In Melbourne, Australia, Trams are free for everyone within the CBD district
I live in the CBD, and the only time it ever actually saves me money is in getting to the bus station to the airport.
It was introduced as part of a protracted plan (or lack thereof) to get rid of their least profitable ticket, and has been carefully designed to sound good while minimising utility.
Not to disparage the concept, but in this instance it was introduced to raise revenues, not lower them. Indeed, as Melbourne's trams are run by a private company, none of their policies are designed out of public-mindedness.
There are multiple reasons you'd need to travel within the CBD where you haven't already gotten in by public transport:
It opens up multiple locations in the entire CBD and surrounds to a single day trip without shuttling cars between overly expensive and time consuming parking.
The office can go out together for birthdays, christmas parties, etc without worrying about people's travel means and budgets.
Need to get down to the other end of the CBD for a business meeting: tram. Need to meet someone for coffee? Tram.
Tourists love it when they're staying central and it gives a good impression of our city. Some don't even buy tickets any more when coming for a convention or show.
I can go out and meet my friends/wife for lunch at various parts of the city, get down to the mall to do some shopping, and get back up to work all in the same lunch break now. Not everyone just does single destination trips in and out the city without doing anything else.
It allows one to move around the city and venues with less attention to the weather.
Not having to tap on or off increases boarding/alighting times for a given amount of throughput and in quiet times. (irrespective of whether you've paid to commute in or not)
Many of us from the surrounding suburbs now walk into the city and back out again, making a day of it in the city: this brings life and vibrancy to ALL the surrounding areas and increases walk-ability and foot-traffic, not just in the CBD. There's a whole ring of neighbourhoods on the periphery of the free-tram zone where walking now substitutes for hoping onto a tram 1-4 stops out from the CBD because you know you can make a free transport day of it.
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The downside is of course more congestion on trams in the city as more people are using it to move around a few kms of space. And lower city-based tram revenue, but its also partly responsible for added life and vibrancy in the CBD.
The over-crowding is a definite downside when you're only commuting in/out/through the CBD, since you still pay and now often share the trams with large numbers of people going 3 or 4 stops, but we can hardly pretend there are no benefits.
Source: live just outside the CBD.
I'm not unaware of this fact, but consider it basically irrelevant. Trams were privatised in 1999, after which the long series of fare policy adjustments were so baldfacedly opposed to public interest that the argument they were done absent pressure from whichever private organisation owned them at the time is warrantless. And they weren't subtle about the pressure, either - their arguments that their mandate wasn't profitable enough were ceaseless.
If you believe there are other factual errors, let me know.
Addressing the other points would more or less come down to citationless expressions of experience, so I don't know if it's worthwhile. I recognise that you do raise a few benefits, but I don't accept that it's an improved situation over the previously free Swanston Street route absent some numbers. We'll probably have to agree to disagree.