Train in vain

by zebra on 4 August 2011 · 23 comments

James Glover is a regular contributor to the Stubborn Mule who tries, whenever possible, to incorporate back of the beer coaster calculations in his posts. Here his beer coaster helps him skewer the prospects of high speed rail in Australia.

Don’t get me wrong–I love trains. I have caught trains around Europe and even the train from Sydney to Melbourne just for the pleasure of it. My favourite train journey, from London to Edinburgh up the east coast, was made particularly memorable one trip because I was (a) sitting in First Class (as usual), and (b) sharing a booth with two particularly rotund members of the House of Lords including Lord Lawrence “Mad-Eye” Mooney. So, whatever you do please don’t accuse me of trainist tendencies.

With that in mind, you would think I’d be excited by the release of a government report into building a high-speed train line from Melbourne to Sydney and from Sydney to Brisbane, via Newcastle and the Gold Coast. Sadly however the report recommending construction of this train line contains figures which crush any chance of this actually happening. The estimated cost of the build is $100 billion and there would be an estimated 54 million passengers per year. So how does that work out on a beer coaster? To convert $100 billion to an equivalent annual funding cost we just work out how much the government would pay, perpetually, to borrow this amount. At current government long-term yields of 6.00% this represents an annual interest cost of $6 billion. If the government wanted to pay back the capital in 25 years, a typical benchmark for infrastructure projects, the annual payments would increase to about $8 billion. So, calling it 50 million passengers a year, represents a cost per passenger of $160 per trip. That doesn’t seem so bad given that the cost of a one-way plane ticket between Sydney and Melbourne is about $200-400.

Is this just a coincidence? Sadly, no. It appears the planners have flipped the beer coaster over to its dark rum-soaked side to work out how many passengers they would require to make the project commercially feasible and competitive against air travel. It’s a time honoured trick but one that doesn’t stand up to closer scrutiny. In the interest of beercoasternomics and because a Google search failed to find the answer, I estimate the daily number of air passengers between Sydney and Melbourne. Turning to webjet.com, I counted 75 flights from Melbourne to Sydney on a Wednesday. From memory a typical plane on that route has about 40 rows and 6 passengers per row or about 250 passengers. That represents a total of fewer than 20,000 passengers per day. Double that for the return journey and add 25% for the numbers travelling to and from Brisbane. Let’s call it 50,000 passengers per day. Over a whole year our generous estimate of airline passenger numbers Sydney-Melbourne-Brisbane is 20 million. I’m guessing it is really no more than 5 million a year but lets call it 20 million anyway. Even at that figure it falls far short of the 50 million required to make the high-speed rail line economically viable. So why have the planners been so brazen in their estimate? That becomes clear if we used a still optimistic but realistic figure, in my opinion, of say 2 million potential rail passengers a year (which is still over 5000 per day), then the average cost of each passenger, one-way, would be $4,000! I rarely approve the use of “dead dog’s dicks” exclamation marks [strikethrough courtesy of a prudish editor], but really!!! Should this line ever get built I will be a frequent and enthusiastic user of it. $150 for $4,000 value is the sort of bargain that would make a late-night shopping channel host blush.

I suspect by including a few commuter stops at the beginning and end of their trips such as Brisbane to Gold Coast and Sydney to Newcastle and maybe even a new commuter line or two, e.g. Sydney to Epping, they have boosted the overall passenger numbers. But then those people are hardly going to pay over $150 for a short trip. The majority of the cost will still be borne by the (maximum) 2 million intercity travellers. Though even including short trip passengers 50 million seems excessively high until you realise it is really just the figure they need to make the numbers work.

So, sadly, the numbers don’t add up. I won’t comment on the politics except to say the feasibility study is one of promises the Labor Party made to get Greens’ support to form a government. Nor will I comment on the claims that there are hidden environmental and economic benefits. High speed rail in Australia is the classic white elephant which, according to Wikipedia, was a gift made by Thai Kings to obnoxious courtiers to bankrupt them due to the high cost of maintenance of these sacred pachyderms. Some will bring up the precedents of Europe or Asia, but there you have either cheap labour and government requisitioned land or a high density of large cities. Australia has none of these.

