HIGH SPEED RAIL CONFERENCE 8th May 2006

Introduction

Thank you, Chairman, and good morning ladies and gentlemen.  Thank you for allowing me to say a few words about High Speed Rail, on behalf of Network Rail. 

This is the first time Network Rail has ventured any real comments about its position on a High Speed Link and we do so with some trepidation. People rightly want Network Rail to focus on doing the day job well, making sure trains run on time consistently, and investing in the rail network in a way that is as cost-effective as possible and without inconvenience to the travelling public and freight users.  And, as we see punctuality start to exceed 90%, the focus is beginning to shift towards incremental enhancements that can ease passenger and freight congestion.

The good news is that Network Rail is investing more in the physical infrastructure than ever before. we are spending billions of pounds replacing tired and exhausted track and signalling systems that date back to the 1960s and 1970s. and the investment decisions we take today will be with the rail industry for the next 30 to 40 years.

And so, whilst we cannot necessarily plan for this sort of time horizon in any great detail, we must of course be cognisant of likely developments - one of which COULD be a new north-south high-speed rail link.

As most people are aware, there are many parts of the railway where demand exceeds capacity.  There are many solutions; much can be delivered out of tweaks, timetabling and small-scale investment in enhancements.  But you can't do this forever.

Today, I am going to present Network Rail's views on the case for High Speed Rail, including what is the business case, what is the demand, what are the costs, what could be the technology and what could be the route?  I recognise that this subject has been around for many years and there are many views - this is just one more for the debating pot!

However, I want start with a note of caution; the rail industry must not fall into the trap of concluding that the answer is a high speed rail link, now what is the question?  If the question is "how do we address the issues of capacity on the existing railway?", the answer may not be a high speed rail link - there are many other things that we could do to accommodate growth.  We could squeeze more trains onto the network with better planning, incremental tweaks and different technology.  After all, on the high speed parts of the West Coast, for example, we have three minute headways and at 125mph - or two miles a minute - we have about one train for every six miles.  With different technology we provide a lot more trains - and therefore capacity - on the existing track.

And we always have a solution built around a freight-only railway, taking freight off the passenger routes - and the construction costs of this could be considerably lower than a high speed link.

But this conference is about a High Speed rail, so if the answer to the as-yet-undefined question is: let's build a high speed rail link, then what's the rationale?

The Business Case

One of the disciplines we have introduced in the last three to four years within Network Rail is the ruthless application of a business case methodology to justify expenditure on the railway, and in some parts of the company this was - believe it or not - a strange phenomenon.  There were a number of people who thought that this didn't apply and the railways were a special case.  Wrong! 

We must presume that a HSL will never be built unless there is a robust business case for doing so.  And the starting point should be that this can be done without consideration of a public subsidy.  Clearly, the work that is being done as part of the Eddington Review will help.  If there is a macro-level business case for the growth in UK GDP by "bringing UK economic centres closer together", then this will help, but I have excluded this at the moment.

So, to make a business case for a HSL - irrespective of route - we need to drive up the benefits and drive down the costs.  Of course there will be many societal benefits - such as environmental benefits, but let's focus on the income side.

Ticket Revenue

For a new HS route there will be three types of ticket revenue:

• Revenue from ticket sales to NEW passengers, people who would not have previously travelled between the destinations served by a HSL;
• Revenue from ticket sales caused by modal shift, mainly domestic airline passengers; and
• Revenue from ticket sales to people who previously used the existing train services.

It is difficult to quantify how many NEW journeys would be made, just because there is a high speed train service.  Most people will use domestic airlines or existing trains services - despite the inconvenience of domestic air services or the journey times of existing rail links - so we'll put these to one side for now.

The big targets are (1) modal shift from airlines and (2) income that can be generated from the additional capacity created on the existing network.

Modal Shift

So, we need to build a HS railway that rivals the domestic airlines.  Get it right and we can capture a large share of the market where the journey is over 150km. At this sort of journey length, road - mainly car - is the preferred form of transport, with rail taking only 10% of the market.  As journey lengths rise, rail becomes more attractive, with rail taking 15% of the market of journeys above 400km.  And by the time you get to in excess of 500km, air is taking around 33% of the market.

But for a new HSL, we need to look at balance between air and rail. 

At present, rail competes very well with air up and down the east coast.   Rail takes 93% of the rail/air market between Leeds and London (although this is in part due to the location of Leeds Bradford Airport ), and around 50% market share between Newcastle and London .

For Manchester , the air/rail split is roughly 40/60%, although since the launch of the faster West Coast journeys, Virgin has been making real progress in converting air travellers into rail passengers.

By the time you start looking at Edinburgh and Glasgow to London , rail only has around 15% of the air/rail market.

And rail does not compete with air for the travel corridors to Bristol , Wales and the South West.

