A hybrid cost model for light and heavy metro services

Abstract

We develop a hybrid cost model to estimate the standard cost of light metro (LM) and heavy metro (HM) services, incorporating key technological factors such as degree of automation, wheel technology, and peak hourly capacity. The analysis draws on economic and transport data covering the entire universe of metro revenue kilometers operated in Italian cities in 2017. Our results show that cost structures vary substantially with the underlying technology. HM services are more capital-intensive due to higher train depreciation and associated capital costs compared to LM services. As a result, while HM services exhibit higher costs per kilometer, they are more cost-efficient on a per seat-km basis due to greater capacity. This implies that significant investments in high-capacity metro systems are economically justified only when demand levels are sufficiently high. A sensitivity analysis shows that standard unit costs decrease with improvements in train and driver productivity, and that gains in infrastructure maintenance efficiency have a stronger impact than those in train maintenance. Also scale economies play a role, as unit costs decline with increasing service size. Additionally, extending station opening hours results in higher costs that local authorities may choose to bear to enhance service quality. These findings can inform the definition of maximum economic compensation (i.e., the auction base) in competitive tendering procedures, or serve as a benchmark in negotiations with local monopolistic operators.