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Understanding Metro do Porto’s successful business strategy

Posted: 31 August 2012 | João Nuno Aleluia, Exploitation Department Manager, Metro do Porto | No comments yet

Metro do Porto (MP) integrates six municipalities of the Porto Metropolitan Area (PMA). Playing the backbone role of PMA while structuring the territory, MP offers a high capacity urban transport network, furthering the integration of modes and operators.

From its early stages, MP focused on the capacity and technical performance of the network system, but this gradually evolved into focusing on clients and business, and by the end of the first phase of network construction (between 2000 and 2006), MP’s main concern shifted to optimising transport supply by effectively using resources to maximise the use of the metro system to reflect the PMA’s growing population and demand.

The primary business objective of MP is to carry the maximum possible number of passengers every day. Its vision is to promote sustainable mobility and the region’s com – petitiveness, while creating a quality service to ensure citizens’ well-being.

Metro do Porto (MP) integrates six municipalities of the Porto Metropolitan Area (PMA). Playing the backbone role of PMA while structuring the territory, MP offers a high capacity urban transport network, furthering the integration of modes and operators. From its early stages, MP focused on the capacity and technical performance of the network system, but this gradually evolved into focusing on clients and business, and by the end of the first phase of network construction (between 2000 and 2006), MP’s main concern shifted to optimising transport supply by effectively using resources to maximise the use of the metro system to reflect the PMA’s growing population and demand. The primary business objective of MP is to carry the maximum possible number of passengers every day. Its vision is to promote sustainable mobility and the region’s com - petitiveness, while creating a quality service to ensure citizens’ well-being.

Metro do Porto (MP) integrates six municipalities of the Porto Metropolitan Area (PMA). Playing the backbone role of PMA while structuring the territory, MP offers a high capacity urban transport network, furthering the integration of modes and operators.

From its early stages, MP focused on the capacity and technical performance of the network system, but this gradually evolved into focusing on clients and business, and by the end of the first phase of network construction (between 2000 and 2006), MP’s main concern shifted to optimising transport supply by effectively using resources to maximise the use of the metro system to reflect the PMA’s growing population and demand.

The primary business objective of MP is to carry the maximum possible number of passengers every day. Its vision is to promote sustainable mobility and the region’s com – petitiveness, while creating a quality service to ensure citizens’ well-being.

What is Metro do Porto’s focus on clients and business?

Firstly, it is to identify the critical aspects for an attractive service to regular and occasional customers, and then to work and control those same aspects with a perspective of mediumterm sustainability.

Let’s divide our approach into two plans: transport business and non-transport business. For each one we’ll address the revenue issue first, and then costs.

The transport business

In the transport business, the first step is to ensure there is good knowledge of the market and to understand our customers’ behaviour, their wishes and willingness. MP monitors various aspects of daily supply, paying special attention to customers’ complaints, and observes and analyses demand data and controls performance indicators as well as critical systems’ availability. MP also conducts market research on customers and non-customers.

MP’s operational knowledge and experi – ence, market research and constant bench – marking, led to the identification of the following critical factors in terms of basic transport service:

  • Reliability and availability
  • Frequency and speed
  • Safety and comfort
  • Price.

The price of public transport services in Portugal is based on political decisions (variable); it is not controlled by MP itself. All the other variables are controlled by MP on a daily basis, with clear objectives previously defined for each of them.

Transport supply planning is a key element of trade policy. MP’s main goal is to provide, at all times, adequate transport capacity and service to all its clients – offering the maximum capacity and frequency during peak hours (20 services/hour) and a minimum of four services/hour in off-peak periods. The service between these two points is can be adjusted, when possible, to the demand and the technical limits of the system.

Whenever there is a significant event in the PMA, such as town festivals, concerts football games or other major sporting events, which places high demand on the transport network, MP’s supply is always custom tailored for that specific event. This results in more than 40 days of special network operations each year and passenger demand records grow year after year.

Supply planning has a strong impact on its own reliability due to its influence on the use of systems such as signalling and electric power, and its direct effect on human resources allocation and the wear of the rolling stock.

The quality of maintenance also plays an important role, whether it concerns the cleaning of stations and vehicles, or planning preventive and corrective maintenance of various systems. For instance, if there is a problem with an escalator in a station with high passenger volumes, automatic alarms will sound to warn MP’s commercial agents deployed in the network, and the control centre, so that the problem can be solved as quickly as possible, and scheduled maintenance can be arranged during periods where there is no transport service.

All of these activities have to be developed in the most effective and least expensive way, but to always have in mind the importance of achieving a sustainable metro network.

