Paulo is the Founder and CEO of Ubirider. He has a demonstrated history of working in the software and electronic devices industries.
In light of Covid-19, the first instinct of many people trying to get from point A to point B is to hop in a car and drive. This might not be the best approach for the overall mobility and health of a city or region for several reasons — not the least of which it results in gridlock and increased pollution.
If municipalities want to get people out of cars and encourage mass transit use, however, they will need to deal with the very real problem of better distributing crowds throughout the day to avoid the traditional rush hour crush. No one is going to take a bus or the subway if it means being packed like sardines with dozens of other people and risking contagion.
This balancing act — encouraging mass transit while keeping people safe and adequately distanced from one another — presents cities and private companies with a bit of a quandary. But a solution might be hiding in plain sight in the pages of an economic textbook: the concept of dynamic pricing.
Balancing Safety And Mobility
Dynamic pricing, long used by the airlines when selling plane tickets, is the ability to adjust prices based on current demand and other factors. Rather than a fixed price, the price changes from day to day, and even throughout the day. Anyone who has ever shopped around for a particular airline flight on different days of the week has seen dynamic pricing in action.
Most cities, by contrast, have fixed pricing for mass transit: You pay the same price for a ticket at 2 a.m. as you do at 8 a.m. or 2 p.m. If the goal is to prevent rush hour crowds and better distribute riders throughout the day, this approach is somewhat counterproductive because there is no way to influence ridership patterns via fare adjustments.
For example, during rush hour, an operator could apply the highest price but apply lower prices in less busy schedules, which would incentivize riders to ride when the price is lower and there are fewer people. This isn’t just good for public health to spread out riders this way, but it’s also good for the overall mobility and flow of people in and out of the city — not to mention it’s good for the transit operator who can ensure that there are fewer empty seats left unsold during off-peak hours.
Software, Not Hardware
This begs the question: Why aren’t more transit operators taking advantage of dynamic pricing?
The primary reason is because most transportation is tied to very complex hardware-based ticketing systems that don’t have the flexibility to allow for dynamic pricing. Making this leap is possible when cities and agencies adopt digital platforms that are software-based and can easily accommodate changes to the underlying functionality.
With software-based platforms, operators can know how many people are booking seats and how many tickets have been sold. And, they can cross-reference those data points with the capacity of the buses or trains that are currently running to propose a price that is, for example, cheaper than one hour ago or more expensive than one hour ago, depending on demand. Using artificial intelligence, the operator can learn from ridership patterns and leverage that data to inform the dynamic pricing strategy.
The result? Smarter and more profitable transit operations, and safer and more efficient flow of people.
If all this talk of dynamic pricing seems like it makes a surprising amount of sense, well, that’s because it already enjoys a successful track record. It’s not just the airlines who do it. Ride-hailing companies like Uber and Lyft employ a similar strategy with their surge pricing, raising prices during times of peak demand and lowering them when demand is less.
Congestion pricing, which has been used to great effect in cities like London, essentially takes the same tack. It charges drivers a premium toll if they want to drive into or out of the core of the city during prime business hours.
Even the humble railway — rarely viewed in a glowing light when it comes to being on the cutting edge of innovation — has embraced dynamic pricing in some regions. SJ, a railway company owned by the Swedish state, has been offering dynamic pricing on its tickets since 2004. Of course, part of the reason it was able to implement that approach is because it has offered customers the ability to book tickets online since 1997, and nearly 97% of their customers purchase tickets that way.
Covid-19 is not the last pandemic the world will face, and cities and companies have their work cut out for them to ensure successful mobility that enables people to safely get where they need to go. But by using all the tools at their disposal, including the dynamic pricing that digital platforms enable, they can be well-positioned to make mass transit a viable and appealing mobility option, both in the current moment and the future that awaits.