As The Clash so prophetically sang: it’s a train in vain.

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{ 22 comments… read them below or add one }

1 Stubborn Mule August 4, 2011 at 8:08 pm

Nice work as ever James. Did you see this critique of the plan? It questions whether the link could even be built for $100 billion. If the cost was higher, your numbers would make it look even more absurd.

2 Stubborn Mule August 4, 2011 at 8:48 pm

I just saw Anthony Albanese suggesting half of the passengers currently flying could switch to train. Based on your estimates, this would mean a maximum of 10 million per year and a cost of at least $800 per trip (or, realistically, quite a lot more).

3 Magpie August 4, 2011 at 8:55 pm

Hey Zebra,

I haven’t really paid any attention to the announcement of this project, so be patient if I am making really stupid questions.

Would the rail lines be used only for passenger transport? Maybe its use to transport freight would contribute to make the project more feasible, from a financial perspective.

And, with carbon tax and such, what happens if fuel costs go up? How would that affect the cost of airfares vs a train ticket?

Finally, Paul Krugman was complaining recently about some US libertarians opposing high speed trains as “socialist social engineering”. You didn’t join the Tea Party, yet, did you? ;-)

4 Jeremy August 4, 2011 at 9:11 pm

This organization says there are about 780,000 trips per month between Sydney and Melbourne, which is 9.3 million per year:
http://www.centreforaviation.com/profiles/hot-issues/route-changes
Sydney to Brisbane is 456,000 so the total is about 15 million for the two routes. So your beercoasternomics isn’t too far off. Good analysis.

Even if the line were built all the way from Melbourne to Brisbane, the travel time would be 6+ hours, so it’s not appropriate to include Melbourne to Brisbane air travel figures, as experience shows air would retain the bulk of that market. However I suspect the authors of this study actually DID include that.

5 Zebra August 4, 2011 at 9:28 pm

@Jeremy – thanks for those figures. I suspect they also include international flights to/from Melbourne that stop at Sydney on the way. As you say Melb-Syd shouldn’t really be included as a substitute. It’s just not possible to get to 54m passengers. In a way they have answered their own question. I’m guessing they are including some “passenger growth projection over 20 years” using economic growth as a proxy or some b*ll*cks.

My dear @magpie – I cannot emphasise how much I love train travel. There are only two drawbacks: (1) other passengers, and, (2) lack of a “First Class” carriage on Australian trains. The two are not unconnected. (Except of course where one’s fellow passengers are their Lordships)

6 Zebra August 4, 2011 at 9:31 pm

@jeremy – I meant Melb-Bris shouldn’t be included as a substitute, as you pointed out.

7 Zebra August 4, 2011 at 9:40 pm

@magpe – if you catch the passenger train between Melbourne and Sydney which leaves twice a day and is scheduled to take 11 hours, it will actually take over 12 hours because at some point your train will stop for an hour so to allow a freight train to pass. This is because most of their money is made from freight and they provide a passenger service only because the government makes them. Freight of course doesn’t care if it takes 12 hours or 4 hours to get from A to B so there is no particular advantage in turning it over to a high speed line when cheaper slower line is still available. Unless, of course, like copper wiring and the NBN, the government forces them. Even then combining high speed, on-time passenger trains like Japan’s sublimely punctual “shinkansen” with freight is no doubt a logistic nightmare.

8 stephenm August 4, 2011 at 9:53 pm

The BITRE keeps transport statistics. Two reports are relevant. Firstly, the domestic airline activity has a per-route breakdown. Total passenger trips between Brisbane, Sydney and Melbourne is just over 15 million for last year. Secondly, there’s a report on forecast passenger trips, which guesses that trips will increase by about 2.2x over the next 20 years. That brings us up to about 33 million trips. Adding another 6 years to get us to 2036, throw in trips to the gold coast and it’s possible to get to 54 million.

