High Speed Rail Corridor

LOW COST AIRLINES vs. HSR

Low Cost Airlines Time saving Competitive prices “Open skies” Higher investment Rising fuel prices Social costs

High Speed Rail Existing railway network Passenger capacity Comfortable travel Inter-modal integration: Golden Quadrilateral Reliability

High speed rail offers stiff competition & can divert traffic from airlines!

PROJECT MANAGEMENT

TECHNOLOGICAL ALTERNATIVES

PARAMETERS	RAIL ON WHEEL	MAGLEV
Speed	300km/hr.	450km/hr.
Noise	Wheel-rail contact noisy	Quieter at low speed
Cost	High capital, will achieve break-even	Expensive, incapable of recovering capital costs
Energy Supply	Railway energy supply network	Local energy network
Existing track	Inter-operable	No
Length of Train	200 mts	128 mts
Aerodynamics	Compatible	Cross-winds limit the safety

At this juncture, infrastructure & commercial viability favor Rail-on-wheel

WORLD SCENARIO

Japan Shinkansen 1964 Speed – 300 km/hr Environmentally efficient Good acceleration performance More Comfortable

France  TGV – 1981 Speed – 320 km/hr Stress on Speed Able to recover costs swiftly

India: Suggestion to partner with Japan to build the high-speed rail network.

FEASIBILITY ANALYSIS

TECHNICAL	New dedicated lines? Integrated with existing supply & track n/w Higher speed & carrying capacity
ECONOMIC	Rehabilitation? Regional development & employment High ridership route & money value of time
ENVIRONMENTAL	Noise and vibration control? Fuel efficient mode of transport Lower carbon emission
FINANCIAL	High investment? Central & State government participation Private capital, debt, FDI

ANALYTICAL FRAMEWORK OF COST MODEL

FC = IC + UC + UT + SC

•        Infrastructure Costs (IC) -- capital costs of construction, operation & maintenance

•        User Money Costs (UC) -- fares and tariffs paid by users to ride on a carrier

•        User Travel Time Costs (UT) -- time spent traveling multiplied by the monetary value of time

•        Social Costs (SC) -- additional net external costs to society due to emissions, accidents and noise

OPERATING COSTS

•        Personnel

•        Training

•        Inspection

•        Quality checks

•        Spares / Consumable parts

•        Electricity

•        Repair

MAINTENANCE COSTS

PROJECT FINANCING

Budget sources Deficit financing Government loans/equity Government grants

Direct Borrowing Corporate borrowing Revenue-backed borrowing Project-specific borrowing

Private participation Joint-Ventures Concessions Privatization of business units

Asset finance Leasing Availability contracts

Good projects will always attract funds!

BUDGET ALLOCATION

•        100% FDI in rail infrastructure under automatic route. India-Japan special partnership initiative

•        DIPP Guidelines: deduction of 100% profits for 10 yrs. for development of rail systems, under section 80I of ITA

•        Revolving fund with a corpus of 1 Bn for speeding up projects under PPP

•        IRMP’06 worth Rs. 24,000 crores spanning five years up to 2010

•        Planning Commission to allow the Ministry of Railways to access extra budgetary resources to the extent of Rs 3000 crores

MECHANISM

BOT (Build, Operate, transfer)

PROJECT FUNDING

Delhi Metro Loan (JBIC): 64% Equal Equity Contributions by Central & State Govt: 28% Property Development: 3% Additional Funding through interest free Subordinate Loan: 5%

South Korea (Seoul & Busan) Distance – 412 km  Government: 45% Korean High-Speed Rail Construction Authority: 29% Foreign Loan: 24% Private Funding: 2%

Composition depends on the economic conditions & the relative ease in operating funds.

TRAFFIC ANALYSIS

The corridor covers an area housing 180 million people
10 cities with population exceeding a million each: Delhi, Faridabad, Meerut, Jaipur, Ahmedabad, Vadodara, Surat, Nashik, Pune and Greater Mumbai.These states account for:
54% of the country’s gross industrial output
60% of total exports
43% of the existing rail network
52% of the total FDI inflows into the country

Pre-feasibility studies carried out on Delhi-Mumbai route indicate that competitively priced HSR would attract sufficient ridership.

PROPOSED ROUTE & SCHEDULE

Speed = 300 Km/hr.

