THE JOURNAL OF JACOBS CONSULTANCY, TRANSPORT AND INFRASTRUCTURE
to learn and ideas to One world Lessons exchange from transport projects across the developed and two challenges developing world. EDGE issue#1/06.08_0
THE JOURNAL OF JACOBS CONSULTAN TRANSPORT AND INFRASTRUCTURE
This second issue of Edge focuses on the different transport and infrastructure challenges now facing the developed and developing worlds. Both have to deal with the demands of sustainability and affordability and find their way forward through the current recession. But, while developed countries concentrate on maintaining and optimising their existing networks, developing ones face the task of building new infrastructure. However, the developed and developing worlds face the common challenge of how to integrate economic and environmental factors into solutions that are both affordable and sustainable. The twin problems of climate change and financial constraints are now particularly pressing for transport and infrastructure, but there is light at the end of the recessionary tunnel, even if it will be lit by a lowenergy bulb.
In this edition of Edge our authors examine how climate change affects airport policy and planning in many countries, together with a specific look at India’s burgeoning airports. There is revealing analysis of how public private partnerships are building transport and infrastructure across Africa, while another article investigates the issue of risk allocation on the UK’s railways. We also explore how road congestion can be reduced in European cities by travel demand management, another operational technique with potential for use in the developing world as well. Edge enables our economists, planners and financial analysts to share their extensive research and, we hope, provide a useful and insightful platform for debate on the practical means of achieving sustainable growth. Each article includes email addresses for our expert authors – please feel free to contact them for more information or to take up the debate.
For information about Jacobs Consultancy contact Nick Davidson, Vice-President Nick.Davidson@jacobs-consultancy.com
THE JOURNAL OF JACOBS CONSULTANCY, TRANSPORT AND INFRASTRUCTURE
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04 Looking beyond affordability
Airport business planning in demanding times.
07 Investing in the future
Many African governments are pursuing public private partnerships to deliver much needed infrastructure. But what are the risks that the various parties face?
11 Putting a price on carbon
Airports face up to the challenge of carbon use reductions.
14 Getting the balance right There are many lessons to be learned from the recent history of UK rail privatisation and franchises.
18 Sustainability is a state of mind Demand management methods offer cost-effective solutions.
21 The challenges of rapid growth
Delivering maximum benefits from the rapid expansion of airport capacity in India.
Cover illustration: Noma Bar Images: Syed Safvi Mahmood, Nathan Rupert, Doug Bull, Getty Images, Sonja Grunbauer, Christiaan Leever, Neil Pulling, Kevan Wilkinson, Michiel Schipperheijn, Gurmokh Sangha, Ram Viswanathan, Virgin Trains, ©iStockphoto.com/3Foximages, S.Greg Panosian, William Butler. Published by: © 3Fox International Limited 2010. All material is strictly copyright and all rights are reserved. Reproduction in whole or in part without the written permission of 3Fox International Limited is strictly forbidden. The greatest care has been taken to ensure the accuracy of information in this magazine at time of going to press, but we accept no responsibility for omissions or errors. The views expressed in this magazine are not necessarily those of 3Fox International Limited or Jacobs Consultancy.
n life-cycle costs
lookING Beyond affordability Airport operators face challenges and uncertainty, arguably at unprecedented levels. That makes successful business planning even more important. Life-cycle cost analysis can provide a way of achieving true cost-effectiveness for the investments that airports need for their businesses through and after the current recession. By Brian Nadreau
ith capital scarce and the pressure on to â€œdo more with lessâ€?, now is the time for airport managers to reassess how they make their financial decisions. A new life-cycle cost approach is needed for the next round of investment in airport assets. Cost effectiveness is about more than capital Financial analysis based on cost per enplaned passenger assesses affordability but not costeffectiveness. Using life-cycle cost analysis, however, can be a key weapon in helping airport managers assess and compare their capital investment options when expanding and renovating their facilities. Traditional capital decision-making methods focus on sources of funding and can often fail to address the larger strategic question of whether the capital investment itself is justified from an economic perspective, especially over the longer term. Airports are faced with static or declining passenger numbers and much increased scrutiny of costs by airlines and other tenants. This means that airport managers must look beyond the initial capital investment and consider the operating and maintenance (O & M) costs associated with any investment over its lifetime. A good example of this occurred after September 2001 when the requirement for
airports in the USA to provide 100 per cent baggage checking was introduced. Several airports in the USA rushed to design and construct in-line explosive detection systems. While many of these airports had the capital to pay for the systems, assisted by the Transportation Security Administration, few realised the increase in O & M costs that came with in-line baggage handling. Had they carried out life-cycle cost analysis, this cost increase would have become evident and a better-integrated baggage system would have been chosen. How life-cycle cost analysis works There are four main elements to successful life-cycle cost analysis. The first step is to determine the useful life of the asset. Then the discount rate to be used in the analysis must be established, usually the cost of capital for the airport management. Then, cost estimates have to be developed for both the capital cost of the asset and the recurring O & M costs associated with the investment. The last step is to assess the non-monetary costs or benefits associated with the investment. This ensures that the life-cycle cost is viewed in the context of the broader objectives of the capital investment. Once costs, useful life and discount rate are defined, a discounted cash-flow methodology is used to estimate the âž¸