9 Stubborn Mule August 4, 2011 at 10:05 pm

@stephenm interesting figures, although you’d also have to assume that all of those travellers switch to train. More likely, even Albanese’s assumption of half switching would be pretty optimistic.

10 Zebra August 4, 2011 at 10:50 pm

@stephenm – good figures. However in waiting 20 odd years for the passenger numbers to be enough to cover the costs the govt will have had to pay out $8bn a year in interest+principal repayment in the meantime. Alternatively let the debt accumulate until 2030 at 6% p.a. by which time $100bn will be $300bn so it is costing $24bn/year or $480/trip. Assuming an annual rate of inflation of 3% that’s $265 in today’s money. Which is comparable still to airfare costs. Of course that’s assuming 100% of the airline passengers go by train and that the passenger projections are correct. I can’t imagine a commercial investor being prepared to take that risk for anything like 6% return (or 12% for that matter). At a more commercially reasonable return of 12% the $100bn grows to $1tr in 20 yrs and is the equivalent of charging $11,000 per trip in today’s money. Again all these figures prove is that they can’t even get close to making this revenue neutral with even the most optimistic passenger projections. (btw I am not using a beercoaster to calculate these figures but in fact Google which I discovered some time again lets you use its search box as a calculator or indeed to convert units).

11 Zebra August 5, 2011 at 9:43 am

As a comparison consider the Eurostar line between London and Paris (cf. Sydney and Melbourne) and London and Brussels (the Canberra of Europe). Everybody I know travelling to Paris from London for business or pleasure uses this line rather than flies, which take 2-3 hours from St.Pancras to Gare du Nord. According to Wikipedia it currently has about 17 trains a day and 10m passengers a year. I can’t imagine S-M-B having more passengers than Eurostar which seems optimal for this sort of thing and has a bigger base population in London. Even with the projected growth in airline figures in Australia it will never get anything like the 50m passengers required to make it viable.

12 Zebra August 5, 2011 at 9:54 am

Very pertinent thes lines from the Wikipedia article on Eurostar:
“In 1996 London and Continental Railways forecast numbers would reach 21.4m annually by 2004, but only 7.3m was acheived”. In 2010 still only 9.5m
“In 2006, the Dept for Transport predicted that, by 2037, annual cross-channel passenger numbers would probably reach 16m”.

13 Magpie August 5, 2011 at 11:33 am

@Zebra,

I don’t know, man. The way things are starting to look, I think L.A. proved to be too much for me.

I better take the “Midnight Train to Georgia”
http://www.youtube.com/watch?v=v78-ftcqpNw

14 drpage August 5, 2011 at 3:52 pm

The report does actually admit it won’t pay for itself. But it hides it so that wasn’t in the headlines yesterday.

“There are few examples of a HSR service fully recovering capital costs except in the very long term. Operations and maintenance costs are usually self-funding, but infrastructure costs are unlikely to be fully recovered without a significant government contribution. (p. 13)”

More details here http://ricardianambivalence.wordpress.com/2011/08/04/nbn-on-steriods/

15 Zebra August 5, 2011 at 7:02 pm

@drpage – enjoyed reading your own more detailed analysis.

16 Zebra August 5, 2011 at 7:11 pm

@magpie – you’ve been to LaLaLand recently? I hope you survived. Many years ago on my first overseas trip (okay apart from Bali) I landed at LAX and asking the black coffee lady (she was black and sold coffee if you know what I mean) for a “white coffee” – she looked at me like “you white people got your own coffee now”. A few years later on the train from Calais to Paris (pre-Eurostar, post the Black Death, just) I was determined not to show my yokel Aussie roots and asked for a “cafe blanc”. Now I just point at the coffee urn and say “one of those please”.

