GO Transit riders will have to make up for any operating deficits at the new provincially run airport express train. 

GO Transit riders have a one-way ticket to higher fares.

That’s because most of the subsidies needed to support Metrolinx’s new airport express train are likely to come from the agency’s largest class of customers, GO Transit riders. While Metrolinx says the new train line will be able to cover its “operating costs” in the next couple of years, its ridership forecasts – and the fare schedule it announced last week to much criticism – make the claim an unlikely one.

When Metrolinx does come up short, it will be GO Transit customers that will be the easiest target to make up the difference.

To understand why that’s the case, we need to take a step back and look at the initial proposal for the project. The federal government put out a request in 2001 to private investors to see if there was any interest in designing, building and operating a train line from the country’s busiest airport (Pearson) to the country’s busiest train station (Union Station). In 2003 a company owned by engineering and construction giant SNC-Lavalin was awarded the contract.

But it turns out the company’s interest in the project came with one major caveat.

The company wasn’t confident that the new rail rink would attract the necessary ridership to financially sustain the new rail line, so it asked the province to offer subsidies for any operating deficit. The province balked at the request and the company walked away from the project.

Rather than abandon the project as too risky, prone to cost overruns and requiring subsidies to stay afloat, the province stepped in and took the entire project as its own. In its bid to host the 2015 Pan Am games, the province promised it would have the new train line in operation by the time the games kicked off in the summer of 2015.

Metrolinx – the provincially run agency created in 2006 that oversees transit planning across the GTA and took over the running of GO Transit in 2009 – will be the operator of the new airport train, known as the Union Pearson Express (UP Express).

The fare schedule and ridership projections announced this week show that financial sustainability will be hard to come by for the new transit line.

A regular fare will cost riders $27.50 if they are paying cash or $19 if they use the new electronic fare card system, Presto. There are a host of other discounts, including for students, seniors and (not listed here) for airport workers who can purchase a monthly pass for $300.

What about revenue?

Metrolinx estimates that the annual operating costs of the airport line will be $70 million and will attract 2.5 million annual riders by 2018 when it will be financially self-sufficient (capital costs will not be covered by fares).

According to Metrolinx, 55% of all riders will be “business” customers, while the remaining 45% will be “leisure” customers.

That means there will be 1,375,000 business customers in 2018. If 50% of those business customers pay the full cash fare (our estimate), that will be produce $18,906,250 in annual revenue. The remaining 50% will pay using their Presto cards, bringing Metrolinx $13,062,500 in revenue.

The remaining “leisure” customers will total 1,125,000. If 50% of those customers, or 562,500 (again our estimate), pay the full cash fare of $27.50 – out of town visitors, for example – Metrolinx will receive $15,468,750 in annual revenue. If the remaining 562,500 customers pay the Presto fare of $19, it will bring in $10,687,500 per year for Metrolinx.

Taken as a whole, Metrolinx will generate $58,125,000 in annual revenue – or around $12 million less than its operating costs, even under the agency’s optimistic ridership forecasts – which Ontario’s Auditor General criticized as being too optimistic.

These figures don’t included capital costs, which the Auditor General estimated could add an additional $20 million annually.

GO Transit customers are likely to bear the brunt of that shortfall as they are the agency’s largest source of revenue, bringing in $357 million last year. The next source of operating revenue is a direct subsidy from the province for $120 million.

The quickest and easiest way for Metrolinx to compensate for the airport train’s operating deficit is to either hike fares on the new line – unlikely given the current public outcry over high fares – or look to its other major source of revenue, GO Transit customers. Ultimately, it is these customers that will bear the biggest risk of if ridership on the new line fails to materialize.

Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI). You can reach Brady by email at: bradyyauch (at) consumerpolicyinstitute.org or at (416) 964-9223 ext 236.

UPDATE (December 24, 2014):

I spoke to a couple representatives from UP Express and they provided some more detail regarding revenues for the new service. They largely agreed with the $58 million figure and added that the remaining $12 million could be raised from airport employees, who were not considered in the forecast for 2.5 million annual riders.

They estimate that about 3,500 airport employees – out of the 40,000 that work at Pearson – are expected to use the new service each month. If each employee purchases a monthly pass for $300, that would amount to an additional $1,050,000 per month, or $12,600,000 annually.

The officials also said they expect about 40% of the trips to be local – and likely to pay using Presto – and the remaining 60% of trips to be non-local and pay the full fare. I assumed that split to be 50/50.

And finally, the officials stressed that the UP Express was an independent agency and any operating shortfall would be dealt with by working with the provincial government. While I don’t dispute that UP Express will act independently, I think the more likely scenario if an operating deficit is apparent is that Metrolinx will raise fares across the board for its customers to try and hide that shortfall and mitigate the operating subsidy requested from the provincial government.

Nonetheless, the officials were optimistic that their ridership forecasts would be borne out and very likely surpassed.