Need to assess operating costs as well as capital investment Portland and Philadelphia airports demonstrate the process Cost savings of buses balanced by more congestion and longer journey times Emission savings monetised to compensate for electrification of airline equipment
The current recession is a challenge for airport operators at least as great as they faced after September 2001
present value life-cycle for the investment. This can then be compared with alternative investment options and enables sensitivity analyses to be used to better understand the investment’s cost-effectiveness when assumptions are changed. By incorporating life-cycle cost analysis into an overall sustainability management strategy, airport operators can truly assess the total cost of owning and operating a system, building or product over its useful life. Stakeholders can better assess the full costs of alternatives and compare these costs with the valuable environmental and social benefits (or avoided ones) even if these benefits cannot be directly monetised. The new approach in practice Jacobs Consultancy recently completed two life-cycle analyses of projects at US airports. At Portland, a potential new consolidated rental car facility and terminal complex was analysed in partnership with Lea+Elliot as part of the airport’s Master Plan Update. The options considered included using light rail, buses or a people mover to serve the rental centre. The analysis clearly showed that buses had the lowest present value cost over a 20-year life-cycle. This lower cost, however, had to be balanced by the finding that buses would take longer to transport passengers and could also increase congestion on the airport road network. At Philadelphia International Airport, Jacobs Consultancy undertook analysis for the electrification of airline ground support equipment. This had to consider the salvage value of the existing equipment, the incremental cost of new equipment and also myriad different
operational costs, state incentives and appropriate discount rates. The life-cycle cost conclusion came out in favour of converting from fossil fuel to electric power, but it had also to convince tenant airlines to electrify more than 200 pieces of bag tug and belt loader equipment of their own. Selling the decision was helped by establishing that potential direct cost savings would be supplemented by monetising air emission reductions on the local emissions trading market. The lesson of September 2001 Airports in today’s uncertain economic environment can learn a useful lesson from the way changes had to be made quickly in the wake of September 11th 2001. The sudden terrorist threat dramatically affected airport operations, staffing, revenues, capital and numerous other factors crucial to successful business planning. The fall in passenger numbers reduced operations as well as revenues from airlines and other sources. In response, airport managers closed nonessential facilities, froze pay and even reduced the temperature in terminals. Significant capital programs were deferred or suspended, while every attempt was made to restructure debt and maximise revenue wherever possible, including raising parking charges and selling land for non-aviation purposes. At the same time, the new situation brought with it a large and unavoidable increase in security-related costs. In short, airport managers had to review almost every aspect of their businesses and adjust very quickly to a completely new costs and revenues environment. They had to preserve their fiscal stability, reassure the
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public and the investment community of their ability to maintain operations and continue to meet their financial obligations, all at the same time as adjusting to decreased airline traffic. Business planning during recession The current recession is a challenge for airport operators at least as great as they faced after September 2001. On top of the downturn in passengers has come a period of extreme volatility in fuel costs. As a result of this negative combination, airline and airport business models are substantially and rapidly being redefined. Airlines have expanded fuel hedges, retired inefficient aircraft and reduced schedules. Airports are reviewing terminal expansion plans and even closing existing terminals. Their main business aim is now to preserve liquidity and maintain cash flow, which is increasingly challenging when market conditions are putting pressure on them to reduce landing fees and handling charges. It is a painful time for airport operators and uncertainty about the future makes successful business planning even more important. Life-cycle cost analysis can provide a way of achieving true cost-effectiveness for the investments that airports need for their businesses through and after the current recession. The downturn may not be short-lived, but airport managers need to look beyond affordability when making their important financial decisions. ❑
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putting a price on carbon Airports face up to the challenge of carbon use reductions. By Darcy Zarubiak continued overleaf
merging trends in airport environmental policy go beyond typical “green” topics as understood by today’s media. In particular, new climate change legislation in the USA and elsewhere means major challenges for airport management worldwide. The US Environmental Protection Agency (EPA) in March 2009 proposed a greenhouse gas reporting rule that requires airport operators to track their emissions, which will likely have a noticeable effect on the nature of new capital projects at airports. More recently, the US House of Representatives passed its first bill on climate change, the guiding principle of which is that heat-trapping gases are a danger to public health. The EPA rule makes it mandatory to report any stationary sources emitting more than 25,000 annual tons of CO2 equivalents. Exemption is available if the capacity of stationary combustion equipment (boilers, generators
and incinerators, for example) is below 30 million BTUs (British Thermal Units), but all airport operators exceeding this will have to conduct a time-consuming emissions inventory. The 30 large-hub airports across the USA are all expected to require such an inventory, data collection for which will begin in 2010. Change ways or change climate On top of the EPA rule, the central feature of the American Clean Energy and Security Act (also known as the Waxman-Markey Bill) is its Cap-and-Trade Program which puts a market price on carbon use and will therefore encourage investment in energy efficiency and emissions controls. This program will not initially apply to airports because they are not considered an industrial source of pollution. But airports and airlines now each face higher costs since their energy suppliers are liable to Cap-and-Trade
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and will have to raise prices accordingly. Furthermore, there is the strong possibility that the EPA rule will be widened to apply the Waxman-Markey greenhouse gas standards to stationary combustion equipment at airports. Greenhouse gas regulation is not the only legislative force impacting on airport operators. There has been regulation on air pollutants for four decades, dating back in the USA to the Clean Air Act and the National Environmental Policy Act of 1969. Federal air quality standards are established for carbon monoxide, nitrogen dioxide, ozone, sulphur dioxide, lead and particulate matter as small as 2.5 microns in diameter. The rules of the Clean Air Act can now require airport operators to assess air quality impacts when they amend their airport layouts or airlines change operating specifications. Air quality assessments also involve identifying emissions sources affected by proposed
n cost of carbon requirement for formal documentation under the Environmental Policy Act.
The cost of carbon is now firmly part of the economic evaluation of airport operations and airport capital projects capital improvements, as well as the quantification of airborne pollutants. Emissions have to conform to specified levels laid down by the EPA and these requirements apply even to capital projects that may be excluded from the
How airports should respond Airport operators need to get a head start adapting to both rising energy prices and the tightening legislative environment. Higher prices should encourage airport operators to invest in capital projects to reduce energy costs and build infrastructure that is more energy-efficient. Airports also need a systematic approach to manage energy procurement and consumption. Airport managers should consider sustainability management systems and energy master plans. They should also ensure that energyrelated projects are implemented ahead of climate change regulation and subsequently higher prices. Projects for altering energy consumption at airports can be divided into those concerning either efficiency or procurement. Efficiency projects include new lighting systems, reflective roofing, heating, ventilation and air conditioning. Procurement projects are concerned with changing energy sources, including switching to renewable or alternative fuels such as wind, solar and geothermal sources. Airport vehicles could become hybrid or electric fuelled, while ground equipment can substitute for aircraft auxiliary power units. Thankfully, at least in the USA, funding sources are available to help airport operators undertake new energy-related capital projects. The Federal Aviation Administration (FAA) runs a Voluntary Airport Low Emission Program that provides credits for projects that reduce air pollution and greenhouse gases. This has already helped the procurement of hybrid vehicles for airport ground fleets. There are also funds available for clean energy projects at airports from the US Department of Energy (its Clean Cities Coalitions Program) and the EPA’s Clean Diesel Program. Aviation and climate change worldwide Aviation is a relatively small source of greenhouse gas emissions. Power generation is the biggest culprit and the European Union has estimated that aviation-related emissions within the EU account on their own for just three per cent of the total. But this ignores nitrogen oxides emissions, condensation trails and cirrus cloud effects, while aviation’s relentless growth means it is responsible for a steadily larger share of transport emissions in general. Aircraft flying at cruising altitudes produce a cocktail of gases and particles affecting the climate. The aviation industry, including airports, therefore has a rising profile
in the worldwide battle to limit man-made climate change. Aviation also attracts scrutiny and criticism because it is such a highly visible industry. Besides gas emissions, airports are also associated with other forms of environmental degradation such as noise and traffic congestion. The issue of emissions can even be used as a smoke-screen for other agendas such as preventing airport expansion. The Kyoto Protocol gave responsibility for aviation-related emissions to the ICAO’s Group on International Aviation and Climate Change, which first met in February 2008. The EU, meanwhile, has adopted a directive to include aviation activities in its Greenhouse Gas Emission Trading Scheme from 2012 onwards. The plan is for overall aviation emissions within the EU to be capped at 97 per cent of the sector’s annual average emissions during 2004-2006. Some individual European countries, including the Netherlands, have already started to levy an “eco-tax” on passengers through their airports. Such schemes are based on flight length and resulting gas emissions. Managing airports in turbulent times There are still many uncertainties regarding climate change legislation and its effects on airport operation. Kyoto is to be succeeded by a new protocol that was being fiercely argued in Copenhagen in December 2009, as Edge went to press. Both the World Trade Organisation and the International Air Transport Association have objected to the EU’s plan to cap and regulate emissions. In the USA, the Waxman-Markey Bill has still to be finally ratified in detail by the Senate. What is clear, however, is that the cost of carbon is now firmly part of the economic evaluation of airport operations and their capital projects. The mechanism used to control emissions could be Cap-and-Trade or carbon tax or a combination of the two, but the costs associated with carbon emissions will become a key factor alongside the established costs of capital, operations and maintenance. In the current situation, with legislation still in development, airport operators therefore have a window of opportunity to prepare for the future and adapt to a world where carbon use, for the first time, has a real price. ❑
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n franchise risk
GETTING THE BALANCE RIGHT
There are many lessons to be learned from the recent history of rail privatisation and franchises in the UK. By Mike Lampkin
he UK’s rail network is mature and, though still physically expanding, secures its revenue increases mainly from yield growth and system optimisation. This contrasts with the developing world where many countries are building greenfield rail systems to satisfy demand fuelled by population growth and urbanisation, but where low local incomes place limits on yield growth. While developing countries are turning to the private sector to help deliver the key social and economic infrastructure of their new railways, it is now 13 years since the UK introduced private sector rail operators to provide “competition, innovation and flexibility” for the existing rail network. This is a good time to take stock of experience in the UK, especially in relation to risk allocation between the public and private sectors. The lessons that can be learned are important for the new railways of the developing world as well as the continuing operation of the UK’s network. The rail franchise debate Despite privatisation dating back to 1996, there remains much debate about how to package and manage UK rail franchises to provide the best deal for rail passengers and taxpayers. Over the years, different approaches have been tried with varying franchise lengths and contractual
arrangements for the allocation of risk. The House of Commons Transport Committee’s report “Rail Fares and Franchises” (July 2009) followed its earlier report issued in 2006 on “Passenger Rail Franchising” and repeated its finding that “the current system of rail franchising is a muddle” with no clear allocation of risks and responsibilities between public and private sectors. Subsequently, in October 2009, the Association of Train Operating Companies (ATOC) put the rail operators’ own views on how the franchising system needs reform “to allow train companies to work more effectively with private and public sector partners to deliver a better railway”. Part of the problem is clearly that the social objective of improving the lot of rail passengers is not fully aligned with the commercial objective of providing value for money for taxpayers, particularly over fare levels. There is therefore tension between allowing private operators freedom to maximise profit, as opposed to setting prescriptive specifications for their franchises. How much freedom the operators are allowed will determine how desirable or appropriate it is to transfer the corresponding risks. Transferring risk to the private sector might be a key objective in privatising public services, but there is no point in assigning risks ➸ winter 09/10_15
which private operators have no freedom to manage. Lessons learned since 1996 Since privatisation, it is apparent that the government has tended to reduce the private sector’s freedom and moved increasingly towards tighter control and input-based specification of the franchises. ATOC has highlighted some of these constraints:
n The “Service Level Commitment” (SLC) specifies minimum frequencies, stopping patterns and sometimes even individual train timings. The previous “Public Service Requirement” (PSR) was aimed primarily at ensuring non profit-making services would continue to operate. n Rolling stock requirements are now specified by a minimum number of vehicles arriving and departing main terminals during peak periods. Stock choice and availability are often prescribed by the Department for
Transport (DfT). Previous franchises had been assessed on the basis of “Passengers in Excess of Capacity” (PIXC), an outcome-based measure. n Regulated fares used to be adjusted individually within a “basket” in which the average fare was regulated. They are now less flexibly constrained to annual changes of RPI plus one per cent. Regulated fares constitute most of TOCs’ core products (especially commuter TOCs) and in any case the remaining unregulated fares are often constrained by competing regulated fares. n There are commitments on many other franchise aspects, including station staffing levels, car parking, ticket retailing and revenue protection. This move from outcome-based approach to a management contract regime seems surprising, as well as contrary to the procurement approach recommended
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by the Office of Government Commerce. It is, however, based on lessons learned from experience in the rail industry, and the government has taken this route because of three main issues arising from the initial franchises. Firstly, allowing TOCs to adjust fares was found to be incompatible with the desire to “put the passenger first”. According to Lord Adonis (Secretary of State for Transport), it is “not acceptable for individual commuters to face significantly aboveaverage fare increases” in times of economic stringency. Secondly, the UK network’s lack of spare capacity adversely affected service timetable planning, because competing TOCs could not be relied on to optimise the use of this limited resource. The third factor behind the switch in government policy was that the balance of risk just did not seem to work with the first franchises, many of which could not cope with the level of risk passed to them. Thirteen out of 25 failed in some form and their renegotiation undermined the government’s initial expectations of value for money. Tighter franchise specification has the implication of even further reducing the TOCs’
n franchise risk
Given the constraints of franchise contracts, does any benefit remain in transferring revenue risk to the private sector? variance above 106 per cent or below 94 per cent.
