Transurban boss Scott Charlton says rising rates won’t slow toll road traffic

Transurban CEO Scott Charlton. Picture: Aaron Francis/The Australian

Transurban Group chief executive Scott Charlton spoke at the Macquarie conference just ahead of the Reserve Bank’s decision to hike the cash rate 0.25 per cent and begin the tightening cycle for interest rates.

The ASX-listed builder and operator of toll roads is a good window on the Australian economy and Australian behaviours.

Charlton does not see rising interest rates slowing traffic on toll roads. “In the last 20 years we were driven more by unemployment,” he says.

“If there is a recession and high unemployment that is an issue. But I don’t see the base going backwards. You are talking about growth going forward, it’s really about employment.”

For Transurban itself, Charlton expects the benefit of a 1 per cent rise in inflation to be greater than the cost of a 1 per cent rise in interest rates. The company has in-built inflation protection through its inflation linked tolls.

It has hedged 99 per cent of its debt costs at 4 per cent and it has refinanced at cheaper rates so far this year. Debt is also rolling off at higher rates.

Transurban’s most recent weekly traffic data show that for the first time each of the Australian markets have exceeded pre pandemic levels of 2019. Stronger travel through airports has boosted traffic noticeably.

Charlton describes Transurban as in the best position since he joined with capacity to fund near term opportunities. In July he marks ten years in the job.

Asked about building inflation sitting at 8 per cent, he says Transurban can still deliver projects within a risk profile. He suggests one way to manage risk more effectively might be to ask the government to take on the risk of indexation on fuel or steel.

A far bigger challenge than supply chains and temporary inflation is finding people. Charlton is a strong advocate of skilled migration. Working from home cruelled traffic flow but Charlton is optimistic that a new normal will play well for the company. Covid-19 is the seventh crisis he has lived through.

“With 9/11 no one was going to use an airline again. We always come back to something that resembles the previous. People at the beginning said no one will ever go back to work. Now they are all asking their people to go back to work,” he says. Shifting travel times with increased working flexibility is changing peak traffic with busy days midweek.

Online shopping and more freight on-road are trends the company thought would play out but have been brought forward through the pandemic.

Changing traffic flows and the shift to EVs play into Transurban’s growth strategy around data where unsurprisingly it has rich insight on mobility. The company is eyeing transport solutions like the running of smart road user charging systems.

The shift from petrol to EVs spells the death of petrol excise which pays for infrastructure. Charlton says the most effective user charging system must be a balance between the perfect traffic network operating distance based congestion and access charges and what the community wants and is fair.