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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Content of the module
• Aim of the module• Business development structure• Business model
– Definitions– Influencing factors and characteristics for FTS systems– Selecting business model for FTS
• Organisational issues• Legal and regulatory issues• Financial and income basis
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Aim of the Module
• To give an overview about the knowledge necessary to provide an operating and also from business point of view successful flexible transport system
• To support operators and those want to become operator in this field to make the business successful
• To help authorities, regulatory bodies and financing agencies to recognise the business element of FTS systems and
• To advise them how to be able to cooperate properly by initiating, providing and operating such systems and to control them.
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
The business development issue is divided into 3 subtitles: business model, organisational aspects, legal and regulatory framework
Business development
Business model
Organisationalaspects
Legal and regulatory framework
Business development structure
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
What is a business model?Definition 1 Definition 2 Definition 3
•business model describes all the mechanisms involved in generation of revenues•the objective of a business model is to describe the internal processes concerning the production of a good or service and the various business roles that the involved actors play in this process •business models are used as the conceptual and architectural implementation of a business strategy or mission
Business model is the way and system of•how the service provision is initiated•which market actors are•how the market actors are connected to each otherhow the responsibilities are distributed amongst the market actors•how the financing is secured
A business model provides the description of•the architecture for product or service flows, •the actors involved in the business processes and their objectives and roles, and •the various benefits and costs of the involved actors
Each of the above 3 definitions contains new elements compared with the others but none of them can be regarded as complete. They all together give the idea what the business model is about.
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Business model and its surrounding environment
Thesis: The business processes are happening in a certain economical, regulation, legislative etc. environment. The business model is therefore influenced by this environmental elements which make the applicability and successfulness of a certain business model option different under different environmental circumstances.
Environmental elements Characteristics of business model
Aspects about how the business model operates
Element 1 Characteristic 1 Applicability
Element 2 Characteristic 2
Successfulness
Element i Characteristic k
A business model refers to the organization and operation of a business system within a specific political, institutional, legislative, and economical environment.
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Role and significance of a business model
• Business model is a factor of successful provision of the service
• It influences the service level and economical balance of the service
• Business model should be harmonized with local circumstances
• It is important to choose the right business model for the existing conditions
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Selecting the right business model for FTS
FTS has specialities which make influence on selecting BM
Attributes determining the characteristics of the appropriate business modelmobility requirements intended to serve by the FTS system,
type of service provided
type of markets served
Legislative characteristics of the given area
Financial conditions
Selection of the right business model for FTS is a complex task by which many aspects should be taken into
consideration
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Choosing
business
model
Type of market
Financial conditions
Success of service
Economicalefficiency
Mobility demands
Service quality
Legal background
Type of service
Another demonstration on BM components
Factors influenced by choosing business model
Influencing factor
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Summary of factors influencing BM selectionType of service Mobility needs Type of market Legal background Financial conditions
Point-to point Small Same as transit Point deviation Medium
Law defines regulation for FTS and facilitates it On restricted
basis
Rou
ting
&
sche
duli
ng
Route deviation
General public
Size
Large No mechanism Non-pre-booking Urban
Law prevents or restricts FTS
Direct booking Suburban No legal regulation
Elig
ible
for
subs
idy
excluded
Wide time-window
Feeders to fixed routes
Peri-urban Specific licenses needed for operation
Same as transit
Boo
king
co
ncep
t
Collecting requests Geo
grap
hica
l ar
ea
Rural No specific licenses needed On restricted basis
Stand alone service No mechanism Feeder service
Service to disabled
Monopole
Elig
ible
for
reim
burs
emen
t
Excluded
Rel
atio
nsh
ip to
PT
Service with multiple roles
Same as tr.
Non peak hours
Service provision is initiated by public authorities
Dedicated Low demand zones
Social service Quasi-monopole
Service provision is initiated by operators
Specific program
Airport connection Operation is based on contract
Local auth. budget
Ordinary bus substitution
Social service budget
Ope
ratio
nal c
onte
xt
Users mobility impairments
Mixed use
Deg
ree
of c
ompe
titio
n
Competitive
Operators are selected by tendering process
Sour
ce o
f pub
lic fu
ndin
g
No public funding
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Example for FTS service characterisationType of service Mobility needs Type of market Legal background Financial conditions
Point-to point Small Same as transit Point deviation Medium
Law defines regulation for FTS and facilitates it On restricted
basis
Rou
ting
&
sche
duli
ng
Route deviation
General public
Size
Large No mechanism Non-pre-booking Urban
Law prevents or restricts FTS
Direct booking Suburban No legal regulation
Elig
ible
for
subs
idy
Excluded
Wide time-window
Feeders to fixed routes
Peri-urban Specific licenses needed for operation
Same as transit
Boo
king
co
ncep
t
Collecting requests Geo
grap
hica
l ar
ea
Rural No specific licenses needed On restricted basis
Stand alone service No mechanism Feeder service
Service to disabled
Monopole
Elig
ible
for
reim
burs
emen
t
Excluded
Rel
atio
nsh
ip to
PT
Service with multiple roles
Same as tr.
Non peak hours
Service provision is initiated by public authorities
Dedicated Low demand zones
Social service Quasi-monopole
Service provision is initiated by operators
Specific program
Airport connection Operation is based on contract
Local auth. budget
Ordinary bus substitution
Social service budget
Ope
ratio
nal c
onte
xt
Users mobility impairments
Mixed use
Deg
ree
of c
ompe
titio
n
Competitive
Operators are selected by tendering process
Sour
ce o
f pub
lic fu
ndin
g
No public funding
Characteristic to the given example
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
It is advantageous to serve several types of needs with the same service higher efficiency
Mobility needs typically served by FTS services
• special services to disabled or elderly people• low-fare transportation especially for poor people and students• prearranged ridesharing paratransit (e.g. for school children and
commuters)• provision of transport services to rural or urban areas where the
conventional transport system fails to cover due to decreased economic viability
• transportation demand in rural areas• ”premium product”.
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
FTS service typology by routing and scheduling concepts
• Point-to-point where the transport entities are picked up at a given place within the service area after a service request and they are dropped-off to the associated destination
• Point deviation which is a transport service between two endpoints with a fixed schedule and a set of fixed intermediate stops. The vehicles may deviate from the route in order to cover a request (drop off or pick up passenger)
• Route deviation service which is provided between two endpoints with a set of fixed intermediate stops on a fixed route and it is planned on a fixed schedule
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
FTS service typology by booking concept
• Non-pre-booked trips: the passenger does not need to book the trip in advance but he or she can fix the trip at the boarding stop of the vehicle by directly notifying the driver.
• Direct booking: the passenger communicates with the operator and sets a trip request. Then the operator provides the passenger with one or more service proposals and the passenger selects his preferred service and confirms the associated booking.
• Wide time window-trip notification: The passenger communicates with the operator and sets his/her trip request. The operator allocates to the specific trip request a service with a wide time window. After collecting the trip requests the operator identifies the optimum routes and schedules and notifies the passenger to announce him/ her the exact departure time.
• Collecting requests - defining service: In this booking option the operator collects the trip requests and then communicates with each passenger to announce his/ her associated service and confirm it with him.
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
FTS service typology by operational context of the service
• Non peak hours: refers to a service that provides flexible transport for those areas where there is no regular transport available out of the peak hours.
• Low demand zones: a service to be provided in areas of very low density of population or industrial areas where people access only for work.
• Airport connection: In order to assure the connection between the airport and the urban areas, flexible transport services areorganised.
• Non reachable by ordinary bus services: There are certain areas which due to their location are not reachable by ordinary bus services. The solution is to establish a flexible transport service to cover these areas.
• Users mobility impairments: the provision of flexible services is oriented to the inclusion of users with mobility impairments.
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Methodological approach for selecting a business model
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Fundamentals of organisational aspects
• FTS concept consists of different stakeholders that have to co-operate. Organisational issues regulate the forms of this co-operation.
• Organisational framework of FTS includes models of organisations involving public, semi-public and private organisations.
• Organisational framework contains the main actors of FTS and their possible roles.
• Organisational issues are closely related to legal and regulatory framework and national legislations.
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Main actors and roles
• Public service providers are trying to offer public transport services to the inhabitants of their area with as good as possible level of service and cost efficiency.
