Transport for London (TfL) has issued an update on how the
Covid-19 virus has affected its passenger numbers and how it
intends to utilise its reserves to manage the forecast initial
financial impact. This assessment has been based on Government
scenarios for the impact of the virus on households over a number
of weeks.
An underlying softness in demand and passenger revenue, largely
caused by economic uncertainty, had been experienced by TfL since
October 2019, with both Tube and bus revenues trending at around
2 per cent below the previous year. During February, TfL’s
revenue was further affected by three significant storms and a
period of prolonged bad weather. This fluctuation was within
TfL’s usual financial forecasting tolerances.
In the week commencing 2 March, further reductions in ridership
became apparent, coinciding with growing public awareness of the
Covid-19 virus, starting with modest reductions in ridership of
around 2 per cent compared to the same days the previous year.
Since then, a growing number of firms and individuals have
changed their travel behaviour, with greater numbers of people
working from home. This has led to an acceleration in the
reduction in passenger numbers in the last week to around 19 per
cent on the Tube and 10 per cent on buses compared to the same
week the previous year.
This is made up roughly equally of fewer people travelling and
those travelling making fewer journeys.
The key drivers of the reduction appear to be:
- a significant reduction in visitors to London, visible
through the traffic on the Tube connecting the airports and
central London;
- firms asking staff to work from home as part of their
resilience planning; and
- continued underlying softness of demand, especially off-peak.
This is likely to relate to consumers remaining cautious about
their expenditure given the subdued economy and now the impact of
Covid-19.
This is an evolving situation and the financial impact is
difficult to predict. This will depend on the duration and
severity of the spread of the Covid-19 virus. TfL’s current
forecast, based on government scenarios, suggest that this could
be a reduction in passenger income of up to £500m.
The transformation of TfL in recent years has made it much more
efficient and resilient to financial shocks. Tight cost control
and efficiency measures have meant that TfL has reduced its
deficit from £1.5bn to £200m. This has enabled it to mitigate in
part the withdrawal by Government of £700m per annum in operating
grant, delays to Crossrail and a softening economy. But these
financial shocks have also demanded tough decisions about
priorities to keep London’s core transport network operating
effectively, including delaying plans to upgrade the signalling
on the ageing Piccadilly line. The very significant additional
impact of Covid-19 will now also need to be managed.
TfL’s financial policies require it to keep a minimum cash
balance of £1.2bn to provide liquidity to absorb sudden financial
shocks. Above this, TfL aims to hold a further £600m for other
strategic risks, for example sudden reductions in passenger
numbers due to pandemic. These reserves are actively monitored
and managed in order to protect day to day operations.
TfL’s current forecast for its end of year cash balance is
expected to be more than £2bn. This means TfL is able to manage
the initial impact of Covid-19. TfL will consider further
budgetary flexibility to ensure it maintains its financial
resilience but the Mayor and TfL will also be looking to the
Government to provide appropriate financial support to ensure
that the core transport network continues to operate safely and
reliably to the benefit of the UK’s entire economy.
TfL is following and communicating advice from Public Health
England, including that there is no specific risk on public
transport, and has stepped up the cleaning regime on its services
and in its work environments beyond the already existing high
standards.
TfL is also planning what it needs to do to recover once the
pandemic has subsided.
Simon Kilonback, TfL’s Chief Finance Officer, said:
“Our best forecast, based on government scenarios, is that the
financial impact of the coronavirus could be up to £500m. We
manage our finances prudently, and have reduced our deficit
hugely in recent years. This means that we can manage the impacts
on our passenger numbers and finances that are currently
envisaged. But, given the nature of the situation, we will be
looking to the Government to provide appropriate financial
support.
“We continue to follow and communicate Public Health England
advice, including that there is no specific risk on public
transport. We’ve also stepped up our cleaning regime from the
already very high standards to give our customers and staff
further reassurance.”
