All commuters are keen to travel as comfortably and conveniently as possible. Policymakers have the job of ensuring this happens. As a direct result, a host of modern-style, transport systems have emerged under PPP schemes worldwide.

Why then are tram systems struggling to gain investment-level ratings? It appears that an over-reliance on unmitigated market risks, a history of patronage and over-enthusiastic forecasts have scuppered their chances. The underperformance of such systems has highlighted the danger of passing the buck to the private sector.

To gain ratings tram, light rail, metro, and rapid transit projects everywhere would benefit from realistic, credible and non-biased credit scrutiny.

Tram trouble

 Spiralling losses in the UK’s privately-financed light rail sector have only compounded the problem.  When Croydon Tramlink recently reported pretax losses at 34 per cent, it was effectively excluded from its consortia’s plans. The reason was simple: the risk profile associated with the ailing tram system resulted from saccharine projections.

Similarly when Manchester’s Altram’s accounts failed to make the grade its consortium returned the concession to the grantor.  There have been many instances where overoptimistic forecasts were identified as plummeting the revenue shortfall.

And even when forecasts are accurate they can be right for the wrong reasons. In Manchester these were met when the number of anticipated travellers matched the prediction due to an unexpected boom in leisure travel and not an interest in the new system.

Market Risk

The transport sector gains less media criticism than the likes of education, as it is a fairly benign sector. Transport projects appear to sit quite comfortably in the PPP arena, as this represents a natural move in existing arrangements rather than a broad shift in thinking.

In the UK, forecasts are unreliable but payment mechanisms based on service performance and availability are more likely to attract investment. Structural mechanisms exposure that effectively minimise exposure to market risk can be put in place.

Demographic errors

The task of predicting how many passengers will use a tram is both formidable and daunting given the long forecast horizons that are required from project to project.

Firstly there is the unreliability of surveys to take into consideration. Poorly designed, hypothetical studies are innacurate, especially when they are based on a participant’s future travel arrangements. Restrictions of time and place effectively remove their credibility even when they are well designed.

If a survey is conducted at one point in time the interviewees circumstances (such as their job and journey to work) may change dramatically thereafter, thus resulting in a turnaround of the original data.

The actual time taken to complete the survey can also hamper judgements especially if respondents are rushing to finish them.

Then there is of course the concerted question of sample size. Just how accurate is a forecast that generalises about the population when it is based on a small number? While most studies look at specific towns and zones, the ‘factoring up’ afterwards calls their credibility into question. Such assumptions can merely amount to fuzzy 'guestimations' and flakey conjecture.

Other factors that lead to fiction

A pool of other risky factors have led to this kind of shortfall.

As most urban trips cover short distances, there’s a tendency to overestimate a tram’s convenience. A bus can do the same job. Ignoring this has led to a stalemate from which a tram’s competitiveness is exaggerated, as is its position as a ’superior’ form of transport. 

Even in regulated environments, trams face aggressive bus competition and tram ticket costs cannot hope to compete with low bus fares.  The problem is that the forecasts simply aren’t matching the reality. Add to the stew the assumption that a right of way necessitates the need for a tram and you have a recipe for disaster.

Underperformance everywhere

Where trams are concerned, there is obviously a mismatch in the projected figures and everyday reality. Patronage levels below those anticipated have been shown everywhere.

There are however a few locations where anticipation meets customer demand. Or even exceeds it, as is the case in Bilbao, Spain. These are encouraging for policy makers but truly in the minority. On the whole, accurate forecasts have been dogged by those wearing rose-coloured spectacles.