How Micro-Transit Companies Can Make America's Buses Hum

Editor's note: The following is the fifth chapter of the book Urban Policy Frontiers published by the Manhattan Institute.

Unpredictable, slow, and crowded, travel by public bus can be miserable. Little wonder that ridership is plunging in U.S. cities.[1] In New York City, ridership is down 16% since 2002, despite the city’s all-time-high population.[2]

Not all public buses are equally inconvenient. Local buses, the most frustrating, make frequent stops, often every two blocks, and usually lack any service improvements over the 20th-century mixed-traffic streetcars that they replaced. Slightly less inconvenient are express buses, which are limited-stop, long-distance commuter buses. Rapid-transit buses, the newest, most promising variety, typically drive up to a half-mile between stops, and they feature other efficiency-enhancing improvements, including dedicated lanes, fare payment before boarding, multiple-door boarding, and traffic-signal priority at intersections.[3] There is yet another solution to the woes of public buses: micro-transit.

And woes there are, starting with poor traffic management. Because congestion pricing[4] and dedicated bus, HOV (high-occupancy vehicle), and HOT (high-occupancy toll) lanes are uncommon, buses frequently get stuck in the significant traffic that chokes most U.S. cities. Bad service is the second challenge. Public buses typically arrive infrequently, stop too frequently, board slowly because of legacy fare systems (cash, magnetic swipe cards, or even tokens), and leave wide sections of cities unserved. High costs are the third challenge. New York, for example, spends $215 per vehicle revenue hour (the cost to run one vehicle for one hour of revenue service) on its local buses and $419 per vehicle revenue hour on its express buses.[5] Chariot, a “micro-transit” company discussed below, spends only about $85 per vehicle revenue hour.[6]

Public transit reformers have focused on rapid transit as a cure for the problems that ail America’s buses.[7] For highridership routes, rapid transit—if implemented with the key elements discussed above—has much to recommend it. But rapid transit won’t fix low-ridership routes, where riders already suffer most.

“I live right near the Metro in a high-density suburban area,” lamented economist Tyler Cowen in 2009, before the rise of car/ SUV-based transportation network companies (TNCs). “Yet I don’t take the Metro to my Arlington office, which is about two minutes from a Metro stop. I’d rather do the 37-minute drive. Why? Because I stop at the supermarket and the public library on my way home at least half of the time or maybe I stop to eat at Thai Thai.”[8]

Today, TNCs, which dispatch cars through smartphone apps, make not owning a car cheaper and more convenient for urban residents than in the past (see sidebar). TNCs offer both the convenience of prescheduled, door-to-door “black cars” and the lower prices of street-hail taxis.[9] According to their mission statements, Uber and Lyft, America’s two largest TNCs, aim to complement mass transit and reduce congestion by reducing private car ownership and boosting average vehicle occupancy.[10]

CAR to TNC?   Inconvenient public transport in many U.S. cities encourages residents—even those who rely on mass transit to commute to work—to own cars. TNCs may cause infrequent drivers to reconsider. In Boston, a monthly public transit pass costs $85 (or about $60, if purchased with tax-deductible dollars).[11] Meanwhile, the lowest monthly ownership cost of a car (excluding tolls and parking) exceeds $400.[12] Thus, if coupled with a monthly transit pass, Bostonians could spend at least $315 on TNCs per month before it would be worth buying even the cheapest car sold in the U.S.

TNCs are predominantly used for single pickup rides. In 2016, 80% of Uber’s rides were single pickup.[13] Unlike most taxis, however, TNCs have expanded their services to include rides with multiple pickups.[14] With UberPool and Lyft Line, riders get a discount for sharing their ride with others going in the same direction. Prices are set before booking, based on an algorithmic estimate of the likelihood of a suitable match. Uber (Uber Commute) and Lyft (Lyft Carpool) have also piloted services in which nonprofessional drivers get reimbursed for making pickups along the route of their daily commute.[15]

Yet TNCs have drawbacks, too. If they lure enough public bus riders into cars, the congestion gains from fewer people owning cars will be limited by the congestion losses of more TNC vehicles on the road. TNCs may also become significantly more expensive if the subsidies that riders and drivers currently enjoy are eventually ended, dampening their appeal to the less affluent.[16] And, for all their promise, TNCs, especially shared-ride TNCs, may never become more than a popular niche service. Lyft, for instance, quickly canceled Lyft Carpool because of low demand.[17]

While TNCs have received more attention and generated more controversy, minibus-based micro-transit companies (MTCs)—as well as TNC/MTC hybrids, such as Via[18]—may, in the long run, offer stiffer competition to public buses. MTCs, also through smartphone apps, cheaply connect people to minibuses going in the same direction.

Chariot, now the only pure MTC after rival Bridj folded,[19] seats up to 12 passengers in its minibuses. Chariot’s fixed routes and limited stops evolve over time to maximize efficiency. Seats typically can be reserved up to a day in advance. Via, on the other hand, ensures that passengers must walk only a short distance to their pickup spot (likewise, their drop-off spot is near their final destination); unlike Chariot, Via does not serve fixed routes, instead responding only to requested pickups and drop-offs.[20] Citymapper, a smartphone app that provides directions that exclude travel by car, has also begun a minibus service in London using data generated by users of its directions app.[21]

In addition to different types of vehicles (cars/SUVs vs. minibuses), TNCs and MTCs have different labor models. TNCs (as well as Via) partner with independent contractors, who supply their own vehicles. MTCs supply their vehicles and hire full-fledged employees.

Sophisticated algorithms allow MTCs to offer the kind of frequent service with limited stops that could make buses more appealing to affluent riders, greatly reducing the need for taxis as well as non-rapid-transit public buses. According to researchers at MIT and the University of California, 98% of the 400,000 daily (yellow) taxi trips taken in Manhattan—provided by 13,237 taxis—could hypothetically be provided by just 2,000 10-passenger vehicles, with an average waiting time of only 2.8 minutes and an average trip delay, compared with riding alone, of 3.5 minutes.[22] Ideally, cities would adopt congestion pricing to efficiently allocate road space. However, even absent congestion pricing, the fact that MTCs can carry more riders per vehicle means that they will add less congestion and pollution to roads than will TNCs.

Despite the huge company valuations of Uber and other TNCs,[23] the MTC business model may rest on a more solid foundation, especially in America’s denser cities. Unlike TNCs, MTCs have already proved their ability to profitably offer unsubsidized rides (in the $3.50–$6.00 range), in San Francisco and Austin.[24]

MTCs could help resolve problems in private bus markets, too. Demand is strong for private shuttle buses, which help fill gaps in America’s mass-transit systems.[25] Alas, most of America’s private shuttle-bus networks operate in relative isolation, unable to build the frequency and coverage of individual operators into a cohesive network. Coordination is difficult for passengers, too: Where does this shuttle stop? When does it arrive? Which of these parallel bus lines terminate at the airport? With MTCs, such coordination challenges can be outsourced to an algorithm. Riders simply enter their destination into their smartphone. They then receive mapped directions on where and when to meet their shuttle bus, as well as their estimated arrival time.

In addition to mapping the most efficient routes, MTCs could allow companies to easily open their services to other companies. For example, New York University operates frequent shuttles—many, undoubtedly, only partially full—throughout New York that could be used by other firms, which would no longer have to run their own shuttles. Boston’s GoBoston 2030 plan proposes a “consolidated smart shuttle system” to integrate that city’s various uncoordinated private shuttles.[26] Likewise, companies could replace their own shuttles with those of an MTC. Google, say, could sponsor a Chariot route in San Francisco and subsidize a monthly pass for its employees instead of operating its own smaller, closed bus network. An entire business improvement district could even sponsor a Chariot route for its member companies.