So, the target must be to convert more people from air to rail.  Clearly, we will not convert everybody, as some of the internal flights are hub-and-spoke connections for onward international flights, but there is plenty of scope!

So, for air-rail modal shift (and assuming that the better West Coast journey times will, over time, make big in-roads into the Manchester market) the target must be the 5.5m Anglo-Scottish air journeys.  Given that Glasgow and Edinburgh are major international airports already, then a good proportion of these must be domestic. 

The other target could be the million or so passenger journeys from Newcastle to London , having only 50% market share, given the good East Coast Service is surprising.

Achieving Modal Shift

It is clear from experience elsewhere in Europe that the key to modal shift is journey time.  The sample is not great, but it seems that as long as you can get the journey time below around 2¼ to 2½ hours you can capture most of the market share.  Indeed, there is clear evidence that where journey times are the approximately the same, such as Paris to Marseille, rail is preferred.

So, using evidence from elsewhere in the world, we estimate that with average speeds in the range 240~270kph (that's 150 to 170mph in old money!) and with a frequency of around 20 trains per day we should be able to achieve up to 70% of the Anglo-Scottish market share, and 90% for Manchester to London.

This would give the following journey times.

• London to Manchester ~ 1 hr 15m
• London to Glasgow or Edinburgh ~ 2 hr 35m

Increasing the speed to around 300kph would reduce the journey times, obviously, but this is unlikely to have a significant incremental modal shift benefit (and perhaps push this by around 10% for the Anglo Scottish market).

Numbers of Journeys

Trying to predict the numbers of journeys is somewhat difficult, and clearly depends on the route.

The main contention here is that there is a real business case where:

• We can create a big modal shift from air-rail for journeys over 400km.
• Where there is significant congestion on the existing high speed routes that will cause problems in the future (so that a movement from these routes can free up capacity that can be filled with other journeys).

We know that the East Coast is not without its congestion problems, but these are - in the medium term - solvable with incremental enhancements.  And, if we shifted journeys from Edinburgh and Glasgow to London - especially Edinburgh - to a new high speed link then this would help.  On the West Coast, things are already tight, with quite a lot of demand for inter-region traffic.  We have spent a huge amount of money upgrading the West Coast Mainline In reality what we have created for the West Coast is two two-track railways - one traditional, one mainly 125mph.  If we build a HSL along this route, we can essentially use the 125mph two track railway for other traffic. there is huge demand up the West Coast and it is not just for passenger trains.  Our Freight Route Utilisation Strategy shows that the big growth in the future will be up the West Coast.

Route of a HSL

So, in our opinion, the route is driven by the ability to generate revenue.  And this is a function of modal shift and the ability to free up existing infrastructure for other services.  Now in discussing the viability of a HSL, it does not imply that we do not believe that further investment in additional capacity is not needed - far from it. But in terms of a HSL, going down to Bristol , Wales and the South West could not be justified.

It would appear that the biggest demand would be from a route that swings up past Birmingham , Manchester and onwards to Edinburgh and Glasgow.  This would give the biggest number of air-rail modal shift and biggest capacity relief.

Inevitably there would be cries for a route via Leeds and Newcastle , and there may well be a case - but we haven't seen the macro-economic benefits arising out of the Eddington review.  But, on the basis that Leeds has already got 93% market share of the air/rail sector and there is only around 1m air travellers from Newcastle to London, it is difficult to see how a business case could be created for these two major cities.  Improvements for these users could be derived from other enhancements schemes.

Passenger Numbers

So, using this route and making some broad assumptions about the amount of modal shift, we can estimate the likely numbers of passengers.  Using reference data, we can conclude that:

• In 2016, the annual number of passengers should be in the range 17.3m to 23.9m; and
• By 2031, these could be in the range 24.0m and 34.4m

For the purpose of today, I will use a central figure of 21.1m in 2016 and 29.7m in 2031.

Revenue

There is strong price competition in the air and travel markets likely to be served by this version of the HSL. There are two broad markets: leisure/optional journeys (where price is the key driver) and the business market (where value added service and flexibility is important).

For the purpose of this very simple analysis (and it needs to be fairly simple to see the robustness of a business case) a HSL - in my view - will never be built if we need to rely on the aggregation of lots of little societal and environmental benefits - even though these should not be belittled.

We have assumed some average fares, although we have made some crude pricing assumptions about what these would have to be to attract good modal shift.

So, applying these averages to the range of journeys, we can estimate the likely amount of revenue generated by this HSL.

In 2016, this could be £437m to £1,307m - quitea big range - and likewise by 2031, this could be up to £2bn per year. So, again, using a mid-point figure, this would be around £¾Bn in 2016 and £1.1Bn by 2031.

So, that's the revenue side of the business case, what about the costs?

