Forecasting patronage: it’s easy, isn’t it?

We’ve seen some high profile examples in recent years of how hard it is to forecast patronage on new transport infrastructure.

The Cross City tunnel in Sydney and the Clem 7 in Brisbane, for example, have both performed well below forecasts. Even when it was free, the Cross City tunnel did not approach the forecast volumes of 90,000 vehicles per day. Traffic volumes on the cross-river tunnel in Brisbane fell from almost 60,000 during the free period to around 20,000 in the first week of tolling.

Click to enlarge interactive map

California’s planned $42 billion High Speed Rail (HSR) project provides another example of the difficulties of forecasting demand. Although there are important differences between the design of the California HSR system and proposals for a Very Fast Train (VFT) between Sydney-Canberra-Melbourne, the former nevertheless has important lessons for us. I have previously discussed the VFT here, here, here and here.

A new analysis by the Institute of Transportation Studies, University of California Berkeley, found significant problems with the demand modelling and analysis undertaken for the California project by Cambridge Systematics (CS) “that render the key demand forecasting models unreliable for policy analysis”.

The lead para of a story on the issue in the Los Angeles Times says “Ridership forecasts for the California high-speed rail project are so unreliable that it is difficult to predict whether the proposed bullet train would be profitable or suffer severe revenue shortfalls, according to a report released Thursday by transportation experts at UC Berkeley”.

The study was requested by the Chair of the state Senate Transportation and Housing Committee overseeing the project and was funded by the HSR Rail Authority itself.

The LA Times says the UC Berkeley researchers concluded that there are problems in the statistical model used for the forecasts, including methods that exaggerated the importance of frequent train service; faulty assumptions about which stations travellers would use; and inadequate sampling of long-distance travellers that was compensated for by using a technique that has been deemed obsolete.

The researchers summarise one of the key shortcomings as follows:

“In broad terms, the approach taken by CS includes a model development phase and a model validation phase. In the model development phase, both historical data and survey data were employed to develop a mathematical model of interregional travel. The individuals surveyed were interregional trip makers. However, the mode choices of the individuals surveyed were not representative of California interregional travellers. For example, nearly 90% of long distance (over 100-mile) business passenger trips are made by car, while 78% of the long distance business travellers sampled for the study were travelling by air”.

They conclude that “the true confidence bands around the estimates from these models must be very wide. They are probably wide enough to include demand scenarios where HSR will lose substantial amounts of money as well as those where it will make a healthy profit”.

The take-home message is that not all infrastructure projects are guaranteed to deliver a motza, at least not any more. Maybe the Premier has a point when he emphasises that one of the benefits of PPPs for taxpayers is that providers carry the risks (or at least are supposed to).

2 Comments on “Forecasting patronage: it’s easy, isn’t it?”

  1. jack horner says:

    The beauty of good old fashioned soviet style budget funded roadworks is that the government never has to answer for whether the project was economically justified. The plan was in the drawer, the money came up, there will always be *some* traffic (particularly in cities), so what’s your problem?

    How often do people crunch the numbers for the economic benefits of a half billion dollar highway deviation that is used by ‘only’ X vehicles per day, to conclude that it was a rash investment, with the same attention that they do with (for example) the Alice Springs Darwin railay?

    Where is the cost-benefit analysis of ‘complete duplication of the Pacific Hwy’ comparable to the exhaustive studies that have been done on the proposed Melbourne-Brisbane inland railway?

    A side effect of privately funded tollroads is that it does shine some light on these issues.

  2. Corner Cynic says:

    Yeah, patronage forecasts aren’t that great. On the other hand:

    – capital cost estimates are usually inflated by 50-100% with contingency and escallations, and usually prove not far off a guess anyway

    – Opportunity costs associated with rapidly inflating construction or land costs are ignored by the business case

    – willingness-to-pay (either by way of realistic fares or tax revenues) is fudged or ignored,

    – Externalities and cross-subsidisation of alternatives are never properly valued,

    – Wider Economic Benefits seems to just be used as hand-wavy way of pulling in additional value without having to sort out any of the other shortcomings.

    After all this, the key risk to the project success is usually proven to be politics and special interest groups conspiring to descope, undermine or otherwise destroy most of the expected value by diverting large chunks of the value into the pocket of voters, developers or others.

    In any case, Australians and Americans underspend on appropriate infrastructure. Predominantly because government has a 7-8% hurdle rate to reflect the realism that for every dollar per year of tax not spent by government and returned to the public, the average punter will eat 8% more saturated fat and buy two bigger TVs from the chinese on hoc – thus reducing the demand for travel and other factors likely to require infrastructure to support higher production of the nation in future.

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