Title: Public Transportation Crisis in Israel: Profitability Soars as Service Quality Declines
Subtitle: Private Companies Benefit from Government Subsidies Despite Failing to Meet Franchise Conditions
[Location], [Date] – The public transportation sector in Israel is facing a severe crisis due to a decline in service quality and a shortage of drivers. Despite significant subsidies and promises of increased competition, the use of public transportation has been steadily decreasing for years. This has led to congested roads filled with private vehicles and a lack of viable transportation options for the public.
In an attempt to address these problems, the Ministry of Transport initiated a reform in 2001 aimed at increasing competition between operators. Prior to the reform, only two companies, Egged and Dan, controlled 95% of the industry. The ministry signed agreements with private companies to reduce operating costs and improve services. Since then, 28 companies now compete for operating tenders published by the ministry.
However, the shortage of at least 4,000 drivers and the inability of many private companies to meet franchise conditions have hindered the industry’s progress. This has resulted in a decline in service quality and profit losses for some companies. The companies argue that the lack of profitability is the result of sectoral problems placed at the door of the Ministry of Transportation.
Interestingly, despite claims of unprofitability, capital funds that purchase public transportation companies have been boasting to investors about the industry’s stability, profitability, and the significant amounts of money received from the state. This raises questions about whether private companies are passing on risks to the state while protecting their own interests.
According to sources, over 2% of planned bus trips did not happen in the second half of last year, accounting for approximately 330,000 missed trips. Companies like Metropolitan and Dan had cancellation rates of 5.37% and 6% respectively. Surprisingly, the Ministry of Transport did not disqualify these companies from managing public transportation contracts in Eshkolot, despite their failure to meet concession conditions.
While private companies continue to enjoy an increase in revenue, there is a growing need for changes in the tender conditions. Ongoing problems such as the lack of drivers should be addressed, and companies should not be incentivized to prioritize quantity over quality by racing to the bottom.
For instance, Generation Capital, the fund that purchased Metropolin, acknowledged the difficulty in recruiting drivers and claimed that the Ministry of Transportation approved thinning of public transportation lines by up to 3% without affecting revenues. Last year, Metropolin reported a revenue increase of NIS 17.6 million. The company’s financial success is attributed to low bids that helped it secure tenders.
Another company, Electra-Afikim, owned by the Electra Group, disclosed that the state’s subsidies are not solely dependent on the demand for services but are based on kilometers traveled. These subsidies guarantee a significant cash flow for the operator. This could explain why Electra was willing to pay NIS 74 million to acquire a controlling stake in Amnon Masilat.
Critics argue that private companies, despite profitability and stable income, continue to burden the public purse with costs. They believe that these companies should take responsibility for increasing driver wages to fulfill their obligations, rather than relying on the Ministry of Transportation.
Egged, a veteran in the industry, stands apart from other companies due to different agreements signed with the state for protection and employee benefits. Egged claims to have no difficulties in recruiting drivers and boasts a low rate of trips that do not depart on time. The company also generates revenue from additional profitable ventures such as real estate.
As the public transportation crisis in Israel persists, it is crucial for the Ministry of Transportation to address the systemic issues plaguing the industry. This includes reviewing tender conditions, ensuring adequate driver recruitment and wages, and holding private companies accountable for their obligations. Only then can the decline in service quality be reversed, leading to a revitalized and efficient public transportation system for all Israelis.