Abstract
The deferred repair of infrastructure is often a pressing issue since infrastructure failures can have severe economic consequences for both operators and users. Although the benefits of non-expansion capital spending are well-known within the industry, empirical validations of such benefits from an organisational perspective are relatively rare. This exploratory research seeks to understand the impact of non-expansion capital spending on demand-side measures and operating cost using 70 years of unique data from London Underground. The data was collected for this research, and is among the longest time series for metros available within the academic literature. We adopt an autoregressive distributed lag model and discuss implications in the context of industry practices, including analysis of the company’s history and London’s urban development and politics. The exploratory results suggest that a 10% annual growth in cumulative non-expansion capital spending is associated with, on average, 4%–5% annual growth in passenger demand. Additionally, investment’s overall impact on demand increases over time. The 2000s period of infrastructure public–private partnerships was also found to be associated with positive annual growth in operating cost and negative growth in passenger demand. These results highlight the importance of capital investment and the impact of local politics on rail organisations’ long-term financial health.
1. Introduction
The infrastructure condition in many developed cities around the world is a frequently discussed topic, with multiple stakeholders weighing in with their ideas. It is a pressing issue, with rising costs the longer repairs are deferred. For instance, the American Society of Civil Engineers (2020) estimated that $176.1 billion is the current backlog for US public transport investments alone, which is also forecasted to grow over time. One of the most important and visible aspects of infrastructure in large urban areas is the rail transport network, which is critical to enable workers to get to their workplaces at relatively lower economic costs. In addition, increasing urbanisation in the 21st century, with outsized shares of not only economic output but also cultural and political influence being generated by large metropolitan areas mean that urban rail is important in fuelling this growth.
The challenge of maintaining the condition of rail infrastructure was made more difficult in 2020, when the large drops in passenger numbers negatively impacted rail systems’ finances, requiring large bailouts from central governments (BBC, 2020, Metropolitan Transportation Authority, 2020) — who were already financially strained due to a sudden increase in spending to stimulate the economy during COVID-19. These funding challenges, combined with coronavirus-related lockdowns, can lead to deferred capital work that can impact the infrastructure condition over the long-term (Transport for London, 2020, Citizens Budget Commission, 2020).
The effect of a lack of non-expansion capex (i.e., “reinvestment”) on the existing system can be especially damaging for rail systems, due to its capital-intensive nature. Deterioration in the infrastructure condition is directly intertwined with service operations, from both the transport agency’s and passengers’ perspectives: typically, capital renewal spending on good quality infrastructure that is easy to maintain ought to lower future operating costs while at the same time enhancing customer experience, all else being equal (eg Spy Pond Partners LLC et al., 2012, Spy Pond Partners LLC et al., 2018). Indeed, a prominent, well-documented example is the New York City subway of the 1970s–80s, which for two decades faced growing deferred maintenance and reduced reinvestment spending, generating a downwards spiral (Seaman et al., 2004). Although changes in reinvestment can have sizeable effects, these effects can often be difficult to quantify, particularly over the long-term. Thus, there is a need to empirically measure the impact of reinvestment on the rail system’s demand and operating cost, which is the central objective of this paper.
This paper hence contributes to the literature by collecting unique long-term data (70 years) from annual reports and financial statements of London Underground, followed by time series analysis of the collected data to quantify the impacts of reinvestment in an urban rail organisation. Analogous to empirical studies that examine transit demand elasticities relative to price and other supply-side factors (eg Graham et al., 2009, Holmgren, 2007), we examine the impact reinvestment has on transit demand and operating cost. At the same time, as there is limited previous research, this work is thus an early attempt at quantification and the approach is exploratory.
Thanks to the Mobility Matters (James Gleave | Substack) newsletter for bringing this paper to our attention.