February 2, 2009
Revising Revenue Management: Houston Metro's Q Card
By RICHARD J. LOBRON
In January 2008, the Metropolitan Transit Authority of Harris County, or Houston Metro, implemented the Q Card “smart card” system in conjunction with the agency’s first change in fare policies in 14 years. Within six weeks, daily revenue collections grew significantly.
For a variety of reasons, Metro pursued new approaches to revenue management. Under the leadership of President and Chief Executive Officer Frank Wilson, the agency completely restructured its revenue management programs, pursuing new fare policies and revenue technologies and an organizational structure to manage revenue issues within a single activity center.
Complicated fare policies. Historically, Metro offered its customers more than 60 ways of paying fares, causing confusion among patrons and vehicle operators as well as a burden for managing instrument inventories, distribution to retail outlets, and reconciliation of sales transactions. The level of discounting on the agency’s $1 base fare, a rate last changed in 1994, also resulted in a very low farebox recovery ratio.
Rail requirements. With the arrival of rail, Metro needed a fare collection method for both bus and rail, but faced such problems as 16 rail stations constructed as open access, street-level platforms, without fare gates or other barrier systems; ticket vending machines (TVMs) that could not properly charge a stored value instrument for rail travel; and instruments produced by the TVMs that were not readable on the bus fareboxes.
New fare practices. Metro dramatically simplified its fare policies and products—improving revenue without raising fares—by using “smart card” technology, through ACS Transport Solutions.
The new policies simplified the fare structure, removed operators from patron confrontations on revenue issues, provided equitable discounting, and enhanced control over all forms of payment. Under the new rules, patrons received free transfers only with a smart card; transfers for cash payers were no longer available.
In addition, Metro eliminated the variety of discounts previously offered. Instead, all patrons received five free trips with every 50 paid trips. In this manner, agency policy provided the same discount to all frequent users, regardless of how much their trips cost. Metro also discontinued other costly discount products, such as the $2 day pass.
Further, Metro revised its cumbersome zone structure with a new policy calling for a single fare for each route, 24 hours a day.
Smart card system. Metro’s Q Card provides patrons with a single type of fare instrument—usable on both rail and bus—while producing a reliable way for rail inspectors to confirm that people pay the correct fare. Smart cards also decrease bus dwell times because patrons no longer must feed paper currency and magnetic stripe instruments into a farebox.
This new technology allows patrons to establish “subscription” accounts through which the card automatically refreshes its value when the balance reaches a pre-defined level. In addition, to provide convenient add-value sites, Metro installed Bus Banknote Reloading (BBR) devices on the rear of each local bus. Since the introduction of these devices, more than 70 percent of add-value transactions have used them.
Metro, LCL Advisors, and ACS worked extensively to deliver a complete smart card system to Houston. The final system included the installation of Bus Card Readers on each of the authority’s 1,200 buses, and TVMs and platform validators at each of the rail platforms. In addition, Metro installed 450 retail point-of-sale units at external sales locations and activated cashless point-of-sale devices and a bulk encoder for use in encoding large volumes of cards, as well as agency point-of-sale devices that could create photo identification cards for users of discount services, such as senior citizens, persons with disabilities, and students.
As the system approached completion, Metro managers from several departments performed extensive testing of the equipment. Through these efforts, Metro felt confident the system would meet all its needs.
The newly created Revenue Department, which assumed responsibility for the system’s final testing and operation, implemented an extensive distribution program. Marketing efforts targeted the “people in the seats,” existing riders who would be directly affected by the changes. These materials included bus cards and station posters that told riders how to use the system, the new Q Card, and the benefits awaiting them.
A key feature of the successful conversion effort was setting up numerous sites where patrons could obtain cards and add value to them, using outlets at local supermarkets and a variety of gas stations and convenience stores. In addition, the agency provided access for card transactions through the telephone, mail, and Internet; opened temporary sales offices at its 16 major transfer points; and placed devices on the buses. With TVMs at all rail platforms and credit point of sale devices at all park-and-ride sites, patrons now have more than 1,500 places throughout the service region, plus the Internet, where they can add value to their cards.
To date, the effort has generated an enormous response, with more than 400,000 cards issued over the initial 10 weeks of service. Metro processes more than 70 percent of its daily revenue transactions through the Q Card, and more than 70 percent of the add-value events occurring on the BBRs, with the web providing another sizable source of such transactions. Simultaneously, agency revenue has grown significantly and ridership has increased.
Converting to the Q Card, a key factor in providing Houston with a recognizable tool for use on all Metro operations both present and future, will clearly provide Metro with numerous benefits and a strong platform for future programs in Houston.