In the wake of COVID-19, ridership and fare revenue has declined sharply across public transit systems in North America, radically challenging the industry’s business model. US transit agencies have experienced longer and deeper ridership declines than many of their European and Asian peers. Transit ridership may recover slowly – and not resemble pre-COVID-19 levels until after 2023. Even after a vaccine, ridership could remain at 80-90% of pre-COVID-19 levels, depressing fare revenues for several years.
Taken together, US transit agencies face both a significant near-term operational budget gap, as well as a longer-term structural challenge moving forward. As a result, agencies and their private sector counterparts should comprehensively reimagine a more resilient and sustainable public transportation system and leverage the pandemic-spurred innovation in transit systems to improve user experience, increase operational flexibility, and provide more transparent and real-time data to inform decision-makers on tough-to-make choices.
On November 10th, we hosted a peer-to-peer roundtable discussion with public sector transportation operators, investors, and industry leaders from North America to discuss how to adjust public sector transportation capital and operating programs for the future. The key themes that surfaced from this GII roundtable are summarized below:
- Be transparent about the need for tough choices. The material current financial challenges, and longer-term structural issues, will require some tough choices. Boards and leadership will need to shift organizational mindsets to manage a financially distressed turnaround—taking a fresh look at service levels, opportunities for efficiency gains, trade-offs to meet limited financial means, and organizational design. Early stakeholder and community engagement will be critical for success when these options are being explored.
- Strategically accelerate near-term capex during reduced demand. Many smaller capital projects, like routine track maintenance, repainting and refurbishing rolling stock, and creating dedicated bus lanes, can be achieved faster and with less cost during times of reduced demand. Not only more efficient, these investments will provide local economic stimulus to industries in need and improve customer experience when ridership returns.
- Manage investment roadmaps for uncertainty.In the US, public transit usage has returned to only ~30-50%1 of what it was before COVID-19. Increased remote work, rider sentiment, economic impacts, and public health guidance may prevent ridership recovery to pre-COVID-19 rates for the next five to 10 years.2 To survive the near-term fiscal crisis, operators may need to explore service reductions and CapEx to OpEx budget transfers. For the long term, capital programs will need to be refreshed to balance expected funding limitations with the priorities of the next normal ridership and service levels.
- Seize the moment to explore new technologies. Advanced analytics and artificial intelligence represent a huge opportunity to optimize assets and maintenance costs, and improve networks for higher capacity, higher resilience and lower operating costs. Digital improvements will also create opportunities for agencies to interact directly with customers through dedicated applications and information management systems—which may prove critical assets in restoring user confidence.
- Refocus on purpose and rider-centric systems. Operators reported never having felt a stronger sense of connection to purpose as they embraced responsibility for the transport of their country’s essential workers. It is creating a strong desire to improve the connectivity of different modes of transit for an integrated system of seamless mobility that attracts new riders with improved safety, reliability, and access.
- Use public transit to build and sustain communities. Policy makers and regulators should support public transit as an essential driver of economic growth. Not only is it key for access to the workforce, health, and education, but its interaction with public space can support local businesses. Making unused roadway space available to restaurants will likely provide relief for new indoor capacity regulations. Zero-fare initiatives, being used by one operator, are encouraging economic recovery.
- Expand transit-oriented development. As remote work expands the footprint of economic activity from central business districts into to suburbs, transit-oriented development can help build better communities through housing and workspaces, and create alternative revenue streams.
- Keep climate resilience and adaptation as part of planning. In times of immediate crisis, the impulse may be to temporarily ignore the slow-burn, longer-term issues created by climate change. However, transit agencies should maintain a dual focus—performing climate risk assessments and budgeting for adaptation, while also managing the COVID-19 recovery.
1 National Transit Database, US Federal Transit Administration
2 McKinsey research