After a difficult period during the economic crisis, investment funds are increasingly identifying attractive highway projects in a growing secondary market.
In order to provide sound and robust traffic projections with a clear understanding of the potential risks associated, the elasticity of traffic to GDP is the key driver to analyze. However, elasticities may vary considerably depending on the context of each highway and the dynamics of mobility: asset maturity, country economics, type of traffic, shadow or real toll, geographic context, profile and seasonality of demand, congestion and saturation, etc. Consequently, understanding this elasticity parameter is key to achieving success in this sector.
Through this article we will review how some aspects of the asset context impact on the estimation of elasticity.
Higher levels of economic development in a country result in lower-intensity growth in variables that directly affect traffic, and therefore a decrease in elasticity.
Some of these variables include the vehicle ownership rate (in more developed countries, this rate tends to stagnate), higher employment levels and generation of commuting trips, availability of high quality public transport alternatives, higher access to leisure driven by higher purchasing power, etc.
Type of traffic (transport corridor, local, commuting…)
Some types of trips have a higher elasticity to GDP, up to 40% greater than regular values, because of the direct impact on the mobility dynamics:
- Short distance commuting trips increase with employment
- Short distance leisure trips have higher elasticity to GDP given higher (increase in) purchasing power
- Heavy vehicle traffic increases in major long distance corridors, due to the increase in the freight transportation needs of industry, consumption centres, etc.
Type of toll
Shadow toll roads are more resilient to economic crises and in uncertain or low economic growth conditions. While shadow tolls don’t impact directly on road users, the value of elasticities on these type of assets is also affected by other factors such as local conditions, geographic context, availability of alternatives, congestion levels, etc.
The geographic context of a highway, namely its connections and accesses to different nodes, impacts directly on the elasticity to GDP. Elasticity values in highways on islands clearly illustrate this behavior. Common characteristics of this traffic (limited or no alternatives, absence of long distance, corridor traffic, local mobility, etc.) result in island elasticity values 25% to 50% lower than those observed on mainland roads.
Traffic cannot increase independently of highway capacity. When near-capacity traffic values are reached, traffic growth rates experience a decrease of up to 75%. On the other hand, assets with capacity constraints are more resilient to economic crisis due to the latent demand.