Yet another market opportunity for MTCs is as an outsourced provider of public transit. Public transit agencies could solicit “negative-price” bidding from MTCs, where bidders compete to offer the lowest public subsidy that they would need to operate the route with specified service quality.[27] This could be similar to London’s tendering and contracting system[28] but with the explicit goal of creating dynamic routes—routes that evolve in response to consumer demand, in real time in a predefined area or by the gradual evolution of fixed routes—and higher-frequency service. In such a scenario, public transit authorities would become managers, rather than operators, of the public bus infrastructure. Just as real-estate developers sponsor routes for their tenants and employers sponsor routes for their employees, public transit agencies would sponsor service with the goals of coverage, frequency, and equity.

The gains from such a switch would be considerable. A 2016 NBER working paper estimated that outsourcing the operation of America’s public buses to private firms would produce some $5.7 billion in annual savings for local governments, and it would also create some 26,000 new bus operator jobs.[29] With lower fares and/or better service, “aggregate ridership would increase from 5.2 billion to approximately 6.2 billion passenger trips [per year].”[30]

Low-ridership public buses offer excellent opportunities for experimentation with outsourcing to MTCs. Bridj unsuccessfully proposed a public-private partnership with the city of Boston after the latter canceled late-night rail service because of low demand. Bridj offered to operate a fleet of late-night minibuses for $85 per revenue hour—36% lower than the $132 per hour that Boston later spent on its own set of late-night buses. Bridj also promised that its dynamic routing technology would deliver 50% faster travel times than Boston’s existing buses.[31]

If public buses are more convenient, they will draw more riders, generate more fare revenue, and require a lower taxpayer subsidy. Outsourcing low-ridership lines to MTCs would have the double advantage of freeing up resources to invest in rapid-transit upgrades in denser areas with high bus ridership.

The lower operating costs and efficient dispatch of MTCs also reduce the ridership threshold necessary for feasible bus service. In 2010, New York cut 34 local and express bus routes during a budget crisis,[32] with only some of the routes later restored.[33] As of 2015, most of the routes that remained closed were those with fewer than 1,000 weekday riders (compared with 10,000–50,000 weekday riders for busy routes).[34] Under a public-private partnership, MTCs could serve these unserved areas only as frequently as demanded by riders, thereby enabling a restoration of service at far less cost to taxpayers. In other words, MTCs would do more than just make bus rides faster and more pleasant; they would also free up subsidy dollars for busy routes and expand service in poorly served areas.

For the immediate future, MTCs will mostly complement public buses. However, their convenience and efficiency mean that they will eventually develop into serious rivals of non-rapid-transit public buses. (If the speed with which TNCs disrupted local taxi monopolies is any guide, this may happen sooner rather than later.) Chariot’s monthly unlimited pass in San Francisco is $121—more expensive than that city’s monthly public transit pass but equal to the price of New York’s monthly public transit pass.[35]

Rigid work rules contribute to the high cost and inefficiency of many public bus systems. According to the NBER paper cited earlier, work rules for public bus employees “work in direct opposition to the heavily peaked demand of transit service. During midday lulls, workers may be paid even when they are not driving. On the other hand, if a driver works more than an eight-hour shift—extending between morning and evening peak demand—the additional hours are compensated as over-time pay.”[36] Loosening such rules to better meet public demand would deliver substantial productivity gains.

Certain areas, such as affluent Nassau County on Long Island, already outsource bus service to private firms. In these places, allowing bids from MTCs is unlikely to provoke major opposition. Yet in places where powerful incumbents, including some labor unions, will fight hard to protect the status quo, MTCs that hire full-fledged employees (unlike, say, Uber, whose drivers are independent contractors) may create goodwill that could be helpful in negotiating public-private bus partnerships. Drivers for Chariot in San Francisco, for example, recently organized under the Teamsters—a potentially shrewd move, politically, by Chariot.

