportunity cost, how much of your personal time you actually spend travelling.
Other factors such as comfort, security and reliability are influential, but they cannot compete with time or money. In some cases, they are overridden completely.
The consequences of this are fairly straightforward. The intercity bus market is generally constrained to fairly short hauls because of time. Where time is a factor, people will always fly. Those who place a high value on their time, particularly business people, will definitely fly. They will not take the bus unless it is a very short haul.
It is also true that if money is important, people will take the bus. Therefore, low-income people are overrepresented in the market, particularly those who cannot afford an automobile.
Our study shows that the market is bimodal in nature. The young and the old, particularly those who do not have driver's licences, are overrepresented because perhaps the greatest of all competitors to the bus is the car. In most jurisdictions around the world, bus ridership falls as car ownership increases.
Bus service is most competitive on short haul routes where you have a dense population because you can have regular service. Markets such as Calgary-Edmonton and Toronto-Montreal make sense, and in some cases, Winnipeg to, say, Brandon, because it is too short a distance for air travel and the bus will work well.
We did a comprehensive study of intercity bus service on the Prairies in 1991, and you may have already seen a copy of the report. It was done with a grant from Transport Canada. I have made copies of the abstract and the conclusions. That was 10 years ago. Some things have changed, but in fact, the structure of the industry has changed very little. It is a little more concentrated, and Greyhound purchasing Grey Goose in Manitoba is one example of that. However, I would say the market has not changed very much, except perhaps to shrink a little further, so that fewer people are travelling by bus.
One of our observations from this study is that the regulatory boards were very passive. There were regulations, but the boards seemed to be much more concerned about the profitability of the bus lines than about whether the passengers were happy or looked after or whatever. I believe that that was influenced by the desire to cross-subsidize services.
There is this notion that if you allow people to run the better routes — in Manitoba we will take Winnipeg to Brandon, which could be profitable — they have to also run on some other route, for example, Winnipeg to Reston, which is not as profitable. Presumably there is cross-subsidization. If that does not exist, then there will be more of a burden on the taxpayers to provide some sort of service. I will come back to that point later.
We also did a comprehensive passenger survey study at the bus stations in Calgary, Edmonton, Regina, Saskatoon and Winnipeg. We also surveyed people at the airports and asked them why they were not taking buses. We did an intensive survey of the community of Brandon, which had lost air service, and those numbers are in the publication. I will not go into them in any great detail, except to say that they really fit the kind of logical profile I spoke of at the beginning as to who would ride.
We did ask about deregulation and taking small shuttle vans and so on. The two concerns that came up were that vans might not be as safe or as comfortable as the large buses and do not have washrooms.
Do the regulations matter? I think this is a fundamental question with which you must deal. Where there is competition, as we observed between Calgary and Edmonton, the service is better and cheaper than where there is not, so it does matter to the passengers.
Would the marginal routes be discontinued if we had deregulation? My suspicion is yes. I do not see any way that they could survive in the current form, and something else would have to be done. Now, that does not mean that there would be no service at all.
For example, Senator Gustafson, I also have family in Macoun, so I know that area quite well. How would Macoun survive? Probably some local person would operate a jitney service or a shuttle bus, and travellers, who would mostly be non-business people, would call ahead of time. I think some kind of cooperative system, somewhere between a taxi and a bus service, would evolve.
Whether or not the government would have to subsidize that is uncertain. We do see a continuous depopulation of the rural areas. It is a concern for those of us who work in that area, but at the same time, perhaps it is less of an issue than it might have once been as people coalesce into small towns and villages.
Fares are not likely to change with deregulation. Buses are not overly profitable. At the same time, I do not anticipate much increase in fares because of competition, for example, from cars and vans, entering the marketplace.
The one problem area that has not been addressed very well is bus service within the city limits. We observed in our community a bus that runs from Selkirk, which is about five miles north of Winnipeg, into the downtown bus station. This bus can pick up passengers all along its route to the city limits, but it cannot carry anybody from inside the city to the station or from one point to another within the city.
