Should Public Transport Make A Profit or Be Free Like Health and Education?
Key Takeaways
- Public transport cannot make a system-wide profit due to car subsidies, community service obligations, political fare setting, and external dependencies.
- Peak-hour services on busy routes should generate strong revenue or profits, funding off-peak and coverage services that serve social needs.
- Treating public transport like free healthcare sounds appealing, but it leads to deferred maintenance, service stagnation, and worse outcomes.
- Cities implementing very low fares without secured funding cut asset management budgets first, causing long-term deterioration that's initially invisible.
- Low cost recovery systems are highly vulnerable to government budget crises, facing large fare hikes and service cuts when fiscal pressures mount.
- High cost recovery acts as insurance, allowing systems to weather budget pressures without large service reductions or fare increases.
- Cost recovery targets drive agencies to diversify revenue through property development, advertising, retail partnerships, and commercial innovation beyond just fares.
- Strategic subsidies should fund capital investment, community obligations, and targeted concessions, not subsidise peak-hour commuters who can afford market fares.
- Different services need different expectations: profitable peak services can cross-subsidise essential but unprofitable off-peak and coverage routes.
- Financial sustainability isn't ideologically satisfying, but passengers need systems that work in reality, not theories that collapse under fiscal pressure.
Next Steps
Do you have a strategy for the financial sustainability of your public transport system?
Introduction
The debate about public transport funding often becomes stuck in a vicious, polarised discussion.
On one side, fiscal conservatives argue that public transport should operate like a business, covering its costs and ideally turning a profit. If it can't make money, they say, perhaps the market is telling us something about whether people actually want these services.
On the other side, progressive advocates push for public transport to be treated as essential social infrastructure, like healthcare or education, with low or even free fares funded through general taxation. Public transport provides social benefits beyond economics, they argue, so it deserves the same treatment as other public services.
Both positions sound reasonable in isolation. Both have devoted followers who are absolutely convinced they're right. And both are fundamentally wrong about how public transport actually works in the real world.
What's missing from this debate is a clear-eyed analysis of what these approaches actually deliver. Not what they promise in theory, but what happens when cities try to implement them..
This blog takes a different approach. Instead of starting with ideology, we'll examine the reality of why public transport can't be profitable, why treating it like healthcare risks worsening outcomes, and what a pragmatic middle path looks like.
We'll explore how the right balance between cost recovery and subsidy is about building resilient systems that can survive fiscal pressures while continuing to expand and improve services for growing cities.
Should Public Transport Make A Profit?
Let's start with a simple fact: no public transport system in the world makes a profit when you account for all costs, both operations and capital. Sure, some systems cover their operating expenses, and a handful even generate surplus revenue that contributes toward capital costs. But full profitability? It doesn't exist.
You can find individual privately-run lines that turn a profit, but these are rare exceptions operating under very specific conditions. They typically serve high-demand corridors, face limited competition, and aren't burdened with the obligations that come with running a comprehensive public transport network.
So why can't public transport make money? Is it simply that people don't want it? Let's examine the real barriers.
The Car Subsidy Problem
From a pure market perspective, you might argue that public transport's dependence on government funding reveals a simple truth: people prefer cars. Low demand means low fares, which means losses. The market has spoken, and it doesn't want public transport.
This argument collapses the moment you examine how heavily subsidised car use actually is.
Fuel prices are often kept artificially low through direct subsidies and tax breaks. Parking is free or heavily discounted in most places, despite land being valuable. Roads are built and maintained at enormous public expense. Then there are the externalities we all pay for: emergency response costs, healthcare costs from accidents and air pollution, environmental damage, and the economic costs of congestion.
The choice between driving and public transport isn't a free market decision. It's a choice between two heavily subsidised systems, where one subsidy (for cars) is far larger but much less visible than the other.
We know what happens when you change this equation. Cities that implement proper road user charges, congestion pricing, and parking fees that reflect real costs see a significant mode shift toward public transport. The problem isn't that people inherently prefer cars. It's that cars are priced at a fraction of their true cost.
Community Service Obligations
Even if we solved the car subsidy problem, public transport still couldn't turn a profit because of what it's expected to provide.
