July 25 (Bloomberg) -- London Mayor Boris Johnson’s office is in talks with Barclays Plc about additional sponsorship for his cycle-hire initiative as the program is to be expanded for next year’s Olympic Games.
Expanding the project toward the Olympic park in the east of the city and adding a further 2,000 cycles by spring 2012 will need additional funding in the “low millions” of pounds, according to Kulveer Ranger, Johnson’s transport adviser. The mayor’s office is also looking at “contributions from other third parties,” he said in an interview on July 19.
“We’re looking to expand the scheme, which will go beyond what we originally said,” Ranger said in an interview at City Hall. ‘In that case you would always talk to your main sponsor and say ‘the scheme’s getting bigger, can you give us more money?’ So we’re having that discussion now.”
Barclays is paying 25 million pounds ($41 million) for five years, with the distinctive “Boris bikes” featuring the lender’s branding. A spokesman for Barclays confirmed it was in talks about extra funding, saying the program had been a success for the bank. Since the initiative began in July last year more than 5.7 million journeys have been made on the 6,000 bikes, Ranger said.
While Johnson had pledged in his 2008 election manifesto that the program wouldn’t cost taxpayers anything, he said at the launch event there was a need to “be realistic” about when it would make money. In February, Johnson said Barclays could “cough up another 25 million” pounds in recognition of the support British taxpayers had given to the finance industry.
The Barclays sponsorship was intended to cover a quarter of the annual 20 million-pound cost, with as much as 15 million pounds coming from users. Transport for London is scheduled to publish a report detailing costs after the first year of operation is completed.
“Operationally, we were expecting to break even in about three or four years on the first part of the scheme,” Ranger said. “What we’ve found is the scheme is so popular, once we’ve launched, everybody wants it.”
Initially covering the Royal Parks and nine central boroughs, Transport for London announced last year it would be extended to cover the Canary Wharf financial district and other areas in the City’s East End. Ranger described the expansion toward the Olympic park as a “key target.”
About 320,000 visitors are expected to come to London in a year’s time for the Olympic and Paralympic Games, which will feature five permanent stadiums, including the centerpiece Olympic Stadium and Aquatics Centre, according to the London 2012 website. The games may contribute as much as 1.5 billion pounds to London tourism between 2007 and 2017.
In December, Ranger had said the program may become profitable at some stage. Last week, he stressed that infrastructure investment would always be likely to require some form of subsidy.
“This is public-sector infrastructure, we have to subsidize every element of public transport there is in this city, whether it be buses, railway or tube trains,” he said.
Another issue that is likely to affect operational profitability, Ranger said, is the mix of users, with the initial plan having been to offer access to the program to both casual users and registered members. Casual users, who pay on a per day basis, weren’t allowed to use the cycles until November, which has affected revenue projections, Ranger said.
A 30-minute ride is free to members, one hour costs 1 pound and two hours 6 pounds. A cycle can be hired for a maximum term of 24 hours for 50 pounds.
“I think Londoners think it’s extremely good value for money,” Ranger said. “It’s the cleanest, greenest form of transport.”
Dimitri Lungo, a customer service representative, 23, who pedals from his home in Bethnal Green to work in the City financial district, said a lack of docking stations was often a problem. “If you are in a rush you obviously can’t just leave your bicycle anywhere,” he said.
Ranger said it is very hard to tackle this issue, as popular areas such as Soho, Waterloo and the City suffer from heavy usage and overcrowding during rush hour periods.
Another source of complaint has been Serco Plc, the program’s operator, overcharging people. Last month, Johnson said in Assembly questioning that about 15,000 people have been overcharged to date, adding that all of them were refunded.
Ranger said there have been “some accounting difficulties” with Serco which “they’ve readily acknowledged.” The Mayor’s office is satisfied with Serco performance and does not plan to change the operator.
Serco declined to comment on any issues relating to the cycle-hire program, referring questions to Transport for London.
Plumber Andrew Sirfis described the program as “excellent value for money” with quality good enough. “You are not going to win any races on them, but they are functional.”
While Paris’s “Velib” program -- combining the words for bicycle and freedom -- proved popular with users when it was introduced in 2007, at least 3,000 bikes were stolen in the first year.
For London, the figure is 15, with the bikes weighing in at 23 kilograms. This makes them more practical for shorter trips and helps reduce their appeal to thieves. The bikes also feature a distinctive design, with the Barclays branding, something that is unlikely to change, according to Ranger.
“At the moment we have a great sponsorship with Barclays, I don’t think that we’ll look to change that in any way unless a different sponsor comes along,” he said.
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