A toll for the season

Some toll roads now vary toll rates by time of day, but what about by season? We took an innovative pricing approach on Virginia’s Chesapeake Expressway.

Across transportation industries, operators commonly rely on revenue management and variable pricing techniques to generate additional revenue. Usually, this relies on distinguishing between different user segments and the type and level of service they wish to purchase. For a toll road, however, this distinction is difficult, and the options facing the road operator are generally limited to the “time of day” variation, where a premium can be charged when congestion on the free option increases the competitive position of the toll road or at times when the users’ willingness to pay is at its highest.

On an increasing number of the country’s toll roads, tolls vary according to the time of day – typically rising in the morning and evening peaks. For the Chesapeake Expressway, a toll schedule was introduced that varied toll rates by day of week and by season.

Located in southeastern Virginia, the Chesapeake Expressway opened to traffic in 2001. It provides a high quality limited access highway option to the Outer Banks of North Carolina. As a route A toll for the season to these very popular beach destinations, the Chesapeake Expressway experiences its peak traffic levels during summer weekends. Prior to the construction of the Expressway, the volume of summer weekend traffic overwhelmed the surrounding roadways.

Working with the City of Chesapeake, Steer Davies Gleave identified that the summer weekends provide about 25% of the total annual toll revenues for the Expressway, despite representing less than 10% of days. The question then to ask was ‘Could this traffic be persuaded to pay premium tolls?’

Based on our analysis, we recommended a new toll rate schedule that introduced a premium on the toll rates for the peak summer weekends, aligning the higher toll rates with the higher value received by the summer weekend travelers – the very users for whom the Expressway was built. The toll schedule also includes a discount program that provides a lower toll rate option to Expressway commuters.

Once implemented in 2011, toll revenues for these peak days more than doubled, and most of the potential users stayed on the Expressway – allowing the road operator to capture more of the benefit that their road created for the user.

This has been a great success for the City of Chesapeake, and Steer Davies Gleave is now identifying other opportunities to introduce cutting-edge pricing approaches.