London Mayor Risks $7.8 Million a Year on Cycle-Hire Program

Mayor Boris Johnson is spending 140 million pounds ($218 million) to encourage more Londoners to get on two wheels with a cycle-hire program that sprinkles the capital with as many as 5,000 bikes starting today.

The initiative, funded by Transport for London, sponsored by Barclays Plc and operated by Serco Plc, could lose as much as 5 million pounds a year, according to Kulveer Ranger, Johnson’s transport adviser. At best, it will break even as subscribers pay six pounds for a two-hour rental or 50 pounds for a full day. The first 30 minutes, though, are free.

“I think we’ve got to be realistic,” Johnson, who pedals to his Tower Bridge office, said in an interview with Bloomberg Television. “It’ll be a while before it makes money for the taxpayer. The objective is to give Londoners a clean, green alternative, particularly for short journeys where they might think of using cars, which I think is crazy.”

Barcelona, Paris and Brussels are among European cities that have introduced public cycle-rental systems. France’s “Velib” program, combining the words for bicycle and freedom, was an instant hit in July 2007 with 1 million customers after 18 days. About a third of the 24,000 bikes installed, though, have been stolen, with thousands more damaged.

The London project, which covers the Royal Parks and nine central boroughs, was initiated by former Mayor Ken Livingstone. Johnson adopted it as part of his manifesto to oust Livingston in the 2008 election, pledging “to bring thousands of bikes to the capital at no cost to the taxpayer.”

Barclays is paying 25 million pounds for five years to cover a quarter of the annual 20 million-pound cost, with 10 million pounds to 15 million pounds coming from users.

“We’re looking for the scheme to be as cost-effective as possible and as it becomes more popular we’d like to see some revenue from it,” Ranger said.

Members Only

Londoners expecting to cycle home on the first day may face disappointment, as only the 10,400 people who pre-registered by yesterday can unlock the bikes. Casual riders won’t be allowed until September at the earliest.

London’s transport operator expects as many as 40,000 extra bike journeys per day once the full system of 6,000 cycles, at 400 stations sited about 300 meters apart, is available.

The bikes are an updated version of Montreal’s “Bixi” bikes. Weighing 23 kilograms, they are designed for trips of half an hour or less and, more crucially, to be theft-proof.

“It’s quite a robust bike, which is a good thing in terms of vandalism, but not particularly good in terms of the weight,” said Michael Cunningham, retail operations manager for Guildford, U.K.-based The Cycle Surgery, which operates 11 stores in London. “Hiring a bike and trialing it is going to result in more bike sales for us. It will be the catalyst to get someone commuting in by bike.”

Serco, the operator of the Docklands Light Railway and Woolwich Ferry, did not respond to e-mails or telephone calls.

Paris Problems

JCDecaux SA, the world’s second biggest-seller of outdoor advertising, operates the Paris program, which struggled during the recession, prompting the company to renegotiate its 90 million-euro ($117 million) contract with the city.

“The reality is that we underestimated at the beginning the level of broken bikes or stolen bikes,” said Albert Asseraf, director of strategy, research and marketing at JCDecaux, in a telephone interview. “We had discussions with the city when we saw that there were a few indicators that we’re really in the red.”

The secret of success is to persuade Londoners to treat the bikes as their own, Asseraf said. “It is important to make people appropriate the system to ensure that they will be respectful.”

To contact the reporters on this story: Chris Spillane in London at cspillane3@bloomberg.net; Stephen Morris in London smorris39@bloomberg.net.

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