Roland Perry wrote:
In message
-sept
ember.org, at 19:22:12 on Sun, 1 May 2016, Recliner
remarked:
Roland Perry wrote:
In message
-sept
ember.org, at 19:00:51 on Sun, 1 May 2016, Recliner
remarked:
I produced a figure of 7%, if you have a better one please explain your
workings.

Wasn't that based on a surplus of £2 per journey (ie, today's fares and
traffic volumes) vs estimated construction costs in 1969 money?

It was adjusted for inflation.

What about the cost of four more trains?

I didn't include them, but at £1.8m for four of them, it's getting into
the noise level for the £26m total cost.

I think it best to use the figures Clove quoted:

"Rails Through The Clay, which is usually pretty accurate on things, states
that the original Heathrow extension was estimated at 15 million in 1970,
with the final figure given as 30.2 million in 1978. Hounslow West to
Hatton Cross civil engineering was 4 million. Tunnelling on to Heathrow
Central was 2.25 million; the station was another 1.2 million (those three
are all contract prices). The 1973 Tube Stock cost 40.25 million for 87.5
6-car trains. If I've calculated things correctly, the extension added 4
trains to the requirements for the line (15 minutes extra running time, 15
tph service at the time), so 1.84 million."

So the capital cost was £33m (or a bit more, inflating the train costs from
1975 to 1978) in 1978 money.



And was it based on 1985 service levels and fares, or today's?

Fares were adjusted for inflation, but used current passenger numbers.
Back when the line was built all the passengers were going to T123,
whereas with today's figures only about half of them are. Putting some
numbers on it, Heathrow was handling 30m passengers when T4 was being
built, and latest figures (2015) have T123 handling 32.6m [T4+T5 is
40.8m].

So you need to reduce the volumes by about 10%, for the average in the
1977-1986 period?

Also, I wonder how much of that traffic was simply displaced from Hounslow
West, which previously provided the less-satisfactory Heathrow link?


And did you allow for 1980's interest rates on the capital costs?

I don't think they literally borrowed the money to build it, but they
had the rate would have been the lowest government borrowing rate.

I agree that they didn't directly borrow the money for this particular
project, but it would have come from the public sector debt, one way or
another. That means we need to use the gilt yields of the day, about 14%:
http://www.tradingeconomics.com/unit...ent-bond-yield

Of course, had it been a PFI contract, as might well have been the case
today, the interest rate would have been significantly higher.

So the cost of servicing the debt (let alone repaying any of it) would have
been at least £4.6m pa. Only if the net incremental operating surplus
exceeded this would you start to see any financial return on the
investment. Obviously, with projects like this, there are other benefits
(less pollution and traffic, quicker and more predictable journeys, etc),
so even if it doesn't make a financial return, you might still do them, and
I think that's the case here and in many other urban public transport
schemes.