17 Magpie August 6, 2011 at 12:48 am

I meant L.A. in a metaphoric sense.

Although, if you think of it, we’re all kinda like in LA-LA-Land.

Don’t make no sense, I know.

18 Hoju August 8, 2011 at 2:54 pm

I’m surprised no one has bothered to reference the report that all the government’s quotes are based on.

http://www.infrastructure.gov.au/rail/trains/high_speed/index.aspx

-The total expected cost is between $61 and $108 billion (2011 dollars)
-The expected cost of the Melbourne to Sydney route is $30.4 to $50.1 billion (2011 dollars).
-Long distance trips on the East Coast are expected to increase from 100 million now to 264 million over the next 45 years (of which a percentage of the trips have been assigned to the HSR, based on trip time (i.e. the Melbourne – Brisbane trip is mainly assigned to plane travel).)

19 Jordan August 8, 2011 at 4:20 pm

I disagree with drpage that the notion taxpayers would likely be required to subisdise the project is “hidden”. It is, in fact stated on page 1 of the executive summary that:

International experience suggests it is unrealistic to expect the capital cost of a HSR network to be recovered.

Likewise, the study doesn’t claim anything like 54 million trips for inter-city passengers who, as the post here rightly points out, should be expected to bear a proportionality higher portion of the costs passed on as fares.

It is predicted that approximately eight million passengers
could travel on a HSR network between Sydney and
Melbourne in 2036, and 3.5 million passengers between
Brisbane and Sydney in 2036. This equates to approximately
half of the projected air market for both sectors in 2036.
These forecasts assume inter-city HSR fares comparable
with inter-city air fares

So about 80% of the total trip volume is projected to be from regional-to-capital commutes, but obviously they’re expected to pay substantially lower fares than inter-city travellers, more like in the order of $20 a trip.

Obviously on these kind of numbers, the project is highly unlikely to be viable on purely commercial grounds, and would require a taxpayer subsidy. Indeed if that weren’t the case it would hardly be necessary for government to be looking at getting involved. Whether the resulting positive externalities and consumer surplus can justify the government investment is another question (that this phase of the study hasn’t really looked into at all from what I can see.)

But its nothing like the $4,000 per trip figure this post arrived at by, ummm, making up evidently false estimates for how many people could be expected to catch this thing.

20 Pfh007 August 12, 2011 at 11:57 pm

Nice coaster work, Zebra.

I can’t help thinking that posing the high speed rail issue as one between Sydney – Melb – Brisbane the report was intended to kill off high speed in any form.

As far as New South Wales is concerned the only routes worth even the barest consideration are Sydney to Newcastle and perhaps Sydney to Canberra ( a long way in second place).

Sydney to Newcastle would be fairly easy to build north of gosford but the stretch from the Hawesbury down the north shore and across the harbour would be a challenge – I am sure that high speed rail does irreparable damage to the blooming of jacarandah and the wood trim on federation houses.

In truth a moderately fast link might be sufficient – even 150-180 kph would make the commute from the coast much more bearable. I read somewhere that the steam express took less time between Syd and Newcastle than the current intercity services.

Needless to say plenty of high density housing near stations would help viability greatly – just as it will be essential along the proposed north western rail line in Sydney.

Unfortunately, i don’t think Mr Albanese shares Mr Conroy’s taste and enthusiasm for high cost projects of dubious benefit, and thus Syd to Melb is likely to remain grey nomad turf for a long time to come.

21 Zebra August 13, 2011 at 6:17 pm

mysterious @Pfh007. very funny comment about the Jacarandahs and federation verandahs.

22 Isaak August 24, 2013 at 8:59 am

Love the discussion and number crunching….

I realise it’s early days but what if you throw Elon Musks Hyperloop train system?

Realise it’s still conceptual but if we get a politician with some foresight… Ok just for hypotheticals then :)

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