Cost Characteristics of Bus and Jeepney Transport Systems

in Metro Manila
Josephine M. Bayan
M.A. Urban and Regional Planning (Transportation Planning), 1995
School of Urban and Regional Planning, University of the Philippines Diliman
Adviser:
Dr. Olegario G. Villoria, Jr.
Associate Professor, School of Urban and Regional Planning
University of the Philippines Diliman
Abstract: In this research, the cost structures of bus and jeepney transport systems in Metro Manila were
studied and cost functions for bus and jeepney modes were developed in order to identify policy
recommendations related to the cost aspect of public transport regulation and management. It is found
out in the study that economies of scale exist in bus operations, there is no conclusive result on
economies of scale obtained for jeepney operations, bus-kilometer and average speed significantly affect
cost of operations; and fuel consumption is a major component of total operating cost.

1. INTRODUCTION
In Metro Manila, buses and jeepneys are the
predominant modes of public transportation.
But then, though they largely cater to the
transport needs of the metropolitan area and its
environs, operators are always claiming that the
business is unprofitable and that they are
incurring huge losses. Along with this, the bus
and jeepney fare rates regulated by the
government have been incessantly questioned as
to whether they are reasonable or not. This is an
issue faced not only by the government and the
operators but by the transport users as well,
considering that the decision to be arrived at
should strike a balance between the price and
quality of services accorded to the transport
users and level of profitability afforded to the
transport investors to enable them to
continuously provide services.
And an
important aspect of these regulatory and
profitability issues is the determination of the
cost of public transportation investment and
operations.
1.1 Objectives of the Study
The objectives of the study based on the
aforementioned background, are the following:
a) To understand the cost structure of bus
and jeepney industries in Metro Manila;
b) To compare the cost characteristics of
bus and jeepney modes;
c) To develop a cost model for bus and
jeepney modes; and,

d) To
formulate
general
policy
recommendations related to the cost
aspects of public transport regulation
and management.
1.2 Significance of the Study
The findings of this research can be used as a
basis or guide in formulating decisions or
policies on:
a) Resource Allocation Cost models can help
answer the questions on economies of scale.
Awareness of such information would give
an idea or assessment of the present
undertaking and relating these findings with
other transport indicators such as ridership
and the present level of service would help
in coming up with some recommendations
that would encourage the improvement of
the existing system.
b) Measures of Productivity Cost models
could indicate what particular areas of
public transport operations significantly
affect total system cost. This could be done
by relating cost with transport productivity
variables such as kilometer-run, revenue,
number of passengers and others. And this
would result to the identification of specific
areas of operation that significantly
influence public transport cost for a
particular productivity gain.
1.3 Scope and Limitations
The focus of this research is on bus and jeepney
routes plying the thoroughfares on Metro
Manila. The metropolitan area includes the

cities of Manila, Kalookan, Valenzuela, Taguig

and Las Pinas. The research covers only
financial cost. It does not deal with costs of
externalities created by transit operations, such
as air pollution and delays due to congestion.
2. PUBLIC TRANSPORT SYSTEMS IN
METRO MANILA
2.1 Overview on Metro Manilas Transport
Systems
Public transport in Metro Manila is dominated
by road-based systems, such as jeepneys, buses,
taxis and tricycles. Rail-based systems, such as
the light rail transit and commuter train system
are also in place but they have very few
riderships because of their limited coverage.
The jeepney has the highest mode share of 55%
while the bus has 15% shares. The private
vehicle has a 30% share while rail-based
systems, the Light Rail Transit (LRT) and the
Philippine National Railways (PNR) commuter
train have relatively insignificant share.
2.2 The Bus Industry
Scale and Market Share of Bus Operators
Approximately 381 bus companies carry urban
bus operators in 1994. Records from the LTRFB
indicate that 273 companies with a fleet size of
at most ten (10) units are approximately 73% of
the total number of companies. A scale-based
classification of these companies is as follows
(Table 1):
Table 1. Classification of Bus Operators
Number of Units
Share No. of
Companies
10 units & below
72.4% 276
companies
11-25 units
10.8% 41
companies
26 up to & including 6.8% 26
50 units
companies
51 up to and including 6.0% 23
100 units
companies
more than 100 units
3.1% 12
companies
These large operators (fleet size > 100) control
approximately 34% of the total number of
vehicles while those companies with a fleet size
of ten units at most control about 43%.
However, all of these units constitute a very
minimal share (1.0%) on the total number of
vehicles registered in Metro Manila.

Policies Related to Procurement of New and

Used Buses
Executive Order Number 352 issued on March
29, 1989 reopened the bus importation program
known as Bus Installment Procurement
Program (BIPP). Its objective was to beef up
the number of public utility buses in Metro
Manila.
Used buses or second-hand buses refer to used
completely built-up (CBU) passenger buses with
rated gross vehicle weight (GVW) greater than
12 tons, and of models which are not more than
10 years old.
Under the program, MMTC was tasked to
manage its implementation. The corporation
purchased the bus units and offered them for
installment-purchase to qualified operators on a
tax-free basis.
Only qualified franchise holders of public
transport buses duly registered with the LTRFB
were allowed to participate and whose
qualifications were defined in the Executive
Order Number 354.
Problems in the Industry
Aside from the competition imposed by other
modes, there are other problems being
encountered by bus operators, which were
presented during the First General Conference of
the Confederation of Land Transport operators
(COLTOP) in October 10, 1994. They are
summarized as follows:
a) Existence of colorum vehicles;
b) Enforcement of traffic rules;
c) High cost of brand new buses and spare
parts;
d) Safety
e) Traffic congestion; and,
f) Impossibility of complying with air
pollution standards.
2.3 The Jeepney Industry
The jeepney has evolved into a major mode of
transportation in the country. The popularity of
this mode could be attributed to its:
a) Local availability manufacturing
technology is readily available;
b) Intermediate size or capacity
compatible to most of Metro Manilas
road network and configuration; and,
c) Accessibility provides services at
practically any time of the day and place
that equates to an almost door-to-door
service.

These factors eventually led to the

unprecedented growth of the jeepney industry.
In 1994, the jeepney industry accounted for 40%
of total vehicles registered in Metro Manila.
Presently, there are over 350,000 units plying
the Metro Manila routes (Sevilla-Mendoza,
1994).
But its popularity has given rise to many
problems as follows:
a) Presence of colorum or unauthorized units
that compete with legally registered
vehicles;
b) High level of air polluting emissions;
c) Proliferation of backyard manufacturers
whose products are considered quite unsafe;
d) Inconsistent enforcement of traffic rules and
regulations, which further aggravates the
problem on drivers behavior such as
improper loading and unloading and
imprudent driving.

Staff Wage
3%
Crew
Wage
52%

Fuel Cost
45%

Figure 1. Operating Cost

Staff Wage
13%

Rehabilitation
22%
Spare Parts
65%

Figure 2. Maintenance Cost

3. DATA COLLECTION AND ANALYSIS

A list of bus operators was obtained from the
LTRFB.
The operators were ranked and
grouped. These samples were subjected to an
interview with the aid of an interview guide.
For the jeepney part, the data was taken from the
Jeepney Operations Interview Survey conducted
by then Ministry of Transportation and
Communications (MOTC) as part of the study
entitled Financial Assessment of Jeepney
Operations.
Systems and Management
Dynamics Inc. and the MOTC undertook the
study jointly in 1985.

Rentals

Consumables
9%

9%

Wages
82%

Figure 3. Administration Cost

Insurance
1%

4. COST CHARACTERISTICS
4.1 Bus Transport System
The total cost borne by transport operators is
broken down as follows:
a) Operating cost;
b) Maintenance cost;
c) Administration cost; and,
d) Fixed cost.
Operating costs have the highest percentage
share of 62.3% followed by maintenance costs,
which have 23.4%, and administration costs,
which have 3.6%, share.
Operating,
maintenance and administration costs were
further broken down into their sub-components
to get an idea about the likely predictors for the
cost modeling.

Depreciation
45%

Acquisition
54%

Figure 4. Fixed Cost

Oil
23%
Repairs
49%
Tires
28%

Figure 5. Maintenance Cost

Other
43%

Registration
or
Licensing
57%

Figure 6. Fixed Cost

4.2 The Jeepney Transport System
The total cost of providing jeepney transport
services is not so complex as that of the bus.
Given that a jeepney unit has adequate fuel and
mechanically fit, a driver can readily ply his
route. And since operators usually own only
one unit, administration is quite simple and thus
does not entail any cost for it. The total cost of
jeepney operations maybe broken down into the
following components:
a) Operating cost;
b) Maintenance cost; and,
c) Fixed cost.
Operating Cost
The structure of jeepney operations: drivers
wage has 66.1% share while fuel cost takes up
35.7%. Maintenance costs incurred while the
vehicle is in transit was considered under this
category, which includes tires cost, oil and other
repairs.
5. COST MODELS
5.1 Bus Sector
The resulting models of this study were
developed in validation of Nelsons cost model
(Equation 1), which is as follows:
Ln C = 0 + 1 LN B + 2 ln w +
A + 5 S + 6 PUB + 5 s

ln VEL + 4
(1)

And, this was done through multiple regression

analysis technique by utilizing Statistical
Analysis Software (SAS) as a tool.
After several manipulations, two models
(Equations 2 and 3) came out to be statistically
significant and they are as follows:
ln Total Cost = 0.799 = 0.8565 ln B
0.3492 ln BH
ln Total Cost = 2.473 + 0.6091 ln B
+ 0.2418 ln F
where B = total bus-kilometer

(2)

(3)

BH = bus-kilometer per bus-hour

(average speed)
F = fuel cost
The first model (Equation 2) was significant
with an F-value of 13.73, r-square of 0.6176, a
p-value of 0.0003, while the significance of the
second model (Equation 3) is indicated by an Fvalue of 25.202, r-square of 0.7369, and p-value
of 0.0001.
Using reference equation by Berndt (1990), the
models show positive economies of scale in bus
operations in Metro Manila. The second model
also indicates the significance of fuel cost. It
implies that a 100% increase in total cost would
approximately increase fuel cost by 24%.
5.2 Jeepney Sector
Following similar procedure used for the bus
sector, two models (Equations 4 and 5) for the
jeepney transport system also came out to be
statistically significant. They are as follows:
ln Total Cost = 2.473 + 0.5815 ln F
ln Total Cost = 1.735 + 0.728 ln D
where F = fuel cost
D = drivers wage

(4)
(5)

The first model (Equation 4) for the jeepney

mode is significant with a p-value of 0.0001, and
F-value of 39.725 at 49 degrees of freedom. For
this model, fuel cost is the significant
explanatory variable.
The second model (Equation 5) is significant
with a p-value of 0.0001, and F-value of 78.485
at 49 degrees of freedom. Drivers wage or
income is the significant variable.
5.3 Findings from the Cost Models
The total cost model analysis for the bus mode
indicated the following:
1) A 100% increase in bus-kilometer
would approximately increase total cost
by 84%;
2) A 100% increase in fuel cost would
approximately increase total cost by
24%;
3) Average speed is negatively correlated
to total cost; and,
4) Positive economies of scale are present
in Metro Manila.
The total cost model for the jeepney mode
indicated the following:
1) A 100% increase in drivers wage would
approximately increase total cost by
73%;

2) A 100% increase in fuel cost would

approximately increase total cost by
58%; and,
3) The analysis on economies of scale
showed inconclusive results. However,
there are indications, that there may be
no economies of scale in jeepney
operations.
6. SUMMARY AND CONCLUSIONS
6.1 Bus Industry
The bus industry controls an approximate share
of 15% of the total daily person trips in Metro
Manila. There were 3,861 authorized bus units
in 1994, which represents only 1.0% of the total
registered vehicles in the metropolitan area.
Small companies also dominate the industry.
The cost structure of bus operations revealed
that a large portion is spent on operating cost
which 62.3%, followed by maintenance cost
which comprises 23.4%, then by fixed cost
which is 10.6% while administration cost has
3.6% share.
Operating cost was further broken down into
crew wages with 51.9%; fuel cost with 44.8%;
and operating staff wages with 3.6%
Operating cost was further broken down into its
sub-components with their corresponding
percentage share as follows: a) maintenance cost
with 65.1%; b) maintenance staff wages with
12.7%; and c) rehabilitation cost has 22.2%
share.
The items for fixed costs are: a) acquisition cost
with 54.2%; b) depreciation cost with 44.6%;
and, c) consumable cost with 8.8% share.
The final cost models for the bus mode are as
follows:
1) ln Total Cost = 4.799 + 0.8565 ln B 0.3492
ln BH
2) ln Total Cost = 2.473 + 0.6091 ln B +
0.2418 ln F
where B = total bus-kilometer
BH = bus-kilometer per bus-hour
(average speed)
F = fuel cost
The cost models developed indicated that a
100% increase in bus-kilometer would
approximately increase total cost by 84%. And
increasing fuel cost y 100% would increase total
cost by approximately 24% also, while average
speed is negatively correlated to total cost.

The models indicated the significance of total

distance traversed for the day and average speed
on the total cost borne by the operators. And
based on the models parameter estimates the
presence of economies of scale was deduced.
Relating these findings with the current
condition of the bus transport system, there is
definitely a need to improve the turn around
time of public utility vehicles because it affects
fuel consumption and the systems productivity.
6.2 Jeepney Industry
This mode of transport has an approximate share
of 55% of the total daily person trips. There are
about 350,000 jeepney units that are plying the
major and minor routes of the metropolitan area
in 1994.
The cost structure of jeepney operations showed
that a large portion is spent on operating costs,
which comprise 91.2%
Itemizing operating costs further, it was found
out that drivers wage accounts for a 61.1%
share, while fuel cost accounts for a 35.7%
share. Maintenance cost for jeepney operations
is relatively minimal in comparison with
operating costs, which include tire cost, oil cost
and other repair costs.
The jeepney cost models:
1) ln Total Cost = 2.473 + 0.5815 ln F
2) ln Total Cost = 1.735 + 0.728 ln D
where F = fuel cost
D = drivers wage
The cost models show that a 100% increase in
drivers income would approximately increase
total cost by 73%. And increasing fuel cost by
100% increase would approximately increase
total cost by 58%. No conclusive statistical
results were found regarding economies of scale.
However, given our understanding of the cost
structure of jeepney modes it appears that there
may be no economies of scale in jeepney
operations.
7. RECOMMENDATIONS
Based on these findings, the government should
encourage the growth of large bus companies.
On the other hand, from a cost perspective, there
is no need to regulate the size of jeepney route
operations. And also, there is a definite need to
improve the turn around time of public utility
vehicles for it significantly affects fuel
consumption, which is a large component of bus
and jeepney operating costs. Lastly, due to the

difficulty encountered in collecting data for this

research, the government should require bus and
jeepney owners to periodically submit basic
financial reports as a condition for the grant of
CPCs. This way, the government can have a
better basis for making regulatory policies.
REFERENCES
1. Bayan, J.M. et al. (1994) Supply System
Analysis of Commercial Passenger Transport
in Metro Manila, Second Annual
Conference of the Transportation Science
Society of the Philippines, Manila.
2. Berndt E. (1990) The Practice of
Econometrics: Classic and Contemporary,
Addison-Wesley Publishing Company.
3. Ministry
of
Transportation
and
Communication
(1985)
Financial
Assessment of Jeepney Operations, Draft
Final Report.
4. Sevilla-Mendoza,
A.
(1994)
Safety
Standards for Jeepneys, Philippine Daily
Inquirer, October 13, 1994.