Toronto's 407ETR loses traffic in recession but revenue holds, and breaking even

Traffic on Canada's big tollroad 407ETR is down 3.8% the first half of this year (2009H1) versus first half of 2008 (2008H1) but a slightly larger increase in toll rates (4.7%) has ensured that revenues are holding. Revenues in 2009H1 were running at an annual $469m (C$524m @$C=90c) based on 292.1k trips/day versus 303.8k in 2008H1, the 3.8% decline. The revenue in 2008H1 was $468m (C$520.2m.)

Depending on the exchange rates this is in the top two or three grossing tollroads in North America.

Vehicle-kilometers traveled were running at an annual 2,076m v 2157m 2009H1/2008H1, also a 3.8% decline.

Unprecedented in the eleven year history of the Toronto pike this 3.8% reduction in traffic is however similar to that experienced on many US tollroads (and tax roads), and far less than the double-digit percentage declines being seen at the US-Canadian border crossings, where 20+% declines are common.

407ETR has operating costs of just over $90m/year (C$100m/year) and charges $58m (C$65m) depreciation so income before interest and taxes is running at around $315m (C$350m/yr.) This is close to the interest payments on debt so the tollroad is barely breaking even after paying bondholders.

However a return to prosperity in the greater Toronto area should see growth in traffic and revenue on 407ETR. Ontario and central Canada is pro-immigration and pro-development to a degree unknown in the US.  With minor increases in costs this return to growth could see a developing return for equity holders.

Meanwhile the good news is that this pioneer of all-electronic toller is avoiding losses during the worst recession/depression in three quarters of a century.

COMMENT: Canada's economy is better shape than the US, having a strong banking and finance sector - none of the nonsense fanniemacs and freddiemae, mega-leeches on the American public, no massive corporate bailouts to bloat the national debt and tie up resources in failed enterprises. There was no horrendous central bank created real estate bubble to burst in Canada.

Ontario's and 407ETR's weakness is its very dependence on the chronically mismanaged and politicized US automobile sector, and its future success will depend on its speed in finding alternative partners to the continuing disaster that is Detroit.

TOLLROADSnews 2009-07-16