Iceland Review - February-March 2023

With ambitious climate goals, rising oil prices, and an energy transition underway, many Icelandic politicians want to de-centre the private automobile. One might assume that public transportation in Iceland would simultaneously see increased support. Sadly, this has not been the case, and, in addition to large budget deficits in 2022, public bus service Strætó has seen significant cuts in service, alongside some of the largest price hikes in recent years.

Cutbacks

In the spring of 2022, Strætó announced in a revised budget report that it would need an additional ISK 750 million [$5.3 million; €4.9 million] to be able to continue operations. Later, in September, it revised this figure to double the amount: ISK 1.5 billion. In a statement at the time, Strætó’s CEO Jóhannes Svavar Rúnarsson cited decreases in revenue due to COVID-19, increasing fuel prices, and increasing labour costs following a the implementation of a shortened work week as key causes of the operational deficit. Strætó ridership, and therefore revenue, peaked shortly before the outbreak of the COVID-19 pandemic and has still not completely recovered, with Jóhannes estimating a loss of around ISK 1.7-1.9 billion [$11.9-13.3 million; €11-12.3 million] due to COVID-19.

The budget deficit has also caused a reduction in service, including route reductions, longer wait times, and the elimination of the night bus. The night bus, a weekend service aimed at providing an alternative to taxis for partygoers, was first discontinued due to low utilisation during the pandemic. After a two-year hiatus, the service returned for a trial period this year, running from July to

September, during which time ridership numbers were assessed. Statistics revealed that numbers averaged 14 to 16 passengers per bus, for a total of some 300 to 340 passengers served every weekend. According to Strætó, these numbers fell below acceptable levels, and they decided to discontinue the service once more.

The return of the night bus became a political issue, as it formed one of the election promises of the Progressive Party in municipal elections last spring. In December 2022, Reykjavík Mayor Dagur B. Eggertsson proposed further municipal funding for Strætó to continue its night service at a city council meeting, to the tune of ISK 51 million [$358,000; €330,000]. As of the time of writing, the night bus service is slated to return in 2023, but only within the city of Reykjavík, not the surrounding area. As it stands, none of the additional service reductions are set to be reversed in the foreseeable future.

Funding

Alongside service reduction, a fare hike was also introduced to offset costs. Single tickets alongside both monthly and yearly passes rose in price by 12.5%, one of the largest fare hikes in the system’s history. Where a single ticket previously cost ISK 490 [$3.44; €3.17], it now costs ISK 550 [$3.86; €3.55]. Monthly passes, by far the most popular among residents, rose from ISK 8,000 to ISK 9,000.

In 2021, Strætó’s operating budget comprised a total of ISK 8.6 billion [$60 million; €56 million], of which ISK 1.85 billion came from fares, 4.06 billion from municipalities (Reykjavík by far leading in its financial contributions), 1.03 billion from the state, and 1.6 billion from

FOCUS Public Transport

Photography by Golli Words by Erik Pomrenke

other sources, including Pant, a transportation service for disabled people.

To address the dual impact of rising costs and reduced service, some have called for increased state contributions to Strætó. The ISK 1 billion [$7 million; €6.5 million] received by Strætó in 2021 included an additional contribution of ca. ISK 100 million for COVID-19 relief. However, because Strætó went into the pandemic with ca. ISK 600 million in cash reserves, the state contribution for COVID-19 relief was far smaller than it would have been. These funds had been earmarked for the new fleet of electric buses, and now that the pandemic has wiped out Strætó’s cash reserve, a new bus fleet seems a far way off.

Additionally, the annual state contribution of ISK 900 million [$6.3 million; €5.8 million] was last assessed in 2012 and is not indexed to inflation. This means that in terms of the real value of the state contribution, Strætó receives less and less money every year. ASÍ, the Confederation of Icelandic Labour, recently issued a report comparing state subsidies for electric vehicles to state contributions to public transportation. The report showed that in 2021, Strætó received ca. ISK 1 billion in state funding, while state subsidies for EVs totalled ISK 9.2 billion. These subsidies overwhelmingly benefit higher-income earners, who may already be in a position to purchase an EV without a discount. On average, every EV sold in Iceland is subsidised with ISK 1.1 million in state funds, and every plug-in hybrid vehicle with ISK 932,000.

