Should customized bus services offer long-term tickets? An analysis of profitability and market impact

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 framework for optimizing ticket menus and pricing strategies in commuter-oriented CB and similar demand-responsive transportation (DRT) systems, considering factors such as passenger heterogeneity, time discount rates, and operational costs. Results show that a hybrid ticket strategy, combining single-period and long-term tickets, generally yields higher profitability than either option alone, even though long-term tickets involve a larger per-period discount. However, when the unit satisfaction deviation cost is low, long-term tickets may cannibalize short-term ticket sales, but this effect can be offset by raising the single-period ticket price, leading to higher revenues. when the unit satisfaction deviation cost is high, expanding market coverage under the hybrid ticketing strategy does not necessarily increase operator profit; limiting coverage can produce better financial outcomes by reducing ticket cannibalization and enabling more effective price discrimination.