ability to manage risk, especially revenue risk in the recession. TOCs have no control over macro-economic growth, a key driver of passenger demand. More freedom would enable more effective risk management, as happened in the early 1990s recession, when British Rail would trim back stock formations and some services in line with reduced passenger demand and thereby save costs by scrapping the oldest rolling stock. The fragmented post-privatisation industry has lost this aspect of cost variability. “Putting the passenger first” means that a similar response would not be considered desirable and the current constraints make such measures unavailable to the TOCs. The government has recognised TOCs’ incapacity to manage revenue risk and introduced a “cap and collar” scheme to share risk between franchisee and franchisor. Taking effect typically four years into the franchise, it means any revenue above 102 per cent or shortfall below 98 per cent of the TOC’s original forecast is equally shared with the DfT. Additionally, each operating company is only responsible for 20 per cent of any
Where we are now There may be good reasons for the current situation, but nobody seems to be particularly happy about it. The Transport Committee is concerned that privately-owned train operators maximise profits in good times, but “are not held to account on their promises” in bad times and can walk away from contracts “leaving the taxpayer to pick up the bill”. Supporting this view is the evidence of National Express Group’s decision in July 2009 to quit its Inter-City East Coast franchise. Other franchises not yet covered by revenue support are also reported to be in difficulty. The problem is exacerbated by franchise bidders having made optimistic revenue forecasts in the knowledge that “walking away” would remain an option even if contract renegotiation was not. National Express’s decision surprised and discomforted the government. In July, Lord Adonis immediately responded that the company would not be allowed to “renege” on its franchise commitments and he would consider “stripping” it of its three other franchises by cross-default. But National Express had met the requirements of its contract and cross-defaulting proved likely to be legally difficult because the company used a “special purpose vehicle” to act as its East Coast franchisee. Following the termination of the franchise in November 2009, the DfT confirmed that National Express’s other franchises would be ended at the earliest possible break point (in Spring 2011) without any extensions, but the whole saga suggests the government has not been as successful as it had thought in transferring risk. Along with ATOC and TfL, the Transport Committee also believes the current
franchises are too short and fail to incentivise the private sector to plan and invest longterm. ATOC’s view, unsurprisingly, is that TOCs should get greater freedom to “give passengers what they want” and “adopt longer franchises as the norm”. Against this, however, is the evidence from earlier franchises that passenger benefits were not maximised when there was more freedom. The “red tape” condemned by ATOC is there because it was found to be needed. Risk allocation that works The question now needs to be asked: does any benefit remain in transferring revenue risk to the private sector? If, given the constraints of franchise contracts and length, TOCs cannot manage risk, then the danger in hard times is they will either walk away or start pricing the risk at rates reflecting their capital cost. Neither outcome is good value for the taxpayer. There is an alternative approach, as advocated by TfL and used for their “London Overground” and Docklands Light Railway franchises. This is a logical continuation of the move already started in the direction of management contracts. It extends the current position (franchisor specifies service, quality and some fare levels) to include all fare levels and therefore becomes a gross cost contract with no revenue risk. Such an approach does remove one of the intended benefits of privatisation, that of introducing competition, innovation and the flexibility of private sector management into marketing. But that “benefit” has already proved disadvantageous with high prices for unregulated fares and a bewildering fare structure. ATOC has tried to rationalise this complexity, but there remains confusion in the current range of products and service levels. Another advantage of keeping revenue risk in the public sector, as well as clarifying the issue of precisely how much and where revenue risk had been allocated, would be the ability to recreate a strong national brand for rail travel in place of the current plethora of branding and tickets. There is no definitive right or wrong allocation of risk between the public and private sector. However, it is clear that the degree and methodology of risk allocation does have wide ranging implications and, as with so much in life, the true test is how such risk allocation works in the bad times as well as in the good. ❑
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n managing demand
SUSTAINABILITY IS A STATE OF MIND Travel demand management takes account of the fact that a truly sustainable transport system means that people have to embrace “soft” as well as “hard” measures, rather than the purely technical approach of the past. By Ali Ataie
he big challenge for transport planners around the world is how to encourage people to use more sustainable forms of travel. Traditional traffic management techniques have been exhausted in many developed countries and stand little chance of working in rapidly developing ones. Increasing demand almost everywhere for more road space means that a new approach is urgently needed to tackle congestion and improve air quality. One concept currently attracting favour is travel demand management (TDM). Its successful deployment in several European cities is already offering positive lessons for urban areas in both the developed and the developing world. Technical solutions inadequate on their own It is now widely recognised that there should be more emphasis on the movement of people and goods rather than simply on the movement of motor vehicles. This in turn means giving priority to more efficient modes such as walking, cycling and public transport. Maximising the efficiency of motor vehicle use, by car sharing for example, is also important, especially in congested conditions.