No profit-seeking operator would run half-empty buses through low-density suburbs at 10pm on a Tuesday. They wouldn't maintain routes that lose money on every trip but provide the only transport option for isolated communities.
Yet we require public transport systems to do exactly these things. These community service obligations are essential, but they're fundamentally incompatible with profitability.
Political Fare Setting
Most public transport systems don't set fares to maximise revenue, let alone profit. They certainly don't optimise fares to maximise ridership through sophisticated demand-based pricing.
Instead, fares are controlled by politicians who set them to win votes. This usually means keeping fares far lower than economic efficiency would dictate. Concession fares for students, seniors, and other groups reduce revenue further. Free travel periods, promotional fares, and fare freezes during election years all prioritise political goals over financial sustainability.
You simply can't run a profitable business when politicians control your pricing and routinely undercut it for electoral gain.
External Dependencies
Even if a public transport agency wanted to maximise profitability, much of what determines success lies outside its control.
Does the system have bus priority lanes and traffic signal priority? Are new developments built as transit-oriented, high-density communities near stations? Do planning rules prevent low-density sprawl that makes public transport unviable? Are parking restrictions enforced in city centres?
These decisions are often made by other parts of government, yet they fundamentally shape whether public transport can succeed. An agency can run excellent services, but if buses sit in traffic and new suburbs are built around car dependence, financial performance will suffer regardless.
The System-Level Verdict
Given all these constraints, asking public transport to generate system-wide profits is fantasy. The playing field isn't level, the obligations aren't commercial, the pricing isn't market-based, and critical success factors are beyond the operator's control.
Does this mean we should abandon any concern about profitability? Not quite.
When Profitability Actually Matters
The profit question becomes more interesting when you stop thinking about entire systems and start examining specific services.
Consider a metro line during peak hours on a weekday. The context is completely different:
- The car subsidy advantage is reduced because congestion makes driving expensive in time and frustration
- This isn't a community service route, it's a high-demand corridor
- Many systems charge higher peak fares and restrict concession holders during these hours
- These services have the infrastructure investment and priority they need to function well
Should we expect this specific service, at this specific time, to be profitable? And would that be good or bad for the overall transport system?
This is where we need to think systemically. The goal isn't profit for its own sake, it's building the best possible transport system for the city. That system benefits enormously from high public transport ridership, particularly during peak times when road space is most constrained.
But here's the challenge: public transport systems struggle to manage peak demand through traditional engineering approaches. Building enough capacity to handle peak-hour demand means maintaining expensive infrastructure and rolling stock that sits underutilised for much of the day. It's a very expensive way to solve the problem.
Smarter pricing offers a better solution. Higher charges during peak periods and lower charges during off-peak hours can smooth demand, reduce the need for peak-only capacity, and generate revenue from the services people value most.
If you're managing your system efficiently, peak-hour services on busy routes should generate significant revenue. They might even be profitable.
What To Do With Public Transport Profits
Since public transport is almost always government-run, any profits don't flow to private shareholders. They're public revenues that governments can allocate as they see fit.
In practice, this creates a virtuous cycle. Profitable peak services generate revenue that can fund those essential community service obligations, the late-night routes, the suburban coverage, and the off-peak frequencies that lose money but provide crucial social value. The profits can also subsidise concession fares for students, seniors, and low-income riders who genuinely need support.
This is a far more efficient and targeted approach than trying to make everything cheap for everyone, regardless of their ability to pay or the actual cost of providing the service.
The profit motive at the system level is misguided. But expecting and achieving profitability on high-demand, peak-time services? It's smart policy that funds the social equity components of the system without asking taxpayers to subsidise peak-hour commuters who could afford market-rate fares.
Should Public Transport Be Seen As A Public Service Like Health And Education?
The pendulum has swung hard in the other direction. Free or ultra-low fare public transport has become increasingly fashionable, with cities around the world implementing or seriously considering such policies.
The argument is compelling on its surface. Public transport delivers significant non-economic benefits: cleaner air, reduced carbon emissions, less congestion, better access to jobs and education, and improved social equity.
Health and education are provided free at the point of use because we recognise them as fundamental rights and essential services. Why shouldn't transport receive the same treatment? After all, what good is free healthcare if you can't afford to get to the hospital? What's the point of free education if the school is unreachable?
