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Airports & aviation

Feb 6, 2013

Should the O'Farrell government lower Sydney airport rail fares?

The NSW Government is about to land a big windfall from the airport rail line as revenue-sharing provisions kick in. But should it return the money to airport train travellers or keep it?

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Sydney's Airport Link rail service

The NSW government has an interesting and challenging dilemma.

At present, the full fare for travel by rail from the CBD to the domestic airport terminal is $15.90 (and $16.70 to the international terminal).

However $12.30 of this is a “station access fee” – a surcharge that goes to the builder and operator of the rail service (now Airport Link Company Pty Ltd).

But as from next month, when the operator achieves a certain revenue threshold, the 2005 agreement provides for 50% of the surcharge to go to the government. This will increase to 85% next year.

The revenue involved is significant. It’s likely to be $18 million this year, rising to $30 million next year. Thereafter it will grow (or fall) in line with patronage. The Airport Link Company will receive the remaining 15% until 2030.

All this is due to the spectacular growth in patronage the company has achieved since it took over the rail line. I noted last year (Is rail on track at Sydney Airport?) that rail’s mode share at the airports was 16% – now it appears to be around 17%.

The dilemma is what the Government should do with the money: keep it or reduce the fare to circa $4?

The government’s already said it intends to hang on to it, but there are vocal calls to return the windfall to travellers in the form of lower fares. The Tourism and Transport Forum (TTF), for example, wants the surcharge removed.

Particularly for the price-sensitive market, to get to the platform and find it costs an extra $12.30 – that does not create a great first impression.

There are a couple of arguments for removing the surcharge.

One that’s likely to resonate with the general public is simple: now that the capital cost of the rail line has been recovered, there’s no warrant for maintaining the station access fee. Fares to the domestic and international airports should now be set on the same basis as the rest of the CityRail network.

Another is it would encourage mode shift from road to rail by making the latter mode cheaper. That would lower congestion on the roads around the airports, particularly the domestic terminal.

Last year’s Federal/NSW Joint Study on airport options for Sydney estimated removal would increase the number of airport rail users by 26% in the first year and 34% in the long run. It said the benefits for travellers from doing away with the surcharge would exceed the cost to the State.

Of course there’re also opposing arguments i.e. supporting the Government’s decision to keep the revenue.

A key one is it could be used to fund new projects that provide a superior net benefit for the State compared to giving airport train travellers lower fares. For example, projects that make public transport faster, more frequent or safer might (possibly) yield a higher net benefit.

Rail also recovers very little of its capital and operating costs, so retaining the surcharge more accurately reflects real system-wide costs. The NSW Auditor-General reported last year that each rail journey in NSW costs the State, on average, $10.01 (in real money).

This line of thinking might not fly well politically though because the government’s already said it’s putting the money into general revenue rather than hypothecating it to public transport.

Another argument is that although the patronage increases for rail estimated by the Joint Study look impressive, they would only delay the need for major road works by between one and four years.

Mode shift would also reduce traffic heading to and from the airport over a broader geographical area, but it’s likely other (induced) traffic would take up the liberated capacity.

A large increase in rail patronage would conversely bring forward the need to expand capacity on the airport line. The Joint Study says additional works will be needed in 2021 on current policy settings, although it doesn’t indicate the cost.

An important qualification is needed here: the Joint Study relied on a “rapid cost benefit analysis”. A more thorough study might provide different results.

Apart from the operator, those who’d benefit from reducing the surcharge include visitors to the State and domestic business travellers. However their travel behaviour is relatively insensitive to the level of fares.

Price-sensitive domestic travellers would also benefit, but they don’t fly frequently.

Finally, many airports around the world charge airport travel on a full cost-recovery basis. Melbourne’s SkyBus, for example, charges $17 one-way, nothwithstanding the roadspace it uses was built long ago.

I’m going to squib my take on this a bit because it’s a complex issue and information is incomplete or lacking.

There’s little doubt maintaining the surcharge will be seen as unfair by some, although so far at least it doesn’t appear to be a major political concern despite the TTF’s best efforts. Perhaps that’s because the electorate is very ‘loss averse’ but relatively ‘gain indifferent’.

On the other hand, governments don’t have enough revenue so they shouldn’t relinquish new sources lightly. If the money can yield a higher benefit for the public in another use, then the surcharge should remain in place.

On the admittedly imperfect information available publicly I suspect there probably is a better use. If a “tax” on airport train users gives the Government the capacity to fund projects like the George St light rail, then it might well be the best use of the money.

Given it’s decided to keep the money, the Government should explain to the the community how this is a better deal for them than lowering the airport rail fare.

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