Do the economics of bike-sharing schemes stack up?

O Bike in Sydney. Image: Getty.

Have you ever walked past (or tripped over) a shared bike and wondered how it’s possible for the business to survive with a ride costing so little?

While bike-share schemes attract controversy in some places, the economic models behind such schemes actually have more to do with data mining, advertising and turning a profit from interest on the deposits than from the bike rental itself.

The most recent example in my own part of the world is Obikes. Launched in Australia in mid-June, there are currently over 1,250 dock-less Obikes in Melbourne and over 1,000 in Sydney. According to its marketing director, Obike’s Australian user numbers have increased rapidly since its introduction.

However, despite the promise of cheap and convenient access to bikes, Obikes have faced a number of challenges since their very first few weeks of operation. There have been complaints about Obikes clogging footpaths and becoming hazards as a result of people failing to park them within designated spaces, as well as complaints about Obikes hogging existing parking racks, leaving inadequate space for commuter cyclists to park their own bikes.

The massive potential for bike share schemes expansion

In theory, there are plenty of possible ways to make a profit from the shared-bike business. Its lucrative business models have proved attractive to entrepreneurs and investors.


The ride-and-pay model is the most straightforward profit-generating operation - but only one method of making the schemes profitable. For example, a half-hour ride of an Obike will cost the user A$1.99. If a bike is used for 10 half-hour trips per day, the total daily return will be A$19.9. A three-month operation could collect A$1,791. This will cover the initial investment made on the bikes, as well as some operational costs such as lost bikes and repairs - depending on the frequency of bike usage per day.

Bike-share schemes can also cash in on the deposits they require from users. The majority of schemes require users to register and pay a refundable security deposit to use the shared bikes (Obike asks for a deposit of A$69). Collectively, the amount of money held in the deposit pool is potentially enormous.

One Chinese bike-share company, Mobike, reportedly had over 100m registered users in June this year. The Mobike deposit account therefore held over 30bn yuan (about A$6bn) paid by the 100m users at 299 yuan per user. The interest earned from this sum alone is a huge income-generating asset, not to mention the scope to invest this money while it’s held in company coffers.

Data services present another significant potential income stream. The user database is huge – more than 100m trackable users in the case of Mobike. This can be used for marketing and the analysis of consumer behaviour if combined with other data sets.

Users’ riding behaviour data, captured by apps and GPS, complement very well the data sets collected from taxi and public transport systems by focusing on smaller areas. This data has a high commercial value to businesses in retail, restaurants and even car sales, as well as to local governments seeking more detailed information for urban planning and management applications.

Advertising is another means to generate profit by using both the physical body of the bikes to advertise as well as the app used to locate and unlock the bikes. However, the limited usable space on a bike and the short interaction time between the user and the app make it hard to generate significant income this way.

Teething problems persist but bike-share schemes likely to keep growing

In Beijing and Shanghai, where dockless shared bikes were first introduced, bikes have been thrown into rivers, garbage dumps and even into trees. Pedestrians are forced to push their way through swathes of parked dockless shared bikes, often leaving behind a trail of fallen bikes or bikes stacked on top of one another on footpaths. The Hangzhou government has seized tens of thousands of shared bikes in an attempt to reinforce bike parking laws.

Melbourne Lord Mayor Robert Doyle has complained that Obikes are the source of so much clutter that he has threatened to ban them altogether.

In spite of these ongoing problems, bike-share schemes continue to grow into new markets globally, with new schemes in Florence and Milan the latest examples. At the same time, withdrawals from the market by less competitive or poorly executed models are occurring.

Local controversies over shared-bike schemes are expressions of how resident behaviour, municipal bylaws and cycling infrastructure are all too often proving to be unprepared to embrace and support a new mode of urban transport.

The ConversationPublic and local government criticisms and complaints may delay (or in extreme cases) even ban the bikes from particular cities. But as long as the interest for capital expansion and the broad social, environmental and health benefits are recognised, these schemes will continue to grow globally.

Sun Sheng Han is professor of urban planning at the University of Melbourne.

This article was originally published on The Conversation. Read the original article.

 
 
 
 

The Réseau Express Métropolitain: the multi-billion dollar light rail project Montreal never asked for

Montreal from the summit of Mont Royal. Image: Getty.

