Corp Comm Connects

UP Express could cost taxpayers millions in subsidies

Officials promised the airport train would break even, despite knowing high fares would reduce riders, and low fares would cut revenues.

Thestar.com
April 18, 2016
By Jennifer Pagliaro

Taxpayers may be forced to subsidize the Union-Pearson Express by more than $20 million annually despite a substantial increase in commuters using the airport trains since fares were lowered.

Studies prepared for the provincial transit body Metrolinx, which were previously censored, reveal officials knew much earlier that the high cost to ride the direct train between the airport and downtown would limit the number of people willing to use the service, and that even at lowered fares the train was unlikely to pay off.

At $30 for a one-way ticket, close to the original $27.50 fare without a Presto card, UP Express was projected to draw 2.3 million passengers by 2020, earning $65.2 million.

The March 2012 study by consultants Steer Davies Gleave found that at $10 a ride - close to the new reduced $12 fare - total passengers would nearly double, to almost 4 million per year, but annual revenues would dip to just $36.3 million. That’s well below the annual operating costs for the service, estimated at $69 million to $74 million over the next three years.

Fares were lowered last month after ridership, instead of rising steadily, began to fall after only six months on the tracks. The service was getting just 2,200 daily riders, leaving nine out of 10 seats empty.

With a Presto card discount, the train now costs $9 (down from $19). There are also discounted fares from Bloor and Weston stations at $5 or less.

Revelations about the earlier revenue studies raise questions around Metrolinx’s promise to recover costs in three to five years.

While the actual shortfall and per-ride subsidy remain unknown at this point, the studies suggest both will be significant.

Metrolinx spokesperson Anne Marie Aikins said the 2015 numbers are not yet available, as they are calculated as part of the fiscal year ending March 31.

Before the fare drop, Metrolinx had said it would take at least three years to reach 7,000 daily riders.

Since fares were reduced, Aikins said, ridership has continued to rise, averaging more than 5,000 riders per day.

“The goal of the pricing analysis for UP Express was always based on both ridership and achieving cost recovery,” Aikins said in an email. “The original pricing strategy that Metrolinx decided on (hoped) to give a balanced approach with a variety of options for riders. The issue of cost recovery is now under review with the province.”

But documents suggest provincial officials have always been aware there would be problems recovering costs from fares alone.

A cost-benefit analysis done for Metrolinx in 2014 by consultant Arup and released to the Star under freedom of information laws pointed out that the train would provide a new transit connection “but pricing limits this to air travelers - a small proportion of the population.”

However, using the ridership numbers provided by Steer Davies Gleave, that report concluded the project was “economically worthwhile.”

After years of talks between the province and SNC-Lavalin to build and operate the train fell apart, Metrolinx announced in the summer of 2010 that it would shoulder full responsibility for getting the train up and running, as promised, by the Pan Am Games.

“We believe this is a good business that will recover its costs,” said Rob Prichard, then chief operating officer and now chair of the board.

But the abandoned deal with the private company from Montreal was an early warning of the headaches to come.

SNC-Lavalin backed out after the province refused to subsidize any shortfall during the 46-year agreement. The company cited concerns over recovering costs from fares alone.

“At this point in time, the lending community isn’t prepared to fund full revenue risk projects,” a SNC-Lavalin spokesperson told the Globe and Mail in 2010.

Airport train, by the numbers: