Will the price of jet fuel go stratospheric?

Comparison of air fares and HSR fares used in the patronage demand forecasting modelling (one-way). NOTE: The clue to understanding this graph is the blue curve is business fares and the grey one is non-business fares

Ultimately, the bottom line in discussions about the warrant for High Speed Rail (HSR) always seems to come down to proponents’ certainty that the price of jet fuel will go stratospheric.

HSR won’t save time, won’t reduce fares, won’t increase economic activity, won’t promote decentralisation and is an extraordinarily expensive way to reduce carbon emissions – but if at the end of the day the cost of jet fuel means flying becomes ridiculously expensive, then, the argument goes, HSR is the only way of filling the breach.

There are a number of points to consider about this sort of scenario.

One is that while fuel is a significant part of the cost of flying, it’s not the whole story. At present, fuel comprises around a third of airline operating expenses, up from about 15% ten years ago. So a doubling in fuel costs will have a big impact, but it isn’t going to double fares – that would require fuel to quadruple in price (and other costs to remain constant).

Airlines could respond to higher fuel prices by finding ways to reduce their consumption of jet fuel. Aviation expert Ben Sandilands reckons “by 2036….jet fuel is realistically predicted to be at least 50% derived from algal or biological fuel substitutes….”. Others like Robert Merkel are not as convinced of the prospects for biofuels on the scale required. There’re plenty of “out there” proposals for alternative fuels and technologies (e.g. here and here) but they all look pretty speculative.

I don’t think alternative fuels have much potential at this stage but there’re better prospects in using jet fuel more efficiently. Although commercial jet aircraft speeds haven’t increased a lot over the last 40 years, the Aviation Green Paper says modern aircraft are 70% more fuel-efficient than they were in the late 1960s.

The current average fuel consumption of the world’s jet aircraft fleet is around 5 litres per 100 Revenue Passenger Kilometres (RPK), but this will improve as larger, more modern aircraft come into service. For example, a fully laden A380 consumes 3 litres per RPK and the new Boeing Dreamliner is claimed to be even better. Of course this is a mature technology so it’s unlikely historical efficiency gains can be carried forward at the same rate.

However not all experts expect fuel prices to go sky high. The Federal Government’s new High Speed Rail Study – Phase One report assumes both air and HSR fares will reduce by three per cent in real terms by 2015 and remain constant thereafter. Road vehicle operating costs on the other hand are assumed to increase in real terms by eight per cent to 2036 and by a further four per cent to 2056. None of this suggests the apocalypse is nigh.

There’s very little in the report elaborating on these assumptions but it’s as well to remember that the peak oil hypothesis does not mean an immediate end to oil production. Rather, as John Quiggin says, it means a gradual decline over 100 years or more (international oil production has been stable for the last seven years). Read the rest of this entry »


How important are the regions for HSR?

HSR - passenger loadings 2036 (from High Speed Rail Study - Phase One Report)

The exhibit above is one of the ‘money’ graphs from the High Speed Rail study – Phase One report released on Thursday by the Minister for Transport, Anthony Albanese. In my last post, I concentrated on doing a broad but quick response to the report and questioned the wisdom of spending mega dollars on a project that doesn’t reduce either travel times or the cost of travel.

Now I want to start exploring some issues the report raises. One of those is that, up to this point, the focus of the HSR discussion has largely been around travel between major cities, especially Sydney-Canberra-Melbourne, with some residual claims for regional development (see Categories in the side pane for previous posts on HSR).

The Phase One report however shows regional trips are a very large component of the travel forecast on the complete Brisbane to Melbourne HSR network in 2036. In fact regional travellers – those who are journeying between regional areas and one of the major cities – comprise an extraordinary 75% of forecast demand in 2036 (see exhibit). These are the sorts of trips that are almost all currently made by car. A significant proportion are also “induced” trips – in the absence of HSR and the greater accessibility it provides, they wouldn’t otherwise be made.

Only a small proportion of regional trips are for business purposes. The vast majority – 85% – are for private or leisure purposes i.e. to visit friends or relatives, holidays, entertainment, sport, shopping, education, personal or health-related purposes. The study assumes leisure passengers will pay a lower fare than business travellers (who are concentrated on the inter-city services, e.g. Sydney-Melbourne, where they account for 50% of passengers).

Regional trips are also shorter on average (they comprise half of all HSR passenger kilometres), so the contribution of regional travellers to total revenue is much lower than their 75% share of patronage. Even so, as with airlines at present, their contribution is vital.

There are a number of issues raised by the high level of forecast regional patronage. One is that leisure travellers are sensitive to the cost of travel. The study assumes HSR fares are pitched a little lower than air fares, but if this assumption proves optimistic the demand for HSR could be much lower. Unfortunately there’s no estimate provided for regional travellers, but for inter-city travel the study says a 10% increase in fares will reduce patronage by 10%, and vice versa.

In estimating demand, the study compares the cost of travel by HSR between the regions and the major cities against the car, but doesn’t allow for the usefulness of having a car when travelling within the big smoke. HSR will certainly suit people going (say) from Seymour to the MCG – they can drive to their nearest HSR station (they’ll be about 100 km apart in the regions), disembark at Southern Cross and take a local train/tram combination to get to the G. If however they’re not going to the city centre – perhaps they’re attending a wedding, a party or staying overnight with one of the 90% of the population who lives more than 5 km from the CBD – they might prefer the convenience of having a car for travel within Melbourne.

The car will be a more attractive option the closer regional residents live to the city, although anyone familiar with Canberra will know of the large numbers of young people who commonly drive to Sydney on weekends. Another thing to note is car occupancy for leisure travel is much higher than it is for commuting (where solo driving predominates). Two people travelling (say) to Sydney from Gosford for a concert would pay $26 each per one-way trip on HSR i.e. a combined total of $104 to get to and from Central station. Once the novelty of HSR has subsided, driving could be a more attractive alternative for many.

The big issue to my mind though is just why we as a society would want to spend so much money to improve the leisure travel options of regional populations living along Australia’s east coast. Doubtless they deserve it and would appreciate it, but they already have pretty reasonable travel choices. Last time I drove the Hume Highway from Sydney to Melbourne (about five years ago) it was divided carriageway practically all the way. Large centres like Wagga Wagga and Albury-Wodonga have pretty good air connections to Sydney and Melbourne. There’s already (an admittedly slowish) train service connecting Brisbane, Sydney and Melbourne. Read the rest of this entry »


What does the new HSR feasibility study say?

HSR short-listed station sites, Melbourne (DIT/AECOM)

I’ve had an admittedly rushed look at the Executive Summary of the High Speed Rail Study – Phase One, released today by the Minister for Infrastructure and Transport, Anthony Albanese. I’ll have a closer look at the full report shortly, but for now here are a few initial thoughts.

Today’s report is Phase One. It looks at infrastructure costs and forecast patronage. The really important bit – the analysis of the benefits and costs and how the project might be financed – must wait for completion of Phase Two. So for the moment difficult questions like “is HSR a good idea?” are side-stepped.

This study was done partly because The Greens and Independents required it be done. But given how popular the idea of HSR is, it could be up there with the NBN as one of the Government’s smarter moves politically. One way or another the Government’s going to support it and find a way to make it look plausible. After all, it reeks of ‘vision’ and no significant outlays will probably be required for at least two terms. But the risk is it won’t be examined seriously.

Mr Albanese is certainly talking up HSR. He is quoted as saying high-speed rail would be an “attractive alternative” for many, particularly those fed up with airport scanners introduced after the 9/11 attacks. It’s a pity he didn’t see recent reports of Al Qaeda’s interest in trains or recall the Madrid train bombing.

As is now seemingly obligatory, Mr Albanese also cites the success of the AVE system in Spain in support of HSR. ”In Spain, the line between Madrid and Seville is so popular, it carries more people between those cities than cars and airplanes combined”, he says. I’ve pointed out before that AVE is a questionable analogy, at least for routes like Sydney-Melbourne  and Sydney-Brisbane – Madrid has a population of 6.5 million and is only 391 km from Sevilla.

The report says the estimated cost for the most likely route between Brisbane and Melbourne is a cool $108 billion – and there’s a 10% chance it could be higher (ignore the lower $61 billion figure published in the media as there’s a 90% chance it’s too low). These estimates don’t include planning and procurement costs – so add another 15% – and nor do they include the cost of buying and operating the rolling stock.

The estimated cost for the Sydney-Canberra-Melbourne leg is a whopping $45-$50 billion, depending on whether it goes via Wollongong. And of course, add procurement and operating costs.

The study is upfront in making it clear the capital cost can’t be recovered from revenue. International experience, it says, “suggests it is unrealistic to expect the capital cost of a HSR network to be recovered”. Of course that’s par for the course with public transport, but in this case we already have a competitive airline system transporting the public between Brisbane, Sydney, Canberra and Melbourne. So the cost to the taxpayer of replacing one form of public transport with another is no idle matter.

One reason the capital cost is so high is because the investigators have concluded an HSR network is only sensible if it provides for speeds as fast as 350 km/hr in non-urban areas and 200 km/hr within cities. They have assumed a dedicated two track right of way, with tunnels from the urban periphery to the CBD in Sydney, Melbourne and Brisbane.

Based on these speeds, they estimate the travel time between Sydney and Melbourne CBDs at around three hours, making it competitive with air for city centre workers. That seems ambitious – I’ve noted before the maximum permitted speed of Spain’s new AVE system is 300 km/hr. China’s extensive HSR system is also limited to a maximum speed of 300 km/hr for reasons of safety.

Although other candidates are being considered, the most likely city centre station in Sydney is Central and in Melbourne Southern Cross (the alternative is North Melbourne). Suburban stations are also being examined e.g. Parramatta. Stations deep underground are ruled out, so it could be a challenge to accommodate new works in the CBD.

It will come as a surprise to many that HSR is not capable of serving either Sydney or Melbourne airports due to differing operational requirements. It’s possible however than a Melbourne Airport train and HSR could share the same infrastructure, e.g. own tracks but same tunnel. One of the most interesting aspects of the report is that a second Sydney Airport doesn’t appear to even be mentioned. Regional stations are assumed to be located at approx 70-100 km intervals. Read the rest of this entry »


– Are we too smart for High Speed Rail?

HOW TO DO CITY BRANDING......

Fairfax’s on-line publication, The National Times, posted a feature on High Speed Rail (HSR) on the weekend under the heading, Is Australia too big for a high-speed rail network? The paper gives space to four viewpoints: Peter Moore and Stephen Byron are unashamed HSR boosters, Gary Johns is sceptical and Saul Eslake sits on the fence.

I’ve written about HSR before (see the Categories list in the side pane) and, with the Federal Government’s feasibility study due shortly, it’s timely to take a look at the issue of a Sydney-Melbourne HSR service again.

As usual, all sorts of benefits are claimed for HSR, such as greater comfort, quicker check-in times and the ability to use laptops and mobile phones in-journey. Saul Eslake brings a new perspective — he reckons the conventional wisdom that HSR only works over short to medium distances is outdated. He cites the Barcelona-Madrid-Sevilla AVE system which runs over 900 km, considerably further than the 700 km airline distance between Sydney and Melbourne.

As I’ve pointed out before, most of these sorts of claims are exaggerated or misapply foreign examples — and Saul Eslake’s argument is no exception. Spain’s AVE system is in effect two medium-distance services, not one long one.

The airline distance between Barcelona and Madrid is 506 km and thence from Madrid to Sevilla is 391 km. The population of metropolitan Barcelona is 4.2 million and Sevilla 1.5 million. But most importantly, Madrid is in between these two and has a population of 5.8 million. The prospects for HSR in the Sydney-Melbourne corridor would be a lot more attractive if Canberra or Albury/Wodonga were the same size as Madrid!

But these sorts of arguments are beside the point. Notwithstanding all the claimed advantages and suitabilities of HSR, travellers in the Sydney-Melbourne corridor are simply not prepared to pay enough to make HSR viable – or even remotely competitive with air – without a subsidy. This is not unusual in the world of fast trains as the great majority of HSR systems throughout the world operate with public assistance.

That might make sense in some countries where there isn’t an alternative form of public transport for inter-city travel, or if HSR provides a significant advantage in travel time. However the key to understanding the relevance of HSR in Australia is recognising that we already have an efficient and competitive airline industry providing transport for people and high value freight between Sydney and Melbourne. This is an industry that provides a fast service and pays its (financial) way.

HSR, on the other hand, is unthinkable in this corridor without government assistance to meet revenue shortfalls and to compulsorily acquire land and obtain various planning and environmental approvals. Nor does it offer a significant time saving over air. That’s why the market hasn’t just gone ahead and built a very fast train.

There have to be very, very good reasons why taxpayers should be called on to help replace a highly competitive industry with one that (a) would require a significant financial and in-kind subsidy, and (b) would very probably be run by a monopoly operator. There would also have to be good reasons to replace one form of public transport with another – and for promoting it to the top of the transport infrastructure priority list.

Putting aside political convenience, the only rational basis for subsidising HSR between Sydney and Melbourne would be to deal with the unpaid external costs of air travel.  Public funding might be justified if the benefits of HSR in terms of factors like reduced carbon emissions, noise and traffic congestion, exceed the cost of the subsidy. Read the rest of this entry »


Does Labor’s Sydney-Newcastle High Speed train make sense?

The car-eating "straddle" train

I watched Anthony Albanese foreshadow on Lateline on Wednesday night that the Government, if re-elected, would fund a $20 million feasibility study of a high speed rail connection between Sydney and Newcastle as part of a Sydney-Brisbane route.

The Minister’s subseqent announcement on Thursday puts more emphasis on an east coast Brisbane-Sydney-Melbourne HSR but it seems clear the Central Coast is a key target of the initiative (Robertson is a marginal seat).

The announcement was greeted with some scepticism – an HSR link between Sydney and Newcastle was announced by Bob Carr twelve years ago. Crikey’s Canberra correspondent, Bernard Keane, reckons Labor isn’t serious about HSR and is only pretending.

Provided the focus is on Sydney-Newcastle, I think there are some reasonable aspects to this initiative notwithstanding its apparent political motivation. Read the rest of this entry »