By on August 28, 2009

Highly leveraged toll road firms continue to post multi-million dollar losses as drivers shun expensive routes during the economic downturn. This week, two Australian firms with significant US holding reported overall negative results for the year ended June 30, 2009. Transurban, which owns Pocahontas Parkway in Richmond and is building High Occupancy Toll lanes on the Capital Beltway in Virginia, lost A$16.1 million. Macquarie, which owns the Indiana Toll Road, the Dulles Greenway in Virginia and the Skyway in Chicago, Illinois, lost $1.7 billion.


As recently as July, Macquarie Infrastructure Group (MIG) acknowledged a $3.5 billion drop in the value of its assets since June 2008. Traffic on the company’s portfolio of roads also dropped an average of 3.4 percent.

“Over the year we have actively sought to offset the negative external factors impacting on the portfolio,” MIG Chief Executive Officer John Hughes said in a statement. “These have included revenue maximization and cost control initiatives at the road businesses.”

Revenue maximization refers to the significant toll hikes imposed on cash-strapped drivers. Even though, for example, traffic dropped 1.9 percent on the Chicago Skyway, increased fees passed on to motorists drove the road’s toll revenue up 11 percent.

Transurban has used the same toll raising technique to hold its loss to a minimum. Even though traffic on the Pocahontas was down 11.6 percent, increased costs for motorists kept the road in positive territory with 0.6 percent revenue growth. Transurban also made up losses by slashing the customer service and information technology budgets by $10.6 million.

“Transurban roads have been among the best performing toll roads globally in the past 12 months reflecting the quality of our urban toll road portfolio,” Transurban CEO Chris Lynch boasted in a statement.

Both Macquarie and Transurban reported that the most recent monthly traffic reports have shown signs that drivers may be returning to the toll roads. Each also predicted a prompt return to profitability.

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17 Comments on “Toll Road Firms Continue to Lose Millions...”


  • avatar
    don1967

    How does a for-profit business compete against a free alternative? We’re seeing the same struggle happening in the satellite radio business.

    What’s worse for the toll company is that consumers are not reliant on them to stay in business. What are they going to do, rip up the highways they built?

    I’m guessing Warren Buffett never invested here.

  • avatar
    Robstar

    You compete against free alternatives by adding value, no?

    I really think before people invest in toll roads, they need to see what the free alternatives are.

    A good example of this is in Mexico.

    A few years ago I took a road trip with 3 Mexican friends inside Mexico from Guadlajara to Puerto Vallarta.

    It was fun times — but the tolls were outrageous — $10 US tolls, about 4x during the trip.

    I asked them why we were paying these instead of taking the “Freeway” and it was because the toll roads were patrolled and (mostly) secured from bandits & carjackers. Also: The road condition put US highways (toll OR free) to shame. I also was told the tollways were more direct routes between destinations.

    I’d be willing to pay a (higher) daily toll (I already pay a toll with my IPASS) AS AN OPTION if I could get somewhere faster via private road.

    I already spend about 2 hours/day commuting. If there was say, a center express lane with high concrete barriers that I could go 100mph legally, that would cut down on my commute (mostly highway) considerably.

    Figure 20-40mph avg for 60 highway miles (public, untolled) vs 100 mph for 60 highway miles.

    20mph avg = 3 hours
    40mph avg = 1.5 hours.
    100mph = 36 minutes

    The almost 1 hour I’d save each day is valuable, and even more valuable if I could be working longer hours & billing a client.

  • avatar

    @don1967: “How does a for-profit business compete against a free alternative?”

    College towns still have hookers and strip clubs.

  • avatar
    texlovera

    @The Comedian: +1

    Reminds me of an old joke told in SW Ohio – I can never remember if I’m dating a girl from Eaton, or…

  • avatar
    zerofoo

    Here in NJ our state government is trying to “monetize” assets like the NJ turnpike. The idea is that the government can’t make money on it, so a private company might be able to. The state then leases the property to a private company and collects the revenue.

    If toll roads are so profitable, why doesn’t the state just keep them, and the profits?

    The answer: roads are not profitable. They cost millions of dollars per mile to build and maintain. They are a “greater good” thing – not a “profit thing”.

    Politicians and private capital firms seem to be the dumbest people on the planet these days.

    -ted

  • avatar
    slateslate

    The biggest whammy for the toll roads is the freight traffic. Decreased shipping + high fuel costs + big tolls hikes for semis are hurting/put out of business a lot of independent truckers.

    ****How does a for-profit business compete against a free alternative? We’re seeing the same struggle happening in the satellite radio business.****

    Cable TV?

  • avatar
    Chicago Dude

    That article linked above was quite interesting. The Chicago Skyway becomes the Indiana Toll Road at the state line, which becomes the Ohio Turnpike, which becomes the Pennsylvania Turnpike, etc.

    Anyway, traffic is down 1.9% on the Skyway while down 6.4% on the Indiana Toll Road. This would leave me to believe that the traffic on the eastern side of Indiana is responsible for the majority of the drop. Having driven the road many times I know that traffic is much heavier on the western side of Indiana, so I would guess that traffic on the eastern side has dropped > 10%. Of course the eastern side of the Indiana Toll Road runs right through the Elkhart area that Obama keep visiting as its economy has been absolutely crushed by the drop in RV sales.

    All of this leaves me to wonder if the states that signed off these long-term leases got the better deal than we all imagined.

  • avatar
    mrschwen

    The HOT lanes on the Capital Beltway will have tols ranging from 1.40 to about 14 dollars. The tolls change depending on how many vehicles are in the lanes. This system is used to control how many cars are using it. If the price is too high, you can use the adjacent free route. The HOT will have there own incdident management, so problems such as accidents should clear up faster. Also, carpoolers and motorcycles will be able to use the lanes for free (at least 3 passengers). 18 wheelers will not be alowed on the lanes, though small and midsize delivery trucks will.

    http://virginiahotlanes.com/faqs.asp

  • avatar
    chuckR

    I am unsurprised that politicians strive to satisfy the large percentage of the population who are tax consumers and continue to shortchange the tax producers. Monetization of assets is a smoke screen for a hidden or privatized tax to provide a service – construction and maintenance of roadways, for example – that used to be part of the basic obligation and raison d’etre of government. On the federal level, the income taxes produced by the top 10% are far greater than that produced by the bottom 50% of taxpayers. The top 50% produce 24 times as much tax revenue as the bottom 50%. So, do you satisfy 1/2 the population or 1/10th the population?

    Never miss an opportunity to vote them out.

  • avatar

    erm, @chuckR: Rich people and their wealth-preservation consultants are extremely good at creatively evading taxation, and should probably be taxed even a bit more than they have been.

    Even Bill Gates agrees.

  • avatar
    RichardD

    How does a for-profit business compete against a free alternative?

    Simple. The contracts that the weak-minded politicians sign with these dirtbag companies include non-compete clauses. It means your free competition roads will NEVER see any improvements over the next 60-80 years. Think traffic is bad now? Project it out to 2070.

    If the government caves and does improve things, Transurban and Macquarie get a big cash payout from taxpayers.

    We’re not “getting a good deal”, we’re getting taken to the cleaners by a transportation bureaucracy staffed by people who are either corrupt or dangerously stupid. Tolls are a fad among the bureaucracy because the toll companies love to lavish $$$ hiring away transportation engineers. Play ball and you cash in.

  • avatar
    charly

    Tollless roads are a recent invention. To claim that used to be part of the basic obligation and raison d’etre of government is simply not true.

  • avatar
    ZoomZoom

    willman :

    erm, @chuckR: Rich people and their wealth-preservation consultants are extremely good at creatively evading taxation, and should probably be taxed even a bit more than they have been.

    Even Bill Gates agrees.

    Define “rich people” please. There are people who MAKE a lot of money, and there are people who HAVE a lot of money.

    Many of our congressmen are of the latter sort. You know, the Rockefellers, Kennedys, etc. These “haves” like to raise taxes on the former, but never on themselves.

    Bill Gates is arguably in the “have” group now. He can afford to agree to anything he wishes. He gives away more money than he makes now, so his taxes are not likely to go up, regardless how he thinks the country should be run.

    We should take care to remember that Bill Gates is not God. He’s a successful businessman, but he does not necessarily have a high order of financial expertise or experience. I think it’s dangerous to consider him a better authority on national finance issues just because he ran a company well.

    Besides that, I’m getting a little tired of the elite class telling the rest of us what to do, and I’m getting a lot tired of them telling us that we all should be paying more taxes (or “fees” as they do in California).

  • avatar
    Greg Locock

    Macquarie Group (who set up and are still heavily involved in MIG) MQG.AX

    Share price yesterday $48.95
    Shre price in mid march $19.50

    Hope you bought lots. I did.

  • avatar
    don1967

    Share price yesterday $48.95
    Shre price in mid march $19.50
    Hope you bought lots. I did.

    Financial genius is a short memory and a rising market.

    – John Kenneth Galbraith

  • avatar
    don1967

    How does a for-profit business compete against a free alternative?
    College towns still have hookers and strip clubs.

    The difference is that even the dorkiest kid in a Daewoo can still get some road for free :)

  • avatar
    Greg Locock

    Funny quote, but I track my performance against the all ords, thanks.


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