I really think that that is an artificial and unnecessary regulation. Intercity buses should be more along the lines of commuter services. The Go Bus in Toronto, for example, carries people from outlying communities into the city, and I believe that we should work towards persuading the cities to allow the intercity buses to offer more competition to the transit services. That would be probably beneficial to both.
In conclusion, it is my belief that deregulation is long overdue. The market is small, and as much as it exists because of regulation, I believe that largely, consumers are more disadvantaged than benefited by it.
The Chairman: Which government policies would best support rural and small community services?
Dr. Prentice: I am not sure I understand the question.
The Chairman: What policies can we put forward to encourage better service for small and rural communities?
Dr. Prentice: I suppose the issue partly comes down to how do we regulate taxis, because are these shuttles considered to be taxis or buses? We had better be sure that we do not deregulate buses but then have another regulation that says you cannot operate something like a shuttle service. Provinces vary on what is considered to be a taxi or a bus. Presumably the market will look after itself to some degree.
The Chairman: We were in Eastern Canada, in both P.E.I. and Nova Scotia, and small communities there use vans, with nine or even seven seats, that pick people up at their door and take them to the city, for example, Halifax, and back. Would that be feasible here?
Dr. Prentice: I do not see why that would not work in Western Canada. Our distances are longer and our markets are thinner in some cases, and that does create more of a problem. However, people would likely travel to the major centres. There would be services to Regina, for example, or to Saskatoon. Getting to somewhere other than those places might be more difficult.
The Chairman: We no longer know if we should mention decline in ridership, but what are the prospects for reversing the long-term decline in scheduled bus ridership?
Dr. Prentice: I do not think the chances are very good, although with an aging population, more people may be forced to consider that as an option.
We are starting to see more concern about the elderly driving, and I think that licensing for drivers might become stricter. There is also more effort to introduce graduated licences. I know that younger people are having a more difficult time getting a full driver's licence, and those two market groups maybe will expand a little, but overall I do not see a great prospect for change just because of other competition, and depending on where you want to go.
Senator Oliver: You state that deregulation is long overdue, but you know that in Canada there is very strong opposition to any form of deregulation from a number of carriers. The say that if we do bring in deregulation, we will all suffer, because they will cut off service to the rural areas, or if service continues, it will be with inferior buses, without washrooms, without accessibility for the disabled and so on.
You say it is long overdue, but what about the people such as youth, the disabled and the elderly, who are the main users of the bus now?
Dr. Prentice: I perhaps should have been more specific when I talked about ``deregulation.'' Economic deregulation is long overdue. You might put in place regulations to allow anybody who wants to offer a bus service to do so. Economic deregulation does not mean you do not have to have a licence to run a bus; it just means that you do not have such an onerous system of entry into the market.
You still have to have a licence, even if the fee is nominal, and you have to be fit and meet the criteria of the community, whatever those are.
However, there is no guarantee that the system will flourish and evolve. All we have to go by is logic and past experience. We can look at the trucking industry, which was deregulated, and as far as I can see, the rural areas still have service; there is no problem there. In fact it has flourished. We move more freight at a lower cost than we did before.
I think the jury is still out in some other cases of bus deregulation. England, for example, is a very different market, and we have to be very careful of comparisons with England because of the density of the population and the short distances. However, they did not see as much influx of competition as they hoped; they saw it for a little while, and then one bus company started to gobble up the others and there was more concentration. That can happen because there are some economies of size. I do not think that is a big concern.
Senator Oliver: You said today that we are all seeing a continuous depopulation of rural areas. I presume that you mean that more and more people are leaving the farm and the rural areas and moving into the cities. What, in your mind, is the inter-relationship between the death of rural Canada and buses as a means of transporting people between urban and rural Canada?
Dr. Prentice: I do not believe there is a great cause and effect, that people's decision to stay in the countryside or not is dependent on a bus service being there or not. Most bus services are not that frequent and people do not use them that much anyway, as the numbers will demonstrate.
The reasons for people moving from rural areas can be many. It can be for medical treatments or support that are only available in a larger urban centre. It could be job opportunities, which I think is probably the biggest push currently.
We talk about rural depopulation, yet at the same time, we are seeing a flight from the cities to the areas just outside. We have this growth of the extra-urban area. Those areas are not very well served by either the city transit or the intercity buses, and I would say that may be another reason for deregulation, to create better service there and perhaps have fewer people driving cars.
Senator Oliver: I thought you might have gone into how maybe the rural areas could be revitalized by a better bus transportation system to encourage ecotourism, taking tourists from the city to the rural areas and back, and also increased courier service. It seems to me there might be some ways that an enhanced bus system could in fact help to invigorate and add new life to rural Canada.
Dr. Prentice: It is a vital lifeline for moving packages. We know that a lot of communities do rely on bus service to deliver parts for farm equipment and so on. Would it still exist with deregulation? I would say, probably yes. Perhaps the firms might allocate more area to cargo and less to passengers, depending on how they were structured. I would like to think that the bus system has that power, but I am of the belief that transportation is a derived demand. It is there because people are there; it is not the other way around.
Senator Oliver: My comment on ecotourism refers to the fact that there is an increasing trend around the world, particularly in Europe, for city people, tourists and others to visit rural areas to see wild flowers, rivers and lakes, and the bus is their means of transportation.
Dr. Prentice: For ecotourism, I would suspect we are talking more about charter buses than scheduled bus service. Where the charter buses have been deregulated, they seem to be doing fine. Again, the market will provide that service. However, it is difficult to imagine that people will be taking part in ecotourism on the Prairies in the middle of the winter. You folks are lucky; you missed some of the glorious temperatures we experienced. You can do that for certain months of the year, but in transportation, you have to have a year-round market to afford to run a scheduled service, and I do not see that in ecotourism.
Senator Callbeck: You mentioned that fewer people are travelling. Do you have figures to back that up? We had Greyhound here this morning, and they indicated that the ridership has gone up by 10 per cent in the last five years.
Dr. Prentice: I do not have figures that would approach Greyhound's, because obviously my latest data is what we published in 1999, which shows that passenger traffic has declined since 1980 to about a third and has been fairly flat over the last 10-year period, with some bumps up and down. I find it difficult to believe there has been a 10 per cent increase. Over what period was that?
Senator Callbeck: Five years.
Dr. Prentice: So a 2 per cent increase per year?
Senator Callbeck: That is what they said, was it not? There has been a 10 per cent increase over the last five years.
Dr. Prentice: It is not impossible. I guess it depends on the circumstances.
One point I have not raised is the implications for some routes of these higher security fees at the airports and other fees being added on. This comes back to the price side of the market. We may well see, for example, in communities like Regina and Saskatoon, the bus actually pick up ridership because of that. However, I really cannot comment on the overall magnitude of the bus service.
Senator Callbeck: If we introduce economic deregulation, which you agree with, what is the best way to ensure that there will be some service in the rural areas? You said there is no guarantee, but are there steps that you would take or things you would try to put in place before bringing in economic deregulation?
Dr. Prentice: That is a really difficult question because you have to be able to foresee the future and then try to counteract or ameliorate any downside. I suppose you could do a study to find out how many people in the rural community actually do use the bus service now. What would be the total impact, and would they be willing to use shuttle buses or other services? Of course, there is the taxi issue. I know that taxis are regulated differently in various places. Would the taxi regulations impede the kind of service that might develop if you took away the bus service?
