The global health crisis in 2020 hurt listed total road investments. In the first four weeks of the pandemic (from late February that year), the shares of Transurban, the largest listed operator of urban toll roads in the world, fell 39%. Peers registered even larger declines. Vinci, the French concessions and construction company, and Atlas Arteria, the Australian‑listed operator of toll roads in France, Germany and the US, nearly halved. Bears bellowed that online collaboration tools, adopted as a stopgap measure in response to stay-at-home orders, showed the feasibility of working from home, which would release professionals from commuting. Market sceptics postulated that this new paradigm would slash travel on toll roads, permanently impairing their economic value.
Two years on, however, the essential role that toll roads play is beyond doubt. Traffic data from Transurban in December showed a sharp recovery in volumes on the company’s Sydney road network in the prior month. Just three weeks after the latest lockdowns eased, traffic reverted to a level modestly above that observed in 2019. Evidence from European toll-road operators shows a similar rebound. Vinci reported that traffic in November on its French road network was about 7% above pre-pandemic levels. Italian-based Atlantia reported traffic materially ahead of 2019 levels in Chile and Mexico while traffic in Mediterranean Europe was only 5% to 10% below 2019 levels, despite the fresh restrictions tied to the new Omicron covid-19 variant.
Three reasons account for the resilience of toll roads. First, commuters account for a surprisingly small share of trips on toll roads. A Transurban survey in April 2021 of 1,000 residents in Greater Sydney found that just 4% of respondents identified as commuters who use toll roads more than once a day. This result added to similar results from previous Transurban studies, which suggested that only 16% of trips on the company’s roads are commutes; leisure and personal reasons account for most trips. The share of trips to and from work in Europe, where regional toll roads predominate, is likely to be lower still.
Second, concerns about catching the virus on public transport appear to be prompting people to use their cars. Patronage data from Transport for New South Wales reveals the number of trips completed on the state’s public transport networks in November 2021 were 55% lower than in November 2019. Data from Transport for London points to a similar phenomenon. Trips on the city’s public transport networks between 17 October and 13 November 2021 were about 30% below the level in the corresponding period of 2019. Google Maps data reinforce the point. The data reveals lower patronage at public transit stations in North America and in several key European countries since the onset of the pandemic. While it is reasonable to expect this trend to reverse as health risks fade, a survey of Australian transport users hints that at least part of the shift may prove permanent. A Transurban survey in January 2021 of people in Brisbane, Melbourne and Sydney indicated that respondents intend to use public transport about 21% less frequently after the pandemic and private vehicles about 5% more frequently.
Third, evidence is emerging of ‘peak-spreading’ on road networks. The data suggests that office workers are taking advantage of more flexible working arrangements to travel to the office outside of traditional peak windows. Analysis of hourly congestion levels produced by TomTom, the Dutch mapping and satellite navigation technologies company, points to lower levels of congestion at traditional peak times and an increase in congestion outside of these windows in major international cities including London, Madrid, Marseille, Milan and Sydney. Such a shift would be welcomed by toll-road operators: less severe peaks boost the capacity of a road to handle traffic, which increases its economic potential – and its market value.
Magellan has long viewed toll roads as the most structurally advantaged of infrastructure assets. Congestion on alternative routes means that toll roads face limited competition and capture a disproportionate share of traffic growth. Concession agreements typically link toll increases to inflation, which preserves the real value of their cash flows in an inflationary environment. The speed with which toll-road traffic recovered as the early waves of the pandemic subsided only serves to highlight the indispensable role that these assets play in communities.
By David Costello, CFA, Portfolio Manager