Technology

This would depend on what one builds.  It would appear that we can get significant modal shift by getting journey times down to just over 2 hours. It is unclear what incremental benefits could be achieved by reducing these significantly; additional journeys may come from the frequency of journeys, but it is difficult to see how this would be significantly more.

There are two basic types of high speed rail (and some variants within these), but these are traditional high speed rail, based upon electric traction and magnetic levitation.  Conventional high speed railways, such as Shinkansen, TGV and ICE (in Germany ) are well documented, proven and easily transferable.  Maglev is, as yet, unproven in any major scale, although does have some benefits including speed characteristics - straight line speed, plus acceleration and better handling of gradients, lower operating costs and noise.

But there are some distinct disadvantages: high construction costs, inability to integrate with existing railway infrastructure - which is particularly important if we need to use existing mainline stations for connectivity and to link in with CTRL, and of course the risks of new technology.

And on the energy costs of a Maglev, we need to be very careful.  I am assured by various people that the energy costs are not that great.  As some of you may know, I am an aeronautical engineer by training, and - if I recall correctly - the vast majority of energy required to a plane flying is not used in propelling the plane forward, its keeping it in the air. And when I look at the Maglev it looks like a wingless plane flying a few inches above the ground!  So I remain suspicious of claims that the energy required to do this is minimal.

There is an industry of people looking at this technology, but we believe that, given the lengths of our journeys and the journey times that could be delivered, conventional HSL technology is the better option.

• It is well proven and understood;
• It can be linked into the CTRL network, thereby providing connectivity into Europe (which would drive additional numbers of passenger numbers).

Costs

And using existing technology also enables us to be more precise on the construction and operations costs, although recent experience still demonstrates huge variability.

• CTRL Phases 1 and 2 come out at a combined rate of around £50m per kilometre, but phase 2 is a lot of tunnels.  Phase 1 was half this rate at around £25km.
• The Far East seems to be more consistent at around £30m per km
• And in Europe , we've seem rates around £15m-£20m

I have seen claims that some high speed routes in France and Spain come out at around £8m per km, but we need to be careful that we are comparing like for like.

Clearly, there are reasons why the costs of construction may vary; land costs for the UK tend to be higher, as well as changes in environmental noise protection.

A brave estimate suggests that, given a longer construction run, with less tunnels and better construction techniques, we could get the construction price down between £15m/km~£19m/km.  And, assuming we could either use parkway stations (or existing track) to access major cities, the construction costs for this route (about 680km) could be in the range £11Bn to £14bn.  But this does depend on the route, and the route up the West Coast and into Scotland could well have terrain issues.

To run a sensible timetable, with the above journey times, 30min frequency of train departures to Glasgow, Edinburgh and Manchester and terminal times around 45-60 mins, you would probably need around 47~50 train sets.  And using the French figure of £13.9m for a TGV Duplex (double deck), this gives a fleet cost of around £650m.

And benchmarking the cost of operations and maintenance from existing operations, the running costs could be around £200m per year.

Business Case

That's a lot of numbers, but feeding all that into a simple business case, and using different discount rates of 3.5% and 5%, you can just about get a business case to stack up around the central numbers over the long term, at 3.5% discount rate (as permitted by the Treasury Green Book) then the central case is there or there-abouts, certainly enough to warrant a much more detailed analysis. There is certainly a good operating business (before you take repayment of the finance charges for the construction).

There are many other secondary benefits that need to be considered:

• Regeneration effects on regional economies;
• Released capacity at airports (or the deferral of airport extensions)
• Environmental benefits - especially CO 2 - from less aviation and road journeys

Questions?

But there are some big variables in here, and some big questions:

• Can we really get the construction costs in the range £15~19m per km?
• Can we resist the political pressure to include more stops along the journey (which add significant amount of time to the journey)?
• Or the pressure to include other major cities - Leeds, Liverpool and Newcastle - where there appears to be no real economic business case (except at the macro level) but significant extra construction costs?

Conclusion

So, there we have it: one more view on the HSL. In summary, we would say:

• We need to address the issues of capacity on the rail network. We are ok today, but the problems of the future are there for everybody to see.   This is particularly true for the West Coast.
  1. A HSL is one way of releasing capacity on the existing routes and in a way that has a good business case, achieving modal shift from air to rail will make a big contribution to the business case.
  2. If you are going to build a HSL it should be:
• Dedicated to major conurbations with a small number of stops;
  1. Based upon conventional HS technology, with speeds around 300kph
  2. Capable of integrating with CTRL and existing rail networks for access to city centres.
• The incremental benefits of speed provided by Maglev are unlikely to generate enough additional passenger revenue to justify the expected higher costs or the risks of an unproven technology.
  1. And for Network Rail, we want to be a fundamental part of this project, its relationship with the existing rail network is key, and it makes sense to have one owner and operator of all national rail infrastructures.

Thank you for listening.  I look forward to the debate continuing!