The more the operator of Highway 407 raises fees to use the electronic toll road across the Greater Toronto Area, the more ridership continues to grow.
As a result, 407 International Inc.'s profits are in maximum overdrive. On Wednesday, 407 International reported it earned $40.9-million in net income in the quarter ended June 30 – an 83-per-cent increase over the same period a year ago.
While the number of trips increased just 1 per cent year-over-year, to 29.6 million in the quarter, the average revenue per trip was $6.37, an increase of almost 10 per cent, while total revenue increased by 10.6 per cent, to $188.4 million. The increase is largely due to a hike of between 5 and 10 per cent earlier this year in the amount charged per kilometre travelled on the highway in peak times. It is the latest in a series of annual price hikes that, with the exception of the 2008-09 recession, has been accompanied by an increase in usage.
In addition, improvements to the technology used to record trips and bill users have enabled the operator to steadily decrease the amount of unbilled trips in recent years, to 2.2 per cent in the most recent quarter.
"Customers continue to make 407 ETR their good choice alternative for a fast, safe and reliable trip that saves both time and money," said 407 International spokesman Kevin Sack. The company, privately owned by the Canada Pension Plan Investment Board, Spanish infrastructure giant Cintra Infraestructuras SA and Canadian engineering firm SNC-Lavalin, reports earnings because it issues publicly-traded debt.
DBRS credit analyst Grant Headrick said management has been "mindful of the effect the increases of tolls could have on ridership. They obviously don't want to be in a position where they overcharge and drive ridership down on the asset." Rather, as the population in the GTA continues to grow and other roadways remain congested, drivers continue to find the toll road to be "a good value," he added.
Seemingly forgotten is the early controversy that dogged the highway, after the Ontario Conservative government of Mike Harris sold a 99-year concession to operate the road in 1999, giving the buyers free rein to increase tolls if traffic hit threshold levels. Dalton McGuinty promised he would slow the increase in tolls but was unable to deliver on his pledge.