Senator Adams: You mentioned people who cannot afford to fly and do not have a licence to drive a car and who therefore use more buses. I forgot to ask the bus owners about it this morning. We are not sure if there is an increase in the bus fare every year. I think we have an airline right now that last year charged $500 to travel from here to Ottawa, and now it might be close to $1,000 to come here to Calgary.
Did you study the bus companies' rates?
Dr. Prentice: You can actually find out, of course, the buses' maximum prices because the rates are regulated. Our previous study looked at this, and in some places where there was competition, there were discounts on the regulated rates; Calgary-Edmonton was one example of that. However, in general, they were charging the regulated rate, which you would expect them to do, because otherwise the regulators might well wonder if they had made a mistake and should do a better job.
I am not sure if that answers your question, though.
Senator Adams: Somewhat.
I could get from here to Red Deer, or from Winnipeg to Brandon, faster than the bus if I drive my car. How many kilometres is that? Even people that have a car prefer to bus it? Do you have any idea about that?
Dr. Prentice: I am really glad you raised that issue because it is an important one, and it comes down this notion of how people actually operate their cars and what choices they make. Once you have actually purchased a car and insured it, you have already sunk a large amount into it and are only really looking at the marginal cost of your gasoline.
If we were to stand back and ask ourselves how much is it really costing us per mile to drive our cars, many of us might think it would be wiser to take the bus, but we do not operate that way.
Some suggestions have been made for per-mile insurance, so you only pay for the miles that you drive, or a toll road system of taxation; that might favour buses over cars. These efforts have environmental consequences, but I do not think we will justify them on the basis of saving the bus industry.
Senator Adams: We were talking earlier about bus service where Senator Gustafson and I live. It does not go to where you need to travel for a medical checkup. You fly down to Winnipeg, or from Baffin Island you go down to Ottawa, and people living in Wetaskiwin go to Edmonton. Are we able in Canada to provide some other transportation for people who have to travel a long way from home to get a checkup at the doctor's?
Dr. Prentice: You are really asking whether social policy should assist people, no matter where they live, to access medical treatments, and that is a judgment call that you might want to ponder in a different format.
However, let me point out that what we are really doing now in the way we regulate buses is cross-subsidizing. We are making an effort to cross-subsidize from poor people to poor people. I am not saying that everybody who takes the bus is poor, but we found that it is generally lower-income people who take the bus. We are really creating a cross- subsidization between the most vulnerable people in society, and maybe we should not be doing that. Maybe we should deregulate the buses and offer assistance directly to people who need it.
Senator Adams: What about people who live in the North? They would be in a similar situation. If there is a death in the family, people cannot afford to go on the bus. Should the government be providing transportation?
Mr. Prentice: There is always a question of how much can we ask of government. It may not be a very pleasant notion, but at some point, maybe the people have to move to where the service is. If you do not have family or other ties there, then maybe that is a hard reality. I know it is not a nice suggestion, but people are mobile as well. It comes back to how far do we go to assist people; it is their decision where to live.
Senator Gustafson: In the history of the Crow deregulation, the railroads, there were winners and losers. The story is not yet complete. Alberta was a big winner. It costs anywhere from $1 to $2 a bushel more to freight wheat from Regina than when we had the Crow.
This year, I have talked to truckers who have not delivered one truckload of barley to Alberta feedlots — last year they could not keep up — because Alberta feedlots are getting corn from Illinois and Iowa and so on at U.S. $1.25 a bushel.
There would also be winners and losers if there were full deregulation of the bus routes. I was surprised that the bus companies are not too excited about it, but, for instance, if 50 per cent of their business is in package deliveries and everything is opened up, there are no restrictions by licence, people could offer a van to do a better job of hauling repairs from Regina to Estevan than the big bus. In fact, they could pick the freight up rather than the customer having to bring it to the bus depot.
Although there will be winners and losers, I think that urban Canada would win the most. I am not sure that that is what we heard from the bus companies, but rural Canada will be a challenge regardless.
