This paper proposes a bi-level transit network design problem where the transit routes and frequency settings are determined simultaneously. The upper-level problem is formulated as a mixed integer non-linear program with the objective of minimizing the number of passenger transfers, and the lower-level problem is the transit assignment problem with capacity constraints. A hybrid artificial bee colony (ABC) algorithm is developed to solve the bi-level problem. This algorithm relies on the ABC algorithm to design route structures and a proposed descent direction search method to determine an optimal frequency setting for a given route structure. The descent direction search method is developed by analyzing the optimality conditions of the lower-level problem and using the relationship between the lower- and upper-level objective functions. The step size for updating the frequency setting is determined by solving a linear integer program. To efficiently repair route structures, a node insertion and deletion strategy is proposed based on the average passenger demand for the direct services concerned. To increase the computation speed, a lower bound of the objective value for each route design solution is derived and used in the fitness evaluation of the proposed algorithm. Various experiments are set up to demonstrate the performance of our proposed algorithm and the properties of the problem. (C) 2014 Elsevier Ltd. All rights reserved.