Many logistical challenges of outsourcing bus service to MTCs could be tackled easily. Cities, for instance, could connect existing rider accounts to MTC accounts. Chariot has had initial discussions about how to integrate San Francisco’s public transit card into Chariot user accounts.[37] What about people without smartphones?[38] Cities and/or MTCs could install Internet-connected tablets—similar to New York’s new LinkNYC kiosks[39]—at existing bus stops to allow people to book rides. MTCs might also be required to offer their services via PC (as Chariot does), as well as provide some minimum bus service in areas where on-the-ground tablets are installed.

Transportation network companies and micro-transit companies are making urban life cleaner and more convenient.[40] TNCs, such as Uber and Lyft, have received more media attention—and many more riders, so far—than MTCs. Yet it is MTCs, led by Chariot, that could emerge as serious rivals to public buses, just as TNCs have disrupted local taxi monopolies. MTCs could also help fix flaws in private bus markets, such as the market for shuttle buses, which is difficult to navigate and plagued by overlap.

In the short run, cities should embrace the expanded choice that MTCs offer, especially to low-income residents, who now must depend on slow, unreliable public buses or expensive taxis. This means, at the very least, swiftly licensing reputable MTCs to operate, especially in areas that are poorly served by public transit and where existing rapid transit is overcrowded.

In the long run, cities should experiment with outsourcing the operation of public buses, particularly those with low ridership, to MTCs. Doing so will unleash a virtuous cycle: better service, more riders, more revenue, and fewer subsidies. With taxpayer dollars stretching further, cities will be able to invest more in high-ridership rapid-transit bus routes.

Micro-transit companies can help usher in a golden age for buses. But they’ll need further help from cities, in the form of congestion pricing and other data-driven tools that ration scarce roads to their most valued uses.

1. Henry Grabar, “The Astounding Collapse of American Bus Ridership,” Slate, July 21, 2016.
2. “Turnaround: Fixing New York City’s Buses,” TransitCenter.
3. Cities often miss out on the full benefits of bus rapid transit by failing to adopt all these features.
4. “Congestion pricing” is a broad term. I use it to mean “whatever pricing methods are necessary to cause free-flowing traffic at all times.” This could include HOT (high-occupancy toll)/HOV (high-occupancy vehicle) lanes, toll cordons around Central Business Districts, electronic pricing of vehicle-miles traveled inside the toll cordon, and surcharges on taxi/TNC (transportation network company) trips inside the toll cordon. See “What Is Congestion Pricing?” U.S. Department of Transportation.
5. TransitCenter.
6. Author’s correspondence with Chariot. Chariot offers charter vans in San Francisco, starting at $70 per hour. Bridj bid $85 per revenue hour for overnight service in Boston, consistent with other private bus contractors in Boston.
7. See, e.g., “Turnaround: Fixing New York City’s Buses,” Bus Turnaround Coalition.
8. Tyler Cowen, “A Cost-Benefit Analysis of High-Speed Rail,” Marginal Revolution, Aug. 27, 2009.
9. In the U.S., the major TNCs are Uber, Lyft, Gett, and Juno.
10. See, e.g., “Slugs on Earth Day,” Uber; and John Zimmer and Logan Green, “The End of Traffic,” Lyft.
11. “Fares and Passes,” Massachusetts Bay Transportation Authority.
12. Bengt Halvorson, “Misers’ Models: The Ten Cheapest Cars to Own,” The Car Connection, Feb. 22, 2013.
13. Ingrid Lunden, “Uber Says That 20% of Its Rides Globally Are Now on UberPool,” TechCrunch, May 10, 2016.
14. In New York City, for example, shared multiple pickups are permitted only at taxi stands or during states of emergency.
15. “Slugging,” or casual carpooling, has existed in limited pre-digital forms in cities with extensive HOV lanes. See, e.g., Alex Armlovich, “The Next Step in Ride-Hailing?” City & State, Nov. 3, 2016.
16. Alison Griswold and Akshat Rathi, “Is the Era of Cheap Uber Rides Over?” Quartz, Mar. 24, 2017.
17. Brian Solomon, “Lyft Shuts Down Carpool Commute Feature as Drivers Opt Out,” Forbes, Aug. 18, 2016.
18. Via is a hybrid because it uses independent contractors (as TNCs do) but has the multiple pickup features of an MTC.
19. Bridj closed its doors when negotiations collapsed on a potential partnership with Toyota. With only $10 million in funding, Bridj could not survive and scale in the face of UberPool and Lyft Line’s enormous promotions. Still, Bridj’s failure hardly portends the failure of all MTCs. Via has raised $137 million. And Chariot is now owned by Ford. See Adam Vaccaro and Curt Woodward, “Toyota Pullout Left Bridj Out of Gas,” Boston Globe, May 2, 2017.
20. Because TNCs use independent contractors while MTCs use employees, the former are, by law, limited to using cars and SUVs. In the long run, however, driverless vehicles will likely erode much of the distinction between MTCs and TNCs.
21. “CM2- Night Rider, Our First ££ Commercial Bus Route,” Medium.
22. Javier Alonso-Mora, “On-Demand High-Capacity Ride-Sharing via Dynamic Trip-Vehicle Assignment,” Proceedings of the National Academy of Sciences, Nov. 22, 2016. For computational feasibility, researchers condensed taxi pickups and drop-offs to the nearest cross-street.
23. Leila Abboud, “Uber’s $69 Billion Dilemma,” Bloomberg, Mar. 16, 2017.
24. “Common Questions About Chariot,” Chariot.
25. “Dollar van” shuttles, legal and illegal, have been popular in New York’s “transit deserts” (areas poorly served by public buses and trains) since at least the city’s 1980 mass-transit strike. Today, airport and hotel shuttles are ubiquitous. Real-estate developers often provide complimentary shuttles to and from developments. Universities provide shuttles for students and staff. Employers in Silicon Valley operate private vans to and from San Francisco.
26. “Go Boston 2030 Action Plan,” Boston.gov.
27. In negative-price bidding, routes (or route territory) are put up for bid. Operators bid on the subsidy that they would require to meet the specified service quality (or the franchise fees that they would be willing to pay along profitable routes).
28. “London’s Bus Contracting and Tendering Process,” Transport for London.
29. Rhiannon Jerch, Matthew E. Kahn, and Shanjun Li, “Efficient Local Government Service Provision: The Role of Privatization and Public Sector Unions,” National Bureau of Economic Research Working Paper No. 22088, Mar. 2016.
30. Ibid.
31. “Innovation Proposals—Late Night,” Massachusetts Bay Transportation Authority, Oct. 2016.
32. Michael Grynbaum, “Transit Agency Approves Cuts, and More Bad News Looms,” New York Times, Mar. 24, 2010.
33. Pete Donohue, “MTA Maps Out Route to New Bus, Subway Lines in NYC After Financial Crisis Cuts,” New York Daily News, July 15, 2013.
34. “Average Weekday Bus Ridership,” MTA.
35. Jen Kirby, “Get Ready to Pay More for a Subway Commute,” New York, Jan. 20, 2017.
36. Jerch et al., “Efficient Local Government Service Provision.”
37. Author’s correspondence with Chariot.
38. Age and information barriers, not income barriers, typically pose the great obstacles to smartphone ownership. Used smartphones are very cheap, with generic Android devices available for $50 or less. Some companies, such as FreedomPop, offer free smartphone service on the Sprint network, with 500 texts, 200 minutes, and 500 MB of data each month. See “100% Free Mobile Phone & Internet Service,” FreedomPop.
39. “Free Super Fast Wi-Fi. And That’s Just the Beginning,” LinkNYC.
40. “Car Sharing Increases Mobility, Decreases Greenhouse Gas Emissions,” Phys. org, July 20, 2016.