Distance = 1330 Kms

Time taken = D / S = 4:26 hrs.

Stoppages = 20 min

Total journey = 4:46 hrs.

TARGET CUSTOMERS

·        Tourism

·        Business visits

·        Low cost airline passengers

PRICING HEURISTIC

Train	FARES			Airline	FARES
Punjab Mail	2894	1682	1208	Go Air	2470	2650	3300	3800	4200
Golden temple Ml	2726	1587	1140	Indigo	2474	3574	4074	5674
Paschim Express	2698	1570	1129	Spice jet	2674	3174	3474	4474	6874
Mumbai Rajdhani	3500	2005	1495	Air Deccan	2749	3449	4649
Aug Kr Raj Exp	3405	2005	1495	Jetlite	2850	4350	5325	6675
Rajdhani Exp	3275	1925	1425	Air India	3875
Amritsar Exp		1652	1178	Jet Airways	4005	4550	5450	7400	11190	11945
Mangala Ldweep		1651	1185	Indian Airlines	4205
Nzm Garib Rath			667	Kingfisher	4225	4776
Goa Smprk K Exp	2671	1555	1118
Bdts Smprk K Exp		1570	1129
Maximum	3500			Min:	Average	2926	Max:3474
				2470

Offer a price just below the airlines to win back passengers!

FUTURE PRICING OPTIONS
Concession Pricing:

Currently Plan to operate at a 10% concession making the fare structure comparable to the low-cost airlines.
Price can be later be raised by between 30 and 40%, in line with the increased utility
Dynamic pricing:
Capacity Utilization
Market-friendly
Demand-supply situation
Peak vs. non-peak seasons
Premium Services

REVENUE STREAMS

Associated Transport Revenue

•        Ridership

•        Advertising Revenues

•        Concessions, Discounts

Indirectly Influenced Revenue

•        Property Development (RLDA)

•        Catering (IRCTC)

•        RailTel Corporation

Capitalize on revenue increasing activities & out-source non-core operations!

REVENUE ESTIMATE

No. of seats in a compartment S = 78

No. of coaches in the train C = 8

Total capacity T = S*C = 624

(Assume 90% occupancy)

No. of passengers traveling = 0.9*T = 561.6

No. of trips per day = 2

Annual Revenue = Av. price*Passengers*Trips*365

Rs. 1,199,730,355.2

PROMOTIONS

Promotion based on mobility related variables:

Increased comfort
Print articles comparing a airline trip to a HSR trip
Highlight potential to deliver an improved public transit experience 
Projecting environmental care:
Plant trees (Delhi Metro)
Special Construction methods & track design to control pollution

HSR as a community partner:

Mass Campaign on the lines of “Incredible India”, “India Shining
Advertise on popular mass media (radio, print etc.)
Get featured in Bollywood movies

 NPV (Net Present value)

•        Distance D = 1330 kms

•        Project cost per unit distance c = 50 crores / Km

•        Total Project cost C = c * D = 665 Bn

•        Let, Operating cost / yr. = 1 % of Project cost = 6.65 Bn

•        L (Upfront Land Development Revenue in Yr. 0) = 7000 crores

•        R1 (Revenue in yr. 1) = 1199730355.2

•        …R30 (yr. 30) = 1199730355.2

•        Let, the Risk-free rate r = 5%

 NPV = -646 Bn

TOWS Matrix (HSR Vis-à-vis Low-Cost Airlines)

Internal External	Strengths (S)  Comfortable   Luggage freedom	Weakness (W)  Time factor  Unproven Concept in India Dependency on other services for trip integration
Opportunities (O) Partnerships with travel    & tourism industry  Can win back middle-class travellers	SO  Mass Promotion to enhance tourist appeal.  Tie up with hotels	WO  Tie up with local transport i.e. taxi services  Discount or other features to encourage middle class
Threats (T)  Costs may not be recovered  Price Wars	ST  Efficient ticket pricing.  Differentiate (carve a niche) to prevent being caught in price wars	WT  Promote using the innovativeness concept  Stress on R&D & Quality to promote Reliability  Adopt Best Practices

DATA SOURCE:

Facts about high speed rail around the world (Annual Conference on Railroad Industry)

The Hindu April 07, 2007

(Paper Presentation By: Tanima and Varsha)