There will be more pressure on health services in rural Canada. How do people access health services as the hospitals, the specialists and so on consolidate in the bigger centres? That will probably be a big problem. As for ambulance service, people say, ``Well, if I have a heart attack, by the time they get me to Regina, it will be too late anyway.''
I would like to hear your comments on winners and losers. I know there is no final answer to this, but this committee must try to get as much information as it can on what to recommend to government.
Dr. Prentice: I think your observation that there will be winners and losers is certainly valid. At the same time, let me draw on your analogy with grain transportation. There were small branch lines that would have gone out of business no matter what had happened to the Crow Rate, simply because trucks could offer to move that grain at a fairly low cost to larger elevators, the total overall cost to the farmers was less, and they went for it.
I am not saying that that process was not accelerated, that we did not see more abandonment of railway tracks because of the abolition of the Crow Rate, but some lines would not have been saved regardless, and some went out of business even while it still existed.
I think that is similar to the bus service situation, in that we may not be able to save it in an effective way through regulation. Some companies will just simply cease to operate, although I guess if they have a lucrative route, and Greyhound may be the example, they obviously will not want to give up their entire route. Therefore they will continue to operate these van lines, just as CN wanted to operate its lines until finally there was a way to shed some of these unprofitable routes.
There were some winners and losers in that, but the evolution occurred and people made decisions. They moved things by truck or they went into other sorts of businesses, and I think that is part of what we have to have faith in, that we are not dealing with a static economy.
We might want to suggest that medical services should run some kind of a shuttle between communities to carry people to doctors' appointments and so on, but I do not think we can solve this by keeping the bus system regulated, because that creates other distortions. There are other winners and losers.
I do not want to get into too much detail, but I met a chap on the little shuttle bus from the airport who was taking the shuttle downtown to the Greyhound station to go out to Banff because it cost a couple of dollars more to go straight from the airport. He was spending a lot more time because of that. He would have gotten a premium service. Would he be better off with a deregulated system? I do not know.
Senator Gustafson: One result of deregulation of the rail lines, of course, is that now ConAgra has built a big plant in Southern Saskatchewan; Cargill is building, and these plants are costing a lot of money. ADM is building plants. Agricore, which used to be the Alberta Wheat Pool, joined with the United Grain Growers, which is 49 per cent owned by ADM, and so there is massive change coming.
There is no question in my mind that the Americans will control the grain business. The Saskatchewan Wheat Pool is broke. This whole situation has caused major change. ADM sends a truck from North Dakota to pick up my oilseeds and does not charge me for the freight. They give me the same price that Pioneer or any grain company in Canada can give me.
The point I am making is that we had better take a pretty close look at this. I should be careful what I say, but I think that in time, this will bring the Canadian Wheat Board into question. It is going to have far-reaching effects that might be for the better in the long term. In the short term, there will be some problems.
Dr. Prentice: Our chair may get a little annoyed with us for talking about grain and not sticking to the buses, but let me simply make one observation.
I have talked to some of the people in the grain industry, and they are locating those large grain elevators in small towns, or bigger towns like Souris and Brandon and so on. They are locating them there not because it is most convenient for farmers' deliveries, but because they cannot get people to run them unless they do.
People want their spouses to be able to work. They do not want their kids to be on the bus for an hour and a half each way to get to school and back. Those are some of the social issues driving the coalescing of the population into the smaller towns and communities. In some ways, that makes it easier to maintain some kind of public transportation service. You do not have to flag a bus down on the side of the highway somewhere.
Senator Oliver: Whenever we have a professor before us, someone like you, an expert in busing who has done a major study on it, I like to take the opportunity to put a certain question. We have our own researchers, of course, but are there any current papers, documents or studies to which you have not referred today that we should know about, that touch upon the subject matter of our senate study, and if so, could you let us know what they are, now or in the future? That is my first question.
