Demand and Revenue
Capital Cost Assessment
Cost Sharing with Service Providers
Sponsorship Opportunities
Operator Options and Operational Costs
Financial Viability
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Under the Victorian Government's 'Transporting Art' program, a number of trams were painted by noted artists. This tram was painted by Craig Gough. A similar program could be implemented for the Federation Line.
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Demand and Revenue
Several studies, including an updated business plan prepared by KPMG in 2003, have provided estimates of patronage and revenue. The number of travellers on the tramway is estimated at 389,000 in its first full year of operation, providing a revenue source of $2.4 million.
A source of additional revenue is expected to be a restaurant tram, similar to those which have proved successful and profitable in Melbourne and Christchurch.
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Capital Cost Assessment
Costings of the project have been prepared by Ove Arup, with the assistance of City Design of Christchurch. The projected capital cost of the tramway is $15.0 million.
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Cost Sharing with Service Providers
It is anticipated that there will be opportunities for cost sharing with service providers. These could operate in a number of ways.
- Sharing of cost of infrastructure provision. An example could be the provision of power supply infrastructure in return for higher rates for electricity charged to the operation.
- Sharing of costs of replacing old services infrastructure during construction of the tramway, based on the estimated residual economic life of assets. This approach was adopted in Christchurch.
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Sponsorship Opportunities
There are a number of opportunities for local sponsors and other entities to help in the development of the tramway, and in marketing the service once the line is operational.
Such inputs could include:
- Local ACT businesses may sponsor trams or tram stops, in return for the opportunity of advertising.
- In keeping with the Federation theme, state governments or state capital cities might sponsor a tram, as a means of providing a marketing opportunity.
- Once the line is operational, local hotels, shops and tourist attractions could market the tramway and sell tickets, with a commission on sales.
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Sydney is one of the many cities around the world which discarded trams in the 1950's and 1960s, only to reintroduce them thirty years later. Before Sydney's first new line opened in 1997, a heritage tram was brought from the Sydney Tramway Museum to clean and smooth the track.
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Operator Options
A number of operator models exist for the running of the tram service. The preferred option, which is seen as maximising the potential of the Federation Line to support the Canberra economy, is the identification of an operator through a competitive tender process. Ideally this will be a company with experience in tourism activities. This model was adopted in Christchurch, where Shotover Jet was the successful bidder to operate the tourist tramway in that city.
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Financial Viability
A detailed assessment of the financial viability of the Federation Line has been conducted, based on the estimates of revenue and costs. This indicates the project to be financially viable, provided its capital cost is funded on a grant basis. The financial projections show that the Federation Line is expected comfortably to attain its objective of meeting recurrent operating costs from revenues without recourse to ongoing government funding. From the second year of operation onwards an overall operating profit in excess of $350,000 per annum is anticipated.
The estimates used in the preparation of the business plan are conservative. They take into account the decline in international tourism since September 2001. The result includes an allowance for depreciation on the initial capital infrastructure, meaning that the tramway will be able to cover the cost of the eventual renewal of the permanent way and other infrastructure without recourse to further government funding.
A sensitivity analysis shows that the business case remains robust even if significant capital and operating cost overruns occur, or if revenues fall short of forecast. For example, over the first five years, the tramway could still earn an operating profit if revenues averaged 15% below forecast, or operating expenses were 21% higher than forecast.
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