• Operators are trying to offer viable and sustainable services to public service providers.
• Other actors are stakeholder groups whose business associates with FTS.
• Clients and End users have needs for using FTS.
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Public Service Providers
Operators
Other Actors
Passengers
State Province / County Branches of Administration of Municipality Social Insurance Institution Other Public Sector Actors
Operator of the Traffic Dispatch Centre Provider of the Dispatch Software Transport Operators
Taxi Operators Public Transport Operator
Private Sector Actors Service Providers (Other than transports) Call Centre Assistant service Client Interest Groups Consultants
Anyone The Elderly Disabled People Healthcare patients Students.
The actors have different roles and responsibilities
in different organisation models.
Detailed table of possible actors in FTS
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Overall organizational structure
Branches of Administration of Municipality
SERVICE PROVIDERS
OPERATORS
CLIENTS
Social Insurance Institution
State Other Public Sector Actors
Province / County
Taxi OperatorsPublic
Transport Operators
Operator of theTDC
Provider of the Dispatch Software
Healthcare patients StudentsThe ElderlyAnyone Disabled
People
Service Providers (other than transport) e.g. Call Centre,
Assistant service, ..
Private Sector Actors
Client Interest Groups Consultants
OTHER ACTORS
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Interaction among main actors
• Comparability of current organisational models is important if they are going to be used as a benchmark. The current models should be describedas simplified structures where interactions between actors are easily seen.
Interaction among main actors
Actor 1 Actor 2 … Actor n
Actor 1
Actor 2
…
Actor n
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Roles and responsibilities
• Funding of Transport• Control of Transport• Possible Competitive bidding process of operators• Decisions for transport subsidies• Trip dispatch• Reporting of transports• Compilation of statistics• Billing and clearing• Information services• Co-ordination of Transports• Operations (Practicalities) of Transports• Developing and updating of the dispatch software• Feedback• Feedback handling
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Example for possible interaction among actors
⎯Trip paymentTrip ordersFeedbackClients
⎯⎯Updating of software,
Technical support⎯
Provider of the Dispatch
Software
Practicalities of transports⎯Transport data⎯
Transport Operator
Trip dispatchPayment of Software
Inform of transport needs
Reports and Statistics, Invoicing
Operator of the Dispatch
Centre
Decision for transport subsidy⎯
Control, Payment of transport operations
Control, Payment of trip dispatch
operationsMunicipality
ClientsProvider of
the Dispatch Software
Transport Operator
Operator of the Dispatch
CentreMunicipality
⎯Trip paymentTrip ordersFeedbackClients
⎯⎯Updating of software,
Technical support⎯
Provider of the Dispatch
Software
Practicalities of transports⎯Transport data⎯
Transport Operator
Trip dispatchPayment of Software
Inform of transport needs
Reports and Statistics, Invoicing
Operator of the Dispatch
Centre
Decision for transport subsidy⎯
Control, Payment of transport operations
Control, Payment of trip dispatch
operationsMunicipality
ClientsProvider of
the Dispatch Software
Transport Operator
Operator of the Dispatch
CentreMunicipality
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Main aspects of legal regulatory framework
• The nature of passenger transport services which can be offered
• Who can offer passenger transport services• The relationships among the different actors• Obligations on the provision of mobility services • Rights of citizens (including specific groups) to mobility services• Restrictions on services and service types• Operational and technical requirements• Financing requirements and subsidies• Access to the market• Freedom or restrictions on innovation and entrepreneurship• Protection for specific market or operator sectors
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Difficulties about FTS service regulation (1/3)
• There is no common definition of FTS, even for passenger transport
• Within passenger transport, there is a huge diversity from conventional buses that deviate from their route on demand
• Many regulatory frameworks do not recognise concepts such as FTS. They are of the form “what is not permitted, is forbidden”
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Difficulties about FTS service regulation (2/3)
• The legal provision for licences for routes/lines often require them to specify quite precisely the start/end points, the route taken, departure times etc. Flexible route concepts do not fit within these frameworks
• The definition of collective passenger transport often excludes the vehicle types, operational characteristics, service concepts, tariff structures etc. of FTS
• Many legal/regulatory frameworks prohibit concepts of FTS to protect either the service bus or the taxi sector. These prohibitions were made at times when FTS concepts were not possible
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Difficulties about FTS service regulation (3/3)
• In many countries, passenger transport services require explicit permission of the transport authority, and specify or restrict the type of entity that can organise such services
• In some countries, financial support (subsidy) is onlyavailable for scheduled passenger transport services. DRT and other FTS is not recognised, and therefore not eligible
• Similarly, in some countries, free or reduced rate travel for elders and special needs groups is only available to legally recognised service types. Again, FTS can be excluded because it is not specifically included
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Financial and income basis
• Commercial basis. In this case the flexible transport system is established and operated by private organizations without receiving any public commission. The operators hope to make profit from fares.