The traditional solution to transport congestion has been to view it as a physical problem with a technical spatial solution – increase road space and provide more parking facilities. This technical approach also seeks to reduce accident risk by providing roads and vehicles that offer greater physical protection and, similarly, to solve energy problems with alternative fuels and stricter efficiency standards. All these traditional solutions involve making physical changes, quite often major ones, to our highway network and/or vehicles. It is an approach, however, with a fundamental flaw. Solving one problem will often exacerbate other problems, particularly if the net effect is to increase total vehicle travel. More roads really do mean more road users. Over the long run, expanding road capacity tends to increase accidents, raise energy consumption and produce more pollution. The purely technical approach cannot solve all the demand problems because the more one solution achieves its objective, the more it can worsen other problems.
approach, is essentially about changing behaviour. From the TDM perspective, solving transport problems requires winning hearts and minds and providing choice and options that are meaningful for transport users. This approach involves market reforms that give road users suitable incentives for each individual trip. Although most individual TDM strategies only affect a small portion of total travel and have apparently modest benefits, their impacts are cumulative. The crucial point is that TDM programmes, when all benefits and costs are considered, are often the most cost-effective way to improve transportation in the long-term. TDM takes account of the fact that a truly sustainable transport system means that people have to embrace “soft” as well as “hard” measures. In the 20th century there was greater emphasis on “hard” road-building and increasing capacity, but the circumstances of the 21st century require us to consolidate our transport infrastructure and put more emphasis on the “soft” tasks of changing people’s perceptions and behaviour.
Managing demand and changing behaviour Travel demand management, the alternative
European cities lead the way The TDM approach has been successfully implemented in several European ➸ winter 09/10_19
cities, including Amsterdam, Copenhagen, London and Stockholm. The outcome of hard schemes such as congestion/cordon charging in London and Stockholm shows there is room for drastic measures and that ultimately users benefit from them. The challenge is how to change people’s negative perceptions of such measures by providing alternative means of travel which are safe, efficient and comfortable. In Stockholm, the Central Area Cordon Charge has reduced overall traffic by 25 per cent, queue times by 30-50 per cent and vehicle emissions by 14 per cent. The money raised is being used to provide new express bus lanes, extend existing bus lanes and services, improve rail services and also provide more park-and-ride places. All these measures in Stockholm have resulted in 45,000 more public transport passengers per day and much faster bus services. In London, despite the political agenda, the beneficial outcomes of congestion charging are not far behind Stockholm’s. TDM measures of the “softer” kind are proving successful in many cities by providing alternatives to car use. Besides promoting cycling and walking, these include school and workplace travel plans aimed at managing demand. Improving the cycling experience and introducing cycle hire schemes are proving effective not just in European cities such as Barcelona, Berlin and Paris, but also across the Atlantic in Portland and San Francisco. Amsterdam and Copenhagen both traditionally have high levels of cycle use, but they are continuing to expand its importance in their transport networks. A parking garage for 10,000 bikes is planned for central Amsterdam and the city as a whole now has 40 per cent of all traffic movement by bicycle. Copenhagen has 32 per cent of its workers commuting by bike and half of them say they do so because it is fast and easy. There is also a scheme where public bicycles can be found throughout the city centre and freely used with a refundable deposit when you return the bike to any rack. The Danish capital, rated with the sixth-highest quality of life in the world, is known as “the city of bikes”. There are also several good European examples of how TDM can use the availability of information about transport services as an effective tool in managing expectations. On-line journey planning tools are proving successful in promoting modal shifts in travel behaviour and choice. Examples of such schemes include Amsterdam’s Door-to-Door Journey Planner, Manchester’s GMPTE Portal, London’s TfL Journey Planner and, with
national coverage, Denmark’s Rejseplanen. Similarly, TDM is employing management systems and integrated transport systems (ITS) to influence and improve traveller choice in many European transport networks. Information can be delivered to help travellers answer questions such as which lane is best, which route is fastest, or even which mode of travel or stop-off destination is optimal for a given journey.