The theory sounds beautiful: make public transport free or very cheap, and everyone, especially people on low incomes, gets affordable access to opportunities. Problem solved.
Except it isn't solved. Not even close.
The Healthcare and Education Comparison
Let's examine what treating public transport like health and education would actually require.
When governments provide free healthcare and education, they don't just eliminate user fees. They commit to ensuring everyone has access to a minimum standard of service. Every community gets a school. Every region has hospitals and GP clinics. The government actively works to guarantee, though often fails to deliver, minimum quality standards.
For public transport to truly match this model, cities would need to provide both free fares and comprehensive service coverage. That means frequent, reliable service to every neighbourhood.
However, most cities are nowhere close to this level of service. Worse, the areas with the poorest public transport are precisely where low-income residents live. The people who would supposedly benefit most from free fares often have barely any service to access.
So treating public transport as a service like health or education requires a massive investment in two things simultaneously. We need to find money to both improve services and provide cheap fares.
This is where the argument leaves the realm of serious policy and enters fantasy.
The Fiscal Reality Gap
Advocates for free or very cheap fares acknowledge this will cost money. Their solution? Political choice. Raise taxes. Reallocate from other priorities. Implement wealth taxes. It's just a matter of will, they say.
What actually happens when cities implement cheap or free fares?
Let's be clear: governments face hard budget constraints. There isn't infinite money to go around, and different priorities compete for limited resources. Defence, healthcare, education, and debt servicing all make claims on government budgets.
When cities cut fares without securing permanent, dedicated funding increases to offset the lost revenue, two predictable things happen.
The Asset Management Death Spiral
First, asset management budgets get quietly cut. This is the money that keeps buses and trains running reliably, maintains stations and tracks, and funds the replacement of aging assets.
In the short term, cutting this spending seems painless. Buses still run. Trains still arrive. Politicians can point to low fares as evidence they care about ordinary people while hiding the deferred maintenance.
But over the longer term, the consequences compound. Trains and buses become older, dirtier, and less reliable. Signalling systems fail more frequently. Stations become grimy and unwelcoming. Small problems that could have been fixed cheaply become major failures requiring expensive emergency repairs.
The system slowly deteriorates. By the time the crisis becomes undeniable, the maintenance backlog is enormous, and the cost to fix it is staggering.
The Service Expansion Freeze
Second, service improvements stop happening. The business case for new routes or increased frequency depends heavily on expected fare revenue. When you've deliberately slashed that revenue, the numbers no longer work.
This wouldn't matter if cities already had all the public transport they needed. But almost no city is in that position. Growing populations need expanding services. New suburbs need connecting. Existing routes need more frequent service to handle demand.
Without fare revenue to make these expansions financially viable, they happen a lot less often. Service levels stagnate while the city grows around them. The public transport network becomes progressively less useful to an ever-larger number of people, driving them toward cars and worsening the system's performance.
When The Chickens Come Home
Eventually, reality catches up. The system literally starts falling apart from deferred maintenance. Services become so unreliable that even cheap fares can't keep riders. The financial situation becomes a crisis that can't be ignored.
This pattern isn't theoretical. We're watching it play out in real time.
The Vienna Wake-Up Call
Vienna has long been celebrated as a public transport success story, with an extensive network, high ridership, and low fares. It's the poster child advocates point to when arguing for the low fare model, with fares frozen since 2013.
However, Vienna is about to raise fares by 26% starting next year. The reason? A budget crisis. And given the city's debt levels, this may be just the first of several steep increases in the years ahead.
Unfortunately, evidence suggests that steady fare increases have little impact on patronage, whereas sudden large increases can significantly reduce patronage. It will be interesting to see what happens in Vienna.
The Utopian Vision Meets Reality
The vision of public transport as a universal service is emotionally appealing. Who doesn't want clean, frequent, reliable transport available to everyone at little or no cost?
But wanting something doesn't make it affordable or sustainable. The free fare movement promises equity but delivers the opposite. Low-income residents never get the services they need and so remain car-dependent, costing them many times what good public transport access would have cost them.
Treating public transport as identical to health and education sounds progressive. In practice, it's a recipe for system failure that hurts the people it claims to help.
A Third Way?