• Gross cost basis. In this case the operator is recompensed on a cost-plus basis per unit.
• Net cost basis i.e. the operator gets paid an additional amount per unit to supplement the fare box revenue. In this option the operator carries or shares revenue risk.
• Lump sum i.e. either gross or net cost but not directly linked to the actual production
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Cost structureFixed Semi Variable Variable
• Premises and Depots• Vehicles• Insurance and vehicle tax• Overheads (accounting,
payroll, ticketing)• Systems (investment and
support)• Travel Dispatch Center• MIS• In-vehicle systems• Other ITS (ticketing
information)• Interest and financial charges• Others
• Drivers• Supervisors• Dispatchers• Maintenance (Staff)• Maintenance
(Consumables, tyres)• Communications• Training• Marketing and
information• Ticket sales
(commission)• Others
• Fuel & Lubricants• Contracted services
(e.g. Taxis, extra capacity)
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Commercially viable FTS
These are services that are either profitable, or operate within acommercial context (e.g. temporary losses are accepted as a service is built up or a loss-making service is compensated by its positive financial effects on a service network as a whole).
Acceptable subsidy FTS
This is where FTS requires only the same (or less) subsidy than other comparable tendered services
Justifiable higher subsidy FTS
This is where a subsidy above that comparable to tenderedservices can be justified. This may be due to the operational area (e.g. deep rural areas cost more anyway), that FTS is replacing inherently even more expensive transport, or because it is yielding significant cross-sector benefits.
Financially unsustainable FTS
This may be demonstration and trial projects or other serviceswhose losses remain very high.
Financial performance of FTS
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Profitability (1/2)Currently there are very few commercially profitable FTS schemes operating.
The key lessons of the commercial and near-commercial FTS schemes appear to be
• Services should be simple to understand.• The use of simple, manual, developments of taxi or hire car
systems tend to have an associated low cost base.• In planning commercial FTS services it should be recognised
that they are often a premium product.• Commercial or near-commercial FTS occupies small niche
markets.• Commercial or near-commercial FTS needs sufficient and
evenly spread demand.
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
• The FTS industry has historically been driven by the social exclusion agenda. Thus fares are usually comparable to that of bus services, and in some cases considerably lower.
• For many FTS schemes, the continuing need for subsidy focuses upon a longstanding rationale for FTS services. This is that, on a per trip basis, FTS is still often far cheaper forpublic authorities to provide than conventional specialist health, education, or social service transport services. This isthe justifiable higher subsidy rationale.
When introducing a FTS scheme it is important to clarify the market it is intended to serve, and to identify the classification of the expected financial performance, i.e. whether it is expected to operate commercially, at acceptable subsidy or at a higher justifiablesubsidy.
Profitability (2/2)
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
Conclusions about businessdevelopment
• There is not harmonisation within Europe for the organisational,regulatory, fiscal or market frameworks for passenger transportation.
• The FTS business development knowledge repository involves a set of guidelines and recommendations on implementing alternative FTS business strategies
Level of control which the FTS promoter/owner has over this dimension
Timeframe within which influence can be exerted by FTS promoter/owner on this dimension
•Business Models High Rapid
Organisational Frameworks
Medium to low Medium
Legal and Regulatory Framework
Low to nil Long-term
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Flexible Transport Training Module E, 25.09..2004 by Szechenyi I.University
Module E: Business development
The end of the Module E