The Réseau Express Métropolitain (REM) is the 67-kilometre, C$6.3bn light rail project Montreal never asked for.

It is the single largest transit project in Montreal in half a century. Not since the construction of the Métro has there been as bold a proposal: an entirely new mass-transit system that would have the effect of radically altering the city’s urban landscape.

Conceived, planned and costed by the Province of Quebec’s institutional investor, the Caisse de dépot et placement du Québec (CDPQ), the REM is currently under construction and slated to become operational between 2021 and 2023.

Once completed, it is supposed to provide high-frequency, intermediate-volume light-rail service on a regional level: connecting suburbs with the city centre along three axes and linking Montreal’s central business district with its international airport.

The REM may even connect to an as-yet unbuilt baseball stadium, or be extended as far as Quebec City, some 400km away, to replace the existing commuter rail network. Indeed, the REM has been strongly endorsed – by both the federal and provincial governments that back it – as a panacea for all of Greater Montreal’s transit and traffic congestion problems.
Since it was first proposed in 2015, the REM has been championed above all else as a guaranteed-to-succeed “public-public partnership”. A win-win, where various levels of government cooperate and coordinate with an arm’s-length government agency to produce much-needed new transit and transport infrastructure.

Unlike the more commonly known public-private partnership (of which there are some notable recent failures in Quebec), the obvious insinuation is that – this time – there’s no private interest or profit to worry about.

PR aside, the pension funds managed by the CDPQ are private, not public, wealth. The CDPQ’s entire raison d’etre is to profit. It has even gone to the lengths of “mandating” the REM to provide it an annual profit of about 10 per cent, a cost to be assumed by the governments of Quebec and Canada in the event the REM isn’t profitable.

The law that has made the REM possible has other interesting components. The REM is legally distinct from and superior to other public transit agencies and the extant regional planning authority. It has exclusive access to publicly-funded transit infrastructure. There’s even a “non-compete” clause with the city’s existing mass transit services, as well as special surtax on all properties within a 1km radius of each of the 26 proposed stations.

This latter element takes on a new dimension when you consider the CDPQ’s real-estate arm, Ivanhoé-Cambridge, has a near total monopoly on the properties surrounding the future downtown nexus of the REM, and is invested in suburban shopping centres that will soon host REM stations.

It seems that Montreal isn't so much getting a new mass transit system as a pension fund is using a new transport system to stimulate growth in a faltering if not moribund commercial and residential property sector.

Quebec’s public pensions have historically invested in suburban sprawl. As this market becomes increasingly untenable, and populations shift back towards the city centre, the REM is supposed to stimulate growth in “transit-oriented developments” centred on its future stations. The new surtaxes are likely intended to force sales of land for immediate redevelopment, so that new homes are ready to move into as soon as the system becomes operational.

It’s important here to remember that the city of Montreal wasn’t given several billion dollars by the government with which to spend developing its mass transit system. Rather, Quebec’s former premier asked the CDPQ to come up with a way to integrate several long-standing yet unrealized transit proposals. These included a light-rail system over Montreal’s new Champlain Bridge, an express train to Pierre Elliott Trudeau International Airport, and a dedicated commuter rail line for the Western suburbs. It was the CDPQ that proposed a fully-automated light-rail system that would use existing technology as well as some of Montreal’s extant railway infrastructure as an inexpensive way of uniting several different projects into an assumedly more efficient one.

So far so good. Cities need more mass transit, especially in the era of climate change, and Montreal contends with regular congestion both on its roadways and various mass transit systems. Moreover, access to the city’s already generally-high quality public transit systems is an important driver of property values and new residential development.

Considering the evident need for more transit, the REM theoretically provides an opportunity to kill several birds with one stone. Better still, the REM will in all likelihood stimulate the transit-oriented developments and re-urbanisation necessary for a more sustainable future city.

A map of the proposed network, with metro lines in colour and commuter rail in grey. Click to expand. Image: Calvin411/Wikimedia Commons.

The REM is the business “test case” on which two new government entities are based; the CDPQ’s infrastructure development arm, and the Canadian government’s infrastructure development bank.

