Brisbane’s Airport Link tunnel appears to be in serious financial difficulty only a few months after opening. BrisConnections, owner of the toll road, has suspended all trade in the stock indefinitely after advising the “value of the enterprise may be less than the outstanding debt”.

By now, 136,000 vehicles per day were forecast to use Airport Link at the end of the initial three month toll-free period. But on October 18 — the first day tolls were introduced — traffic was only 53,000 vehicles per day. That’s despite the toll being discounted to $2.50 for the entire length of the 6.7km road (5.7km in a tunnel). The average traffic for all of October is only 66,203 per day.

Airport Link is not alone in experiencing traffic well below forecasts. The poor initial performance of both the Sydney and Brisbane airport rail projects suggests getting the demand right is not solely a roads problem.

Back in July, Brisbane transport modelling firm Veitch Lister Consulting released the results of (apparently independent) modelling showing estimated traffic on Airport Link should rise to around 85,000 vehicles on a normal weekday by April 2013. From that date the initial discounted toll will be replaced by a “medium toll”.

Veitch Lister estimates demand should drop to around 72,000 vehicles per day by October 2013 . However, by November 2013 when the ramp-up to “full tolling” will be complete, the firm estimates the road might carry in the region of only 60,000 vehicles per day. That compares with BrisConnection’s product disclosure statement, which said 195,000 vehicles were expected to use the road 15 months after opening.

There seems to be a systemic issue with forecasting demand for major transport projects. Maybe the incentives for over-optimism on the part of the promoters are too strong.

The way projects are put together appears to underestimate demand risk. As this press report from back in 2010 notes, “despite the failure of projects elsewhere, BrisConnections is sticking resolutely to the optimistic predictions for the Airport Link”.

Part of the problem is many of those involved in putting together major projects get most of their fees irrespective of what ultimately happens with patronage. The total underwriting and associated fees mentioned in the Airport Link product disclosure statement were $89 million.

Professor John Goldberg says investors have put $23 billion into 11 toll roads across Australia since 1994 for a small or negative return on equity in each case. The Courier Mail reports him writing:

“The public-private partnership concept has failed in Australia and should serve as a warning to superannuation funds of the high risk of investment in road infrastructure. A common flaw in the failed tolls roads and, notably, Airport Link, is the use of a ‘work back’ philosophy to forecasting traffic numbers … The promised return on equity to investors is a starting point used to work back to how much revenue must be generated from the expected daily flow of vehicles, which has been inflated to wildly unrealistic targets.”

Although I expect it’s primarily an institutional problem, there may also be technical weaknesses in demand forecasting. A key puzzle with Airport Link is why so many drivers elect to take a longer surface route rather than pay what is a very modest toll.