calculating tram line operating costs

Following on from my calculations on tram line construction costs, I’m going to have a brief look at operating costs for new lines. Shown below are the estimated operating costs over 2004-08 for Melbourne’s train and tram systems – taken directly from page 29 of the Auditor General’s 2005 report on public transport franchising.audit-costs.jpg

Over these five years, the operating costs for trams total $1204 million, or $240.8 million per year assuming no inflation. These costs include lease payments for new rollingstock, which aren’t an operating cost, but rather a (not particularly efficient) way of spreading the costs of capital stock (the trams) over the life of the investment. These costs should be dealt with elsewhere, and will be excluded from operating costs for the purposes of the exercise. This yields $210.4 million in operating costs per annum.

Melbourne has 249 kilometres of tram track. Dividing total operating costs by by the size of the system in kilometres, yields a per kilometre operating cost of approximately $0.84 million per year. As mentioned previously in my infrastructure costs post, these calculations assume constant returns to scale. However, I would suggest that there are significant economies of scale in the industry, so the marginal cost will be lower for a for a city with a large tram system (like Melbourne) than it will be for a city starting up a tram system from scratch. Consequently, the $0.84 million marginal per kilometre cost figure for Melbourne is probably slightly higher than it should be when looking at calculating operating costs for tram extensions.

However, any significant extension to the tram network would likely require more trams, and the hitherto ignored new rollingstock lease repayment figures offer an easy way to estimate these costs. The Auditor General’s report estimates these costs to be around $30.4 million per year. But only about 1/5th of the trams in Melbourne are “new” and purchased under these arrangements. Again assuming constant returns to scale, if all the trams were new, the lease repayments would total around $152 million per year. Divide this by the number of kilometres of track on the system, and we find that the marginal cost (per kilometre) for providing new trams is $0.61 million per year for the life of the asset. I don’t like leaseback arrangements, but they do make it easy to get an annual figure.


3 Responses

  1. Just a note, the original post had an embarrassing error in the maths and has been fixed.

  2. […] by Phin under trams   Due to an embarrassing mathematical error, the figures in my post about tram operating costs were a bit out. It’s all fixed now (I hope!) and the new marginal figures are $0.84 […]

  3. I agree there would be returns to scale, but Melbourne is probably carrying a lot of history that a newer smaller system could happily avoid.

    The poor old mob in Sydney are crying out for a route extension, as they know they can run a larger operation with the same overheads.

    Probably the best return to scale Melbourne ever did was the articulated trams especially the D2s. Should have been done years ago.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: