The Business of Bike Hire

New York’s Citibike has made financial news for being deep in the red. The more politically aware of its extensive ridership worry that it might need a public bail-out which won’t be forthcoming.

London’s Boris Bikes have experienced falling ridership over the past year after user fees were doubled in order to make up for a significant shortfall in revenue despite sponsorship from Barclays. Barclays is withdrawing even that partial support in 2015.

Other bicycle hire services have also hit rocky financial waters for a variety of reasons. The Blackpool scheme collapsed as Government funds dried up and no sponsorship deals could fill the gap. Oxford saw the operator of its pilot scheme go into administration, although a new contractor has recently been appointed.

As short-term, public bicycle hire spreads to towns and cities around the globe, local enthusiasm is not always matched by sound business planning. Therefore, local governments who have or are planning bicycle hire might want to consider the following points:

  1. Short-term, public bicycle hire should be considered a new public transport service. Few such services can run commercially (i.e. on fare-box income alone) from the outset. Most are publically subsidised or cross-subsidised by other more established, lucrative services. Local governments need to be realistic and set aside a fixed amount to support bicycle hire for a set number of years until other income streams can meet the demands. Or choose to keep the subsidy going as long as the service itself, not an uncommon situation for public transport services – nor for other public services including road maintenance.

     

  2. From buses to car clubs, is there any other form of public transport where most users pay a relatively low annual subscription and then almost never pay any use charges (e.g. per trip or time or mileage)? A trend that in popularity has ignored not only party affiliations but even national political systems has resulted in a fare structure where annual membership fees are a mere fraction of the cost of other public transport season tickets allowing ‘unlimited’ travel. Time charges for members are only applicable after an initial free period (e.g. one half hour), which is sufficient for the majority of journeys. The result is that even a popular service like Citibike loses money. If political masters seriously want bicycle hire to operate without taxpayer support, they might need to make rather unpopular decisions about fees for subscription and use. To avoid the outcome in London last year, alternative fare structures could be offered, such as monthly membership, group rates or bundled rental hours for occasional users.

     

  3. Sponsorship and advertising are not the same thing. Sponsorship is an agreement between the city or operator and sponsor for exclusive branding on all or part of the infrastructure, hard (bicycles, stations) and soft (website, publicity). The big question for sponsors is how valuable this exclusivity is – if it’s not worth enough to cover operating costs, then it cannot be the sole income to maintain a bicycle hire service. Services noted for their financial success, such as Dublin, have often chosen advertising instead. Bicycle hire is part of a wider advertising contract, where a company that specialises in outdoor advertising from billboards to bus shelters also use panels on bicycles in an ever-shifting montage of brand placement and fresh images.

     

  4. As well as reviewing ways to increase income, there are options to reduce costs. Infrastructure costs may be paid for by an initial grant or other injection of funds, but the cost and quality of the bicycles and locking/access system will influence the costs of maintenance and replacement. The supplier market has greatly expanded in the last 10 years, increasing competition and choice. The maturation of bicycle hire systems has also seen improvements in technology and anti-vandalism/anti-theft features that reduce ongoing costs.

     

  5. The biggest operating cost is usually redistribution. Unlike other forms of public transport, the hired bicycle is in the user’s control. At the end of his trip, he may return it to a different place than where its journey began. The cost of staff and vehicles to ensure that bicycles are available where and when potential users want them is steep. It is often greatly increased if congestion means redistribution trips are longer than the bicycle hire trips. Redistribution using bicycles with bicycle trailers or carrying the bicycles on buses that travel in bus lanes might reduce journey times. Other journeys might be eliminated if storage containers of bicycles are kept at particularly popular stations. Whatever the method, reducing the cost of redistribution has a major impact on the long term viability of bicycle hire.

In conclusion, bicycle hire is an exciting innovation for public transport that has sprung up in cities on 5 continents, mainly in the last decade. To survive, the proponents of bicycle hire must correct unsustainable business models. The above list does not claim to be comprehensive, but it hopefully provides insight into why some of these new services have suffered a few punctures.

3 thoughts on “The Business of Bike Hire

  1. Pingback: Finding the Phasing | H D Budnitz

  2. Pingback: Bikeshare: Poster Child or Passing Fad | Go-How

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