cities in Europe and North America. In the modern era, demand management becomes more critical than increasing capacity for both new and old transport networks. Developed countries find it less easy to add new infrastructure, developing ones have to build entirely new networks and both have to cope with continued growth in passenger and freight travel. Transport managers and operators around the world are having to pay more attention to managing demand and rethink how they provide services. A good success story is Singapore where a strategy has been set to maintain the balance between the use of private and public transport. Since the 1970s the Singapore government has put many measures in place to ensure that their transportation problems remain within manageable levels. These include rethinking land use planning to minimise the need for travel, the use of ITS, encouraging the use of public transport as the predominant mode and travel demand management. Singapore is one of the very few cities to have pursued travel demand management for the past 30 years with a degree of success. The main emphasis has been on vehicle ownership controls and vehicle usage controls. Vehicle ownership control has been used to manage the annual vehicle growth to manageable levels and vehicle usage controls (Electronic Road Pricing System) are used to make drivers aware of the cost of congestion they are causing by driving in a particular place at a particular time, and charge this cost. Meanwhile, all of us as road users need to make new choices in how we travel. ❑
Managing demand around the world TDM techniques are likely to prove themselves even more useful as they spread beyond
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Information can be delivered to help travellers answer questions such as “which lane is best” or “which route is fastest”
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City cycles: 32% of Copenhagen workers commute by bike Cities from Barcelona to Berlin use effective cycle schemes Portland’s bicycle network has grown from 60 to 260 miles Amsterdam will boast a garage for 10,000 bikes
the challenges of rapid growth Delivering maximum benefits from the rapid expansion of airport capacity in India. By Satyaki Raghunath continued overleaf
framework of regulation and policy appropriate to India’s rapidly expanding airports is needed. Their recent growth has exposed structural problems that must be addressed if investment is to be attracted for their continued development. Private sector participation is the only viable way forward and Indian government policy has at last started to be actively sympathetic to such involvement. Capacity under pressure The relentless growth of the Indian economy has had a huge impact on the country’s airports during the past decade. Air traffic increased from 40 million passengers per annum (mppa) in 2001-2002 to approx 110 mppa by 2008-2009. Along with the
economy and India’s burgeoning middle class (300 million and rising), a key driver for growth comes from changes in aviation policy, including the introduction of private airlines, low-cost carriers and improved bilateral agreements. Historically, India’s airports were owned and operated by the Airports Authority of India (AAI) and almost 80 per cent of traffic went through Mumbai and New Delhi. Chennai, Kolkata, Bangalore and Hyderabad had minor traffic shares, but other airports were barely worth a mention. Now, however, economic growth and the low-cost carriers have increased volume through secondary cities and reduced Mumbai and Delhi’s share to 45 per cent of total traffic. AAI data for 20082009 shows approximately 10 mppa through
22_EDGE The Journal of Jacobs Consultancy, Transport and Infrastructure
Chennai and Bangalore and over six mppa via Kolkata and Hyderabad. Significant traffic also now passes through Cochin, Ahmedabad, Goa and Trivandrum. International passengers still concentrate at Mumbai and Delhi (seven to eight million each), but Chennai, Bangalore and Hyderabad have all become important hubs. All this passenger growth has put huge pressure on airside, terminal and landside capacity across the country’s airports and too often results in abysmal level-of-service standards. The situation is now compounded as the financial crisis takes its toll on the airlines. Domestic low-cost carriers have still shown profits in the past year, but the full-service carriers have taken a beating and the state-owned Air India has suffered losses of almost US$ 2 billion. Under-pricing and
n Indian aviation
Airlines and airport users need to understand that airport investment means paying more for better facilities and improved services
GROWING PAINS: Operators need to recover up to
of gross revenues
110 million people a year used Indian airports by 2008-09
Mumbai and Delhi’s share of Indian traffic has fallen from 45%
3 new airports and 2 extensive capital programs
