Toll road traffic down, Macquarie bleeding out

Link to article here.

Even toll road industry insiders must now acknowledge what the rest of us have been observing for years: toll roads are no longer financially viable with high fuel prices! It is obvious that toll roads are purely speculative risky deals that the prudent must shun. These deals depend on low fuel prices, a booming economy, and more vehicle miles traveled, none of which we have now or into the foreseeable future. Selling billions in bonds knowing these toll roads are famous for overprojecting rosy outcomes and have a history of underperformance that will require massive toll hikes and/or taxpayer bailouts, is malfeasance.

Traffic hit hard by fuel prices – average down over 5%, but some way worse
By Peter Samuel
Toll Road News
August 24, 2008
Traffic on tax roads in the US seems to have dropped on average by 4 to 5% and on toll roads by 5 to 6% over the past year. The reduced travel is attributable almost entirely to the big run-up in gasoline prices and is about was to be expected from long-established economists’ estimates of the price elasticity of demand of about -0.2. Fuel prices which dominate the marginal cost of driving are about 30% higher so you would expect traffic as measured by vehicle-miles traveled (VMT) to be 6% lower (-0.2×0.30=-0.06). Deduct one percent for the sluggish economy and you have 5%.

Toll road traffic may be down marginally more than tax roads traffic because tollroads are somewhat skewed to discretionary travel.

FHWA/OHPI data for travel on all roads show the drop in traffic slightly greater in the west (excludes TX) and the southeast but single digit percent falls have occurred in all major regions. Indeed in June all 50 states were down (only DC is up slightly).

Rural travel is down more sharply (5% to 7%) than urban (3% to 5%). Rural interstates are down nearly 7%. (VMT08juntvt.xls)

Fitch Rating survey

A survey of US tollers’ traffic and revenue by Fitch Ratings shows a fall-off year on year clustered in the single middle digits range. Declines are as much as 10% in Florida and California. In Texas are declines in traffic in the lower single digits.

They say that standalone toll projects have the greatest declines and the turnpikes with their dependence on longdistance and rural traffic. Next come the bridges with the least affected being the (urban) expressway networks.

TOLLROADSnews needs to do a proper survey toll agency by toll agency, but that will have to wait a bit longer. A few tollers publish their data monthly (Orange County Toll Roads) and even weekly (91 Express Lanes). There are some more spectacular drops in traffic than Fitch mentions.

91 Express Lanes down 15% to 20%

The 91 Express Lanes are way down. Through July their toll transactions were about 17% lower than the same week last year and the first two weeks of August have been down 18%. Revenue is down about 15% in the last six weeks.

It would be interesting to see if the other express lanes are losing traffic as heavily but it seems logical that they will be more volatile than full tollroads. Most of their users are occasional users taking the toll lanes only when they want a faster ride so their use is discretionary. Furthermore and maybe this is more important: declining traffic in the free lanes means there is less congestion there and faster free trips, so the Express Lanes suddenly aren’t saving as much time as before.

The Toll Roads of Orange County nearby have suffered serious traffic losses too, close to 10% in the case of Foothill Eastern TR (FETR) and San Joaquin Hills TR (SJHTR).

The burst of the housing bubble has hit this part of southern California as well as parts of Florida especially hard.

Orlando Orange County toll expressways in Florida have suffered a traffic drop but not as large. (see OOCEA in table nearby).

Macquarie hemmoraging

Macquarie has reported June quarter traffic and it has some huge drops 2008Q2/2007Q2:

– Indiana Toll Road average daily traffic down from 122.8k to 95.6k, 22.2%

– Chicago Skyway from 44.2k vs 51.7k, down 14.6%

– Dulles Greenway VA is down less from 58.6k to 55.1k or 5.9%

The three major Macquarie tollroads in the US have gone from 233k/day 2007Q2 to 195k 2008Q2 or 16% down. (South Bay Expressway is at 26k day but wasn’t open in 2007).

On the Indiana TR the ticket system portion of the tollroad which caters to longdistance traffic is down 5%.

The spectacular drop is on the barrier system where daily traffic is down from 98.4k 2007Q2 to 70.5k 2008Q2. That’s 28.4% down!

That’s commuter and weekender traffic.

Some of the drop may be attributable to opening of improvements to the competing free route of I-80/I-94 (Bishop Ford, Kingery, Borman Expressways) and the higher tolls, but regardless, it doesn’t look good for the Macquarie shareholders.

Macquarie recently lowered their valuation of these tollroads substantially.

Canada not seeing the same declines in traffic

A lot of the rise in the price of gasoline in the US is simply the fall in the value of the US$ relative to other currencies. Gasoline has risen much less in C$s because C$s now bob around at parity with US$s whereas they were 15% below a year ago.

Also rises in the oil component of the gasoline price seem less north of the border, because the fuel taxes are so much higher already.

Toronto 407ETR up over last year

In Toronto 407ETR traffic continues to be above last year’s levels. Its traffic is larger than all four US Macquarie tollroads combined, so the North American Macquarie traffic in total is down only 5.8% vs 16% for Macquarie’s US roads.

Where from here? (SPECULATIONS)

Our sense is that traffic should stabilize at roughly present levels if gasoline prices stay where they are. Short-term adjustments to the higher prices have been made.

And if the US economy continues in its present sluggish state but avoids a real recession and systemic financial collapse then traffic won’t get much lower than now.

Over the longer term one adjustment to higher prices will be a move to more fuel efficient vehicles – to smaller lighter vehicles, to hybrids, plug-in hybrids and diesels. That will allow road travel to recover somewhat.

Significant and last mode shift to rail transit seems unlikely. It is seriously unprofitable and capacity constrained and is only competitive at the margin.

Motor fuel prices of course could go strongly up, or they could collapse.

So much crude oil comes from the Middle East and South America and is under the control of hostile governments that major supply disruptions could easily occur. Iran’s nuclear program could lead to war in the Persian Gulf just months from now. At home there is fierce resistance to any new production and to any new oil refinery capacity, while the Democrats vilify “Big Oil” and threaten discriminatory taxes against the very companies which will increase fuel supply if they’re allowed to.

On the other hand public sentiment has shifted in favor offshore drilling and concerns about disruptions may already be reflected in oil prices. With luck and even a glimmer of good sense by governments, fuel prices could fall as quickly in the next year as they rose in the last. But you can’t count on it.

With forecasting so difficult, organizational agility looks key.

Feds data: http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.htm