Dr. Prentice: Certainly I would be happy to take a look through my archives and the literature and bring anything useful to your attention. I can tell you it has been very difficult to do any research in Canada on this subject because it is very difficult to get information for confidentiality reasons. There was only one bus service, and therefore they could not give us any data. You are always on the outside looking in when trying to study that.
Senator Oliver: Greyhound is a private company that does not put out financial statements, so we do not know much about the return on investment and so on. I asked the question.
I am wondering if you have done any work on comparison studies worldwide. You said that we should be very careful when looking at the experience in England, but there are other jurisdictions that have the same busing concerns that we do in Canada. Their geography will be different. Are there any comparisons that you would like to mention that might help us in our deliberations?
Dr. Prentice: I believe the only proper places to look at would be neighbouring jurisdictions in the United States with very similar income and social background profiles.
Senator Oliver: They have a stronger dollar.
Dr. Prentice: They do, but everything is priced higher, too. The other place I might suggest is Australia. I know good work is done there, but I am not familiar with the current literature.
Senator Oliver: My final question is put to you as an economist, since the main buzz word in this study we are doing is ``cross-subsidization.'' Is cross-subsidization the proper way to provide a service to Canadians, or should we phase it out and find some other, more direct way to deliver the service?
Dr. Prentice: I think that is an insightful question that comes back to Senator Gustafson's point about winners and losers, because cross-subsidization automatically creates winners and losers. Somebody has to pay more so somebody else can have a subsidized service. The question is, are we asking the right groups in society to help the one group that is disadvantaged to survive or to receive a lower-cost service?
Certainly in Saskatchewan, and I do not know if that is still the case, they were giving direct subsidies to small groups to provide a bus service. Perhaps, Senator Gustafson, you know the answer to that. That is one approach, and perhaps it is a better one than worrying about cross-subsidization.
The other problem with cross-subsidization is you have to assume that somehow, everything will work out. There is no guarantee that sufficient extra revenues will be generated to actually cover the cost of providing the services, or that too much will not be taken in. How would that be given back? Cross-subsidization is a pretty blunt policy tool in many ways.
Senator Oliver: You said that confidentiality prevented you from obtaining a lot of statistics, so I do not suppose you have any numbers on how much money is raised from profitable lines and how much is being used to subsidize those that are unprofitable?
Dr. Prentice: I have none. The only thing I could suggest is some kind of an economic engineering approach, where you look at the cost to run a bus on a certain route, how many times they are running it, and then try and do something artificial.
Senator Oliver: Taking into account the fare they charge, the cost of the gas, and all the other overheads.
Dr. Prentice: That is the only other way you could do it if you cannot get the information from the companies directly. I do not think it would be a worthwhile thing to put your researchers on to because it would be a pretty difficult task.
Senator Forrestall: Questions came up earlier this week about gathering and storing statistics, analysing and extrapolating from them, and disseminating information. More important is the end product. Who has the best library on this question in Canada?
Dr. Prentice: The best library on bus services? Probably Greyhound.
Senator Forrestall: I thought you would say something like that. I thought you might say ``the industry.''
Dr. Prentice: It would be the industry. There is data out there, and some of it is collected by Statistics Canada, but if I could also make a personal plea, I would ask you to look very closely at that data. I think our data is getting less and less complete over time.
Senator Forrestall: And it is dangerous?
Mr. Prentice: It is history by the time we look at it, so that I can only tell Senator Callbeck about data from 1999. We do not know what we are dealing with three years later.
So data is a problem, and I would encourage systematic efforts.
I am off the track a little here, but taxpayers' dollars are used to collect the data, yet when I want to access it, I have to pay again. These service charges on academics and others for use of the data really inhibit the kind of work that might be done.
The public availability of data in Canada is much worse than in the U.S. The U.S. puts it on the Internet, and anybody who wants to can access it.
The Chairman: Thank you very much, Mr. Prentice. If you have any other information to provide to committee members, we would be pleased to receive it.
The committee adjourned.