excess capacity are major reasons, along with the fact that high-yield traffic is extremely minimal as Indian passengers have high price sensitivity. The response has been to realign, consolidate and increase low-fare/lowcost capacity at the expense of full-service offerings and examples of this can be seen at JetKonnect and Kingfisher Red. Bringing in the private sector The Indian government and the Ministry of Civil Aviation is tackling the capacity problem by inviting private sector participation to modernise the country’s airports. Five airports are now operated through a (public private partnership) PPP model and they include the redevelopments of Mumbai and New Delhi as well as entirely new airports at Cochin, Hyderabad and Bangalore. The development agreements give majority (74 per cent) ownership to private sector partners with the AAI or another government agency retaining 26 per cent share. Concessions were granted for a renewable 30-year period and joint-venture companies are responsible for capital expenditure as well as operations and management of the airports. Government agencies retain responsibility for security, air traffic control and immigration. Hyderabad and Bangalore airports opened in 2008 and New Delhi and Mumbai are currently undergoing extensive capital programs. The PPP development strategy, however, has faced a raft of financial, technical and other problems at both the new airports and existing ones. There are competition issues in big cities with multiple airports including, for example, old airports at Bangalore and Hyderabad. User development fees have to be set to help pay for capital spending and there are numerous issues involving revenue sharing, operating costs and the extent to which non-aeronautical revenues
can be ploughed back into the airports’ cost structures. Other problems have included arguments over peak-hour pricing differentials and whether lighter aircraft should pay landing fees at congested airports. Then, not least, there is getting the passengers used to the idea of paying for improved facilities. Exacerbating these problems has been the absence until recently of any effective regulator. This led to confusion, ambiguity and varied legal interpretation regarding the detailed agreements for developing and operating airports. The Indian government has therefore set up the Airport Economic Regulatory Authority (AERA), which is responsible for the nature and quantum of airport tariffs, nature and level of capital investment and the quality, continuity and reliability of airport services and related standards. Charges and concessions Prior to 2008, the last increase in landing charges at Indian airports had been in 2001. The level of charges was too low, with the same charge applied to all international airports, a policy that did not make any sense from either a demand/capacity or investment perspective. Delhi and Mumbai are using a hybrid charging model in which 30 per cent of non-aeronautical revenues subsidise airline charges and the balance is kept in a separate pot. By way of comparison, Brussels, Paris and Rome use a similar system, whereas London’s airports (along with Madrid and Munich) use all their non-aero revenues to subsidise charges (single-till) and Amsterdam and Frankfurt keep them entirely separate (dual-till). However, there remain problems with the concessions at Mumbai and Delhi, still by far India’s largest airports. The current agreements are unsustainable because
the operators need to recover their cost of capital on between 55 per cent and 65 per cent of gross revenues and a more viable revenue sharing arrangement must be developed. Private equity and institutional investors who might otherwise want to invest in these projects want flexibility and clarity in concession agreements, just as they do in respect of land acquisition and regulatory certainty. Key areas of concern also include ground handling and third-party services, as well as capital structure and debt/equity ratio at the privately operated airports. Clear regulation and policy is still needed, but in a viable way that encourages private sector and global investor participation. Sustainable solutions For India to achieve a sustainable aviation industry based on global standards, the key stakeholders still have to acknowledge and address several vital issues. The government must outline concession agreements for bidding, and the AERA needs to oversee charging and competition issues and develop a pricing policy that takes into account investment and capacity constraints at different airports. In addition stakeholders should also be sensitive over airline profitability and airports should not be able to abuse their monopoly powers. The airlines and airport users, for their part, need to understand that airport investment means paying more for better facilities and services. As for the government, a uniform sales tax rate on aviation turbine fuel across the country would establish a less complex and more consistent business environment. A significant further challenge for the government is sorting out the problem of Air India. Rescuing the distressed state-owned carrier presents such a complex challenge that continuing support on the current basis may not be in the interests of either the airline or the taxpayer. Finally, all stakeholders have to address the long-term environmental implications of aviation growth in India. All these issues are serious and many of them are structural. Unless they are properly addressed, Indian aviation will not achieve its lofty goal of providing world-class infrastructure in a sustainable manner and the current plans for the country’s airports risk turning out to be no more than irrational exuberance. ❑
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Published on Feb 15, 2011
This edition focuses on the different transport and infrastructure challenges now facing the developed and developing worlds and how both ha...