*A bit of an additional post for the week, as I’ve had a little bit more spare time! This post is a more fully-fleshed out response to a question my friend Andrea had, about the value of an annual travelcard.*

I’ve started doing my preliminary accounts for 2016, and one of the things I examined was my transport expenditure. I typically try to use what’s known as zero-based budgeting (that is, each category and the value assigned to it is justified from fresh assumptions, rather than say raising the previous year’s data by RPI and calling it a day). Of course there’s some flexibility (I’m not going to pass up a social gathering just because of finances, unless it’s insanely expensive – which is unlikely given the background of my friends, or at least the activities we take part in together).

There’s a column of 86.50s, corresponding to a string of monthly zone 1-2 Travelcards purchased on student discount. We then have a crash to two low months as I was in the US and Singapore respectively, a figure just over 100 for November, and December looks to be closing around 50; I didn’t purchase any Travelcards after August. At the time, I made these decisions because I was unsure if going for the annual Travelcard was a reasonable idea, especially given that I would frequently not be in London owing to international travels, both for work and for personal affairs. The total cost for the category for the year was 894.68; this is lower than normal because I didn’t purchase any flights this year. I’ve been a bit cautious having been deployed internationally on quite a few occasions; I didn’t realise that you can refund the remaining value of a Travelcard!

This would have been 924 if I bought an annual zone 1-2 Travelcard (sadly, I’d now need 1,320 as I’m no longer a student); that said, with one I might have travelled more as well. Also, I was out for two months and started occasionally walking to the office in December. You can get refunds on the remaining value of a Travelcard – that said, I’m not sure repeatedly canceling and then repurchasing annual Travelcards is permissible, and it seems like it would certainly be inconvenient. Loss shouldn’t be too major of a concern, as Oyster cards can be registered to an online account which one can use to transfer a season pass away from a lost card. (I’ve done this before, though with a monthly pass.)

I think a question would then be as follows: *exactly how frequently (in terms of number of days) do I need to use the Tube to make pay-as-you-go (PAYG)/monthly/annual Travelcards the best choice*? We can examine that under a few assumptions:

- The traveller is an adult.
- All journeys are within Zone 1.
- PAYG is implemented through contactless, so weekly caps apply.
- The year begins on a Monday (this matters for weekly capping computations).
- 16/7 trips per day (that’s reasonably realistic for me).
- (Somewhat cheeky) If one travels for
*N*days one travels for the first*N*days of the year. - Journeys on day
*D*are made between 0430 of*D*and 0430 of day*D*+ 1. - The “greedy monthly flexible” (GMF) strategy works as follows:
- It buys monthly travelcards as long as there are full months remaining.
- For the partial month (if one exists), it uses the cheaper of:
- a monthly travelcard
- PAYG (with weekly capping)

Obviously GMF dominates a pure PAYG strategy, because for full months a monthly travelcard always beats PAYG (consider February), and for partial months GMF considers PAYG, so it does at least as well as PAYG. If I’m not wrong GMF is optimal under these contrived conditions: it intuitively seems difficult to recover from burning through February, the shortest month, without buying the monthly travelcard as you’d need four weekly ones. However, in the general case GMF is certainly not optimal (consider the period February 28 – March 31; you can buy the Travelcard on February 28, which expires March 27, and then pay for four days of fares, or pay February 28 and buy the Travelcard on March 1; the optimal strategy saves three days of fares).

The fare if one has to travel for *N* days is reflected in the graph below; and unsurprisingly the flexible methods are superior for small *N* but inferior for large *N*. Our model has a break-even point at about 314-315 days.

The final decision, unsurprisingly, boils down to the level of certainty you can have about your travels. If you don’t expect to be spending more than around 50 days outside of the UK, the annual travelcard seems like an idea worthy of consideration especially if you know when said days lie. That said, we have made two key assumptions, one of which favours the monthly strategy and one of which favours the annual one:

- An upfront lump-sum payment is needed if you’re using the annual scheme. Our analysis did not account for the time value of money (you would need to discount the monthly payments to today to get a fairer comparison of the two).
- However with the monthly strategy we’ve assumed that plans are known well in advance (at least a month) and implementation is done perfectly. In practice, there are likely to be some minor errors or plans not aligning neatly on month boundaries that will result in slightly higher fares.

I personally don’t expect to travel more than that, but I won’t be getting an annual card next year, for other reasons. (In particular, that “16/7 trips per day” assumption is unlikely to be valid, but that’s a subject for another post.)