Public transport is fundamentally different from both pure commercial services and public services like health and education. Treating it as either extreme delivers poor outcomes for passengers, cities, and taxpayers. We need to stop pretending otherwise.
Public transport needs subsidies and always will. But what level of cost recovery should we target, and how does service quality interact with that target?
The Cost Recovery Spectrum
Should public transport aim for 20% cost recovery or 80%? The answer matters enormously because it determines how vulnerable the system is to fiscal pressures and political changes.
Some systems have historically maintained low-cost recovery, relying on substantial ongoing government subsidies while providing extensive service networks. When economic conditions are favourable and political will is strong, this model can work reasonably well.
But we're not living in that world anymore.
The Fiscal Storm Clouds
Government finances globally are under unprecedented strain. Large debts accumulated during the pandemic, aging populations driving up pension and healthcare costs, and sluggish economic growth are squeezing budgets across developed countries.
In this environment, governments face hard choices about priorities. Public transport is part of that competition, and it rarely wins when priorities clash.
The lower your cost recovery, the more vulnerable you are to these budget pressures. When fiscal crises hit, and they will, systems with 20-30% cost recovery face an impossible situation. They need massive government funding to survive, but governments have less money to give.
The result is fare increases to boost revenue, service cuts to reduce costs, and growing maintenance backlogs as asset management gets deferred again. Passengers experience a decline in service quality and affordability.
High Cost Recovery As Insurance
In contrast, systems targeting 80% cost recovery are far more resilient. They still need government support for capital investment and social obligations, but they're not as dependent on massive ongoing operating subsidies.
When fiscal pressures increase, these systems have options. They can absorb modest subsidy cuts without large service reductions. They can adjust fares gradually rather than dramatically. They can maintain service quality because they're not desperately scrambling for operating funds.
The Commercial Imperative
High cost recovery targets force transport agencies to be smarter and more creative about revenue generation. They can't simply depend on government cheques arriving each quarter.
When agencies need to hit cost recovery targets, they become more commercially astute. This mindset delivers better financial performance and often better passenger outcomes through improved facilities and services.
Low cost recovery targets remove this pressure. Why pursue complicated commercial arrangements when you can just request more government funding?
The Subsidy Still Matters
None of this means public transport should be fully commercial or that subsidies are bad. Strategic subsidies are essential and valuable.
Government funding should focus on:
- Capital investment in network expansion and major upgrades
- Community service obligations that lose money but provide social value
- Targeted concessions for students, seniors, and low-income residents
What government funding shouldn't do is subsidise peak-hour commuters who could afford market-rate fares, or prop up agencies that refuse to pursue commercial opportunities and operational efficiency.
The Political Challenge
The hardest part of this approach is political. Higher fares are unpopular. Politicians win votes by promising cheaper transport.
We need political leaders willing to make the mature argument: that reliable, high-quality public transport requires financial sustainability, and financial sustainability requires cost recovery targets that might not sound as appealing as "free" but actually work in the real world.
Moving Forward
Public transport will never make a profit at the system level, and that's fine. But it also can't survive on utopian promises of unlimited government funding.
The path forward is pragmatic: high cost recovery from profitable services, strategic subsidies for social obligations, commercial innovation to diversify revenue, and realistic expectations about fiscal constraints.
Conclusion
Public transport cannot realistically turn a profit when competing against heavily subsidised cars while fulfilling community service obligations. But that doesn't mean we should embrace the opposite extreme of free or nearly-free fares paired with wishful thinking about unlimited government funding.
When governments pursue very low cost recovery, they create a dangerous vulnerability. As government budgets tighten, and they inevitably will, these systems face a combination of fare hikes, service cuts, and deteriorating infrastructure. The dream of public transport as a free at the point of delivery public service collides with fiscal reality, often leaving passengers worse off than before.
The smarter path forward is to aim for higher cost recovery while maintaining strategic subsidies where they matter most. This means using demand management tools like peak pricing on profitable routes, generating revenue from property development and advertising, and yes, charging fares that reflect the value of the service provided.
Public transport is too important to treat as either a pure business or a utopian public service. It deserves a pragmatic approach that acknowledges fiscal constraints while building towards better, more extensive services. The cities that embrace higher cost recovery today will be the ones running better quality public transport tomorrow.