Should Customized Bus Services Offer Long-Term Tickets? An Analysis of Profitability and Market Impact

Abstract

This study investigates the profitability of the inclusion of long-term tickets in customized bus (CB) services, a flexible and high-quality transportation mode designed for routine trips such as commuting. Unlike traditional public transportation, CB services require reservations and have higher ticket prices, raising unique ticketing considerations. While long-term tickets can boost loyalty and satisfaction, they also bring additional costs, such as upfront payments and higher default risk. Passengers must assess how their expected usage matches the validity of long-term tickets, factoring in discounted future utility and potential dissatisfaction from mismatched durations. This study develops a theoretical model to analyze optimal ticketing strategies, considering factors like passenger heterogeneity, time discount rates, and operational costs. Results show that a hybrid ticket strategy, including both single-period and long-term tickets, generally yields higher profitability compared to single-period or long-term ticket strategies. However, when passenger preferences exhibit low heterogeneity, long-term tickets may cannibalize short-term ticket sales. The results imply that higher demand heterogeneity and reduced pricing uncertainty can enhance profitability. This research offers a theoretical framework for optimizing ticket menus and pricing strategies in CB and similar demand-responsive transportation (DRT) systems, providing valuable insights for operators seeking to balance profitability with user satisfaction while addressing the unique ticketing dynamics inherent to CB services.

Keywords: Customized bus, demand-responsive transportation, ticketing strategy, long-term ticket, demand heterogeneity