The REM is also intended to stimulate economic activity in important economic sectors – such as engineering, construction and technology – that could soon be in high-demand internationally. Both the governments of Quebec and Canada see tremendous value in the economic potential of infrastructure mega projects at home and abroad.

This aside, the actual development of the REM has been complicated by what appears to be a bad case of over-promising and under-delivering, at least in terms of how seamlessly it could be integrated into the city’s extant transit and transport systems.

Though the train as originally conceived was intended to use an existing electrified railway line as the backbone of the network, it now appears that the REM cannot in fact be adapted to the line’s current voltage. The entire line, and the tunnel it passes through, requires a thorough overhaul, something that had last been completed in the mid-1990s. The new electrification, as well as the reconstruction of the tunnel, will cut it off from the regional commuter rail network. Rather than have different types of rail systems share existing infrastructure, the REM will force the premature (and unnecessary) retirement of a fleet of high-volume electric trains.

Consider that while the REM will connect the city with its international airport, it’s not planned to go just one kilometre farther to connect the airport with a major multi-modal transit station. Dorval Station integrates a sizeable suburban bus terminus with a train station that serves both regional commuter rail as well as the national railways network.

It’s difficult to understand how and why such an obvious and useful connection wasn’t considered. Given long-standing interest in high-speed and/or high-frequency rail service in Canada, La Presse columnist François Cardinal has noted that a REM connection between airport and a likely future rail hub would extend access to international air travel far further than just downtown Montreal.


The REM was also supposed to integrate seamlessly into the Montreal’s built environment, its promoters insisting construction could be completed with minimal inconvenience to current transit users. By the end of this year, REM-related construction will force a two-year closure of Montreal’s most-used commuter rail line, and sever the most recently-built rail line off from the transit hubs in the centre of the city. Tens of thousands of commuters throughout the Montreal region will be forced to make do will already over-saturated bus and métro service.

Though public consultations revealed these and other flaws, concerns raised by the public, by professionals and even some politicians were largely ignored. The REM also failed its environmental assessment. The provincial agency responsible for such evaluations, the BAPE, stated baldly that the project wasn't ready for primetime and lambasted the CDPQ’s lack of transparency. In turn, the BAPE was accused of exceeding its mandate. The REM made a similarly poor impression, with transit users groups, architects and urban planners criticizing the project in whole and in part.

The main points of contention are that the REM won’t do much in the short term to alleviate congestion across the city’s existing – and comparatively expansive - mass-transit network. Quite the opposite: it is already beginning to exacerbate the problem.

Because the REM was conceived without the involvement of either the city’s main transit agency or the regional transit planning authority, its progress is hampered by a wide-variety of problems that would otherwise likely have been planned for. And because it’s a mass-transit solution to what is primarily a political consideration, the REM will provide higher-frequency service of dubious necessity to the city’s low-density suburban hinterland, much of which already has ample commuter-focused transit service. The high-density urban-core, which is most in need of transit expansion, will benefit perhaps least of all.

While it’s unlikely the REM will fail outright, it’s also unlikely to stimulate much new interest in using mass-transit services: it will first have to win back those who may abandon mass-transit while the REM is being built. Providing higher-frequency service to suburbia is the kind of thing that sounds good in theory, but doesn’t respond to commuters’ actual needs. Arguably the REM’s best feature – its real-estate development potential – has been somewhat obscured from public view because of obvious conflicts of interest. The REM’s limitations – and there are many – will for the most part only become known once the system is operational, at which point it will be too late.

The REM provides interesting theoretical avenues worthy of exploration – particularly the potential relationships between new transit development and how it may stimulate new growth in the housing sector. But building a new transit system – especially one this large and complex – ultimately requires the fullest possible degree of cooperation; with transit users, extant transit agencies and regional planning bodies.

Ignoring the recommendations of experts, the public and government assessment agencies for the sake of expediency is never a wise idea. When it comes to designing and implementing the mass-transit systems of the future, the needs, wants and opinions of users must be paramount. In Montreal, it appears as though they were an afterthought and an inconvenience.

Whether Montrealers will be able to vote with their wallets remains to be seen. As things now stand, it appears the city’s bus network will be forced to integrate with it, removing redundancy and ensuring that users won’t have much choice but to use it.

It’s difficult to imagine how forcing people to use a transit system they never asked for will encourage greater use.