Examining Competition to New Projects - an Example of Air Versus High Speed Rail



Examining Competition to New Projects - an Example of Air Versus High Speed Rail

Authors

PEVSNER M, European Investment Bank, Luxembourg

Description

High speed rail (HSR) is seen as permitting European railways to provide attractive, high quality passenger transport services into the 21st Century. Rail can potentially compete with air for traffic on routes of 300 - 900 km. Because HSR can compete with

Abstract

High speed rail (HSR) is seen as permitting European railways to provide attractive, high quality passenger transport services into the 21st Century. Rail can potentially compete with air for traffic on routes of 300 - 900 km. Because HSR can compete with air on end to end journey time and comfort, it can set its target yields with reference to airline yields for those passengers transferring from air 2. National High Speed (HS) lines are now being linked to develop embryonic international networks, such as the PBKAL linking Paris, Brussels, Cologne, Amsterdam and London, and the Paris - Turin services.

At the same time as HSR is changing competition between air and rail, airline deregulation is changing the nature of competition within the European air market. Airlines can enter routes throughout Europe, and set fares with many fewer restrictions than under the previous 'bilateral' regime (e.g. see CAA, 1995). In the future, several rail operators may also share the same infrastructure. The competitive position for future HSR projects is thus now much more fluid than was envisaged when the first high speed services were developed. As a result, organisations or individuals analysing the potential future viability of HSR projects need to look at a wider range of competitive outcomes than before. To set a competitive framework with airlines, they need to ask the extent to which airlines can compete with HSR either directly on price or through a combination of price and service factors.

This paper summarises one potential approach to assessing the scope for price competition between air and HSR. It argues that today's airline prices may be a poor guide to prices in the future, as they do not necessarily represent the costs of efficient European operators. Examination of efficient European airlines suggests costs well below current yield levels, implying that prices could fall if competition from HSR or other airlines increased. European operators could further reduce costs in the future, by adopting 'best practice' already followed elsewhere. The paper sets out an approach to estimating the scope for efficiency gains, and their potential effect on price. The approach estimates the gap between today's yield, today's costs of an efficient airline, and possible future costs. The potential gap between today's yields and costs and possible future costs provides a range for future competition. Commercial and competitive factors will affect where the final outcome fails within that range.

Publisher

Association for European Transport