TTC and GO achieve high direct cost recovery in comparison with other North American operators, but this comparison is misleading for several reasons. First, GO and TTC are relatively new operations, and do not have the legacy of 19th and early 20th century infrastructure that increases the costs of subway and commuter rail systems in New York, Philadelphia, and Boston.
Second, TTC and GO also benefit from a relatively favourable market environment, with a large and concentrated central business district, surrounded by relatively high-density residential neighbourhoods. In the United States, only New York, San Francisco, Chicago, Philadelphia, and Boston have comparable densities. Toronto has an efficient arterial road grid, good for bus services, but very limited radial expressway capacity and so very little competition for commuters into the city centre. Toronto also has never suffered the problems of crime and racial segregation, which have certainly deterred transit use in most U.S. cities.
TTC does participate in “benchmarking” with metro operators in other countries, including London and European metros, but does not usually publish the findings. Many commuter rail and metro operators in those regions recover 100% of operating costs, and even pay part of capital renewal costs from fares. Of course, cost recovery also depends on fare revenue, and many cities have explicit policies of subsidizing fares.
The City of Toronto does release some benchmarking comparisons of TTC and other Canadian municipal operators, as part of a wider municipal benchmarking program. Toronto is at or near the top in many measures, including trips per person, but (as the report acknowledges), “population density can have a large impact on ridership,” and with the largest population, and some of the highest densities, TTC should be able to do better than other cities.
Certainly TTC and GO management can point to efficiency improvements they have introduced over the years. They also have to operate within constraints imposed by political decision-makers, the physical environment, and Canadian law. The question is whether they could do better. The benchmarking shows that cost per vehicle hour is high, in comparison with other cities, but (as is pointed out) this is because TTC operates streetcars and subway trains, which are more expensive to operate than buses. So the comparison is fairly meaningless. The data might be useful if TTC could split out bus operations from other modes, but it does not do this.
The benchmarking does show that TTC unit costs have risen faster than inflation, and also faster than in other cities.
Outsourcing and Competitive Tendering
GO has outsourced the operation and maintenance of trains to Bombardier, but overall service features are still set by GO. By comparison, in Hong Kong, Stockholm, Shenzhen, and several French cities, companies compete to operate subway, light rail, and bus lines to which they bring commercial innovation as well as operating efficiency.
London began competitive tendering of bus services in 1988, experimenting with both gross cost and net cost contact models. Unit costs were reduced 15% to 25%, although the savings have subsequently been used to fund service improvements. Ridership has grown more than 50% since 1999.
In Western Europe, it is now accepted that only competitive tendering can establish that value for money is being achieved in delivery of public services. Competitive tendering imposes transparency, as well as relentless pressure for efficiency. A recent study for the U.K. Department for Transport concluded that competitive tendering of regional (commuter) rail services in Germany had brought cost savings of up to 40%.