Statistics show a clear correlation between income level and utilisation of Strætó, with 31% of Icelanders in the lowest income

bracket using Strætó daily, compared to 12.3% of the highest income bracket. Similar trends can be seen in age, with both the very young and very old highly dependent on Strætó, in addition to students, renters, people with disabilities, and the unemployed.

Icelandic politicians are rightfully serious about the energy transition, but in order for it to be a just one, public transportation must be granted a more central role.

Making the switch

A recent report on pollution in the capital area stated that already by January 6 of this year, pollution exceeded acceptable levels more times than are permissible in an entire year. This surprising news also called the ageing Strætó fleet into question. In statements on the matter, Minister of Environment Guðlaugur Þór Þórðarson has called for municipalities to cut down on emissions by reducing the number of diesel vehicles.

Although some construed the minister’s comments as blaming public transit for the excessive pollution levels, nearly all agree that the bus fleet needs an update. Very few of Strætó’s current fleet of 160 vehicles are electric, but in the coming months, there are plans to add an additional 25 electric buses to the fleet. The state contribution to Strætó is also set to be reassessed soon, and Strætó board member Alexandra Briem is optimistic that they will be able to increase funding, precisely through the same EV subsidies that have, up until now, only benefited the owners of private vehicles.

A new app

Strætó also introduced a new ticketing app, named KLAPP, in late

IN FOCUS Public Transport

Photography by Golli Words by Erik Pomrenke

2021. The app itself was originally designed by FARA, a Norwegian developer specialising in ticketing systems for mid-sized European transit systems. Citing security flaws in the previous app, Strætó also began phasing out its paper tickets, giving patrons until March 2022 to trade in any paper stubs for credit on the app. Now, KLAPP is the only way to use the bus system in the capital area, although the rural intercity buses use a separate payment system.

The initial adoption was bumpy, with many passengers unable to board buses because of system errors. The previous app which KLAPP replaced, named Strætó, worked simply enough, requiring the passenger to show the electronic ticket to the bus driver. With KLAPP, a new QR code system was introduced, meaning that passengers now had to scan the ticket on the ticket reader aboard the bus. However, upon scanning, many passengers were greeted by red frowny faces and the error message: “Invalid ticket.” The new app also did away with popular features from its predecessor, including the ability to track one’s bus in real time.

Late in 2022, Strætó also experienced difficulties with its scanners, which stopped functioning. The scanners are currently being replaced at the cost of the provider, and there are plans to soon introduce alternate payment methods onboard, including credit card and phone payments.

Strætó B.S.

Iceland’s public transportation system is run by an entity known as Strætó bs. The “bs.” designates Strætó as a municipal association (byggðasamlag), a public corporation owned by the municipalities of Reykjavík, Kópavogur, Hafnarfjörður, Garðabær, Mosfellsbær, Seltjarnarnes, and Álftanes. Ownership of Strætó is proportional to the population of the municipalities.

Some of the recent frustrations with Iceland’s public transportation system have also called attention to the organisation of Strætó. Strætó’s board of directors consists of six individuals representing the municipalities. Of these six, four belong to the centre-right Independence Party, not a particularly strong supporter of public transportation, and one belongs to the Reform Party, a centrist party that favours market solutions to social problems.

Due to budget cuts, many of Strætó’s responsibilities are contracted out, including maintenance work and also many of the drivers themselves. Some of these dissatisfactions with the management of Strætó have led to conversations about whether Strætó should become more of a transit authority, overseeing and regulating the operations of one or more private transportation solutions. This, however, is not a definite direction.

FOCUS Public Transport

Photography by Golli

Words by Erik Pomrenke