It seems clear that MP’s policy, with regard to revenue, is to maximise sustainable demand for the metro service. Effective and careful brand management and company communication with customers and non-customers can positively contribute to this policy. Therefore, service and performance information is made available on MP’s website, making sure the MP brand is taken care of every day.

What about costs? How do we work?

The driving element of the economy, regional competitiveness and sustainability is clearly the public. But it is important to highlight that MP believes that the management of resources allocated to the production when held by a private entity is more efficient than public management. MP is a public company and has assumed the position of manager of tenders and contracts – the main ones being the operation and maintenance of the built metro network, overhauls and security.

Considering this framework, the main tool that should be used is the regular competitive tender to ensure the correct technical services are used at the lowest possible price. Therefore, MP hires transport production management and maintenance to third parties through international tenders for a short period (five years). The short contract period is crucial to reduce the risk of opportunistic behaviour by the subcontractor, minimising the information asymmetry and the freedom degrees that would minimise the income transferred to the private sector.

The prospect of renewing the contract, or rather of a new contract, is the most effective mechanism for the alignment of interests and goals. It is the most effective way to reduce the likelihood and opportunistic appropriation of additional revenues by the private agent (subcontractor).

Regular public tenders, whenever com – petitiveness is achieved, ensure the provision of adjusted pricing either in the case of recurring contracts, as the operation and maintenance, or in singular contracts as major repair, replacement or even construction.

The technical specifications and agree – ments should be as complete as possible, allocating to private entities the risks and functions that they can manage better. The production level and adjustment mechanisms should be defined as clearly as possible as well as maintenance obligations, monitoring indicators and bonus/malus mechanism.

The definition of the aforementioned elements is crucial to the price obtained in public tenders, since they are crucial for the perception of risk, to the development of production and level of remuneration defined by the private entity.

The principles applied to the definition of the operation and maintenance contract are similar to other smaller contracts, such as security and ticket inspection.

Non-transport business

Metro do Porto also manages a car park network which is closely associated with the policy for making sure people can access the metro network easily. One of MP’s stations has a Park & Ride system that is fully integrated with intermodal ticketing and contactless technology (‘Andante’), allowing users to park their car and travel on the metro network with a single ticket.

MP’s non-transport business approach has focused on the maximisation of utility and perceived value by the customer, as well as business sustainability in the medium-term. The following four areas are considered:

  • Commercial spaces/stores in the metro system and related facilities
  • Advertising on the network
  • Rental of infrastructure
  • Consultancy services to third parties.

The process of holding commercial areas on the metro network has been developed through the choice and selection of partners, by public consultation, invitation and direct contact, ensuring a recognised utility service for customers with service level aligned with the positioning of Metro do Porto. There were two stores in the beginning of the system, which has increased to the 11 shops and 69 vending equipment now available, with six more stores planned to open by the end of 2012. Automatic vending machines ensure service in stations and periods with low demand, which gives an adjusted solution to the metro’s reality (running 20 hours day, 365 days a year).

Advertising on the network is mainly controlled by a SPV that works with a billboard’s network operator, which sells networks and outdoor advertising panels nationwide. It is also marketed in the case of MP, large format advertising, full decoration of stations or stops and vehicles.

Advertising on the metro TV channel is also a business reality, built in partnership with a media group, which provides entertainment and informational content. The rental is fundamentally based on the infrastructure capacity to supply fiber optic services to telecommunication operators, or provide technical space for the installation of communications infrastructure.

The provision of consultancy services is taking its first steps and aims to harness the knowledge, know-how and reputation of a successfully installed light-rail network – Metro do Porto won the UITP’s Best New Light-Rail System in 2008.

The non-transport business activities are still with reduced impact on the structure of costs and income, but they have a very significant role in the value perception associated with the metro trip experience, being relevant in the global business of MP and its medium-term sustainability.

The success of MP’s business strategy is reflected by its positive results, i.e. growing volume of customers, trips, revenue and market share, as well as the increasing performance and improving its bottom line (89% of operating costs covered by the revenue of the system in 2011).

 

About the author

João Nuno Aleluia is a Graduate in Economics and has complementary formation in Transports, Marketing and Management, and has been a university lecturer for several years. He is now Manager of the Exploitation Department at Metro do Porto and also General Manager of Transpublicidade and Member of the Audit Council at Energaia. At Metro do Porto, he has been Financial Manager, head of systems and administrative and planning departments. His activity started with Consulting, followed by a post as Financial Manager at Metalomecanic Industry